Maintaining a positive credit record takes effort and poor credit can make life absolutely miserable. Your credit score determines if you receive loans, lines of credit or credit cards and creditors use the information to make a determination of your credit worthiness. Each of the three major credit bureaus utilize a scoring system to rate your payment history and financial responsibility. Keeping a good credit score requires diligence and a poor score is an indicator that past financial management strategies will continue. You can request a free annual credit report and some offers include a free annual credit score.
How Can You Get a Free Annual Credit Score?
There are multiple companies that offer a free annual credit score online. The concern with signing up is that the “free” score may actually be part of a subscription service. For example, you can sign up to receive each of your three scores. Once you complete the application and your identity is verified, you have instant access to the scores. Despite this, the service may convert to a paid subscription in a month or less, which many companies call a credit monitoring service.
In addition to seeking your free annual credit score, you should also retrieve a free annual credit report. The Fair Credit Reporting Act requires that the three major credit bureaus — Equifax, Experian and TransUnion — offer consumers a free report upon request every twelve months. This requirement also applies when a consumer is refused credit by a lender. For example, if you apply for a credit card and Experian furnishes information that contributes to a decision to decline your request, Experian is required by law to furnish you a free copy of your report. You must make a request for the free report within sixty days.
Why Should I Monitor My Credit Reports and Scores?
The most common scoring systems is called FICO, developed by the Fair Isaac Corporation. The FICO score is calculated using information from your credit report. Scores range between 300 and 850. Following are the factors that affect your score:
* Payment history (35%)
* Credit utilization (30%)
* Length of credit history (15%)
* Recent credit inquiries (10%)
* Types of credit (10%)
Each of the three credit bureaus may report different credit scores. This results from bureaus containing different information about your credit history. For example, if you have an account in collections, it may not appear on each report.
Your credit scores provide information about your spending habits and financial health to lenders and creditors. Consequently, monitoring the information will help you prevent dips in your scores and maintain a healthy financial profile.
Following is an illustration of what creditors consider poor, fair or good credit:
* 300-499: Very poor credit score
* 500-619: Poor to low credit score
* 620-679: Average credit score
* 680-699: Good credit score
* 700-850: Excellent credit score
How Can I Improve My Credit?
Improving your credit takes time, diligence and a sound budget. Everyone’s situation is different, but there are a few things you can do to repair and rebuild your credit history. Getting your free annual credit score and reports is the first step. You should also understand your rights under the Fair Credit Reporting Act. The credit bureaus report derogatory information for a specific period of time. For collections, they report for seven years. Bankruptcies are reported for 10 years. Positive credit information is reported indefinitely.
Following are a few steps you can take to begin repairing your credit:
* Collection accounts: If you have a number of collections, the morally sound thing to do is pay them off. You can contact each creditor and make payment arrangements to begin the process.
* Credit inquiries: Do not attempt to receive new credit. The inquiries will remain on your report for two years and can cause a drop in your score. In addition, creditors will see that you have shopped around and may assume you are desperate for credit.
* Dispute incorrect information: If your report lists names, addresses or incorrect derogatory items, file a dispute with the bureau. The bureau has thirty days to resolve the dispute and either delete the information or confirm that it is correct.
* Pay your current bills on time. If you have credit cards or other accounts, including utilities, make sure you pay those bills timely each month.
* Create a budget and stick to it. Budgeting may seem like a bore, but it’s the only way to gain control of your financial situation. Budget for your necessities and then set aside money to pay down your debts.
What Do I Do After I Pay My Debts?
Once you have paid everything on our credit report, you can begin the process of rebuilding. Shop around for a secured credit card that offers a good deal. Secured cards allow you to deposit money that is equal to your credit limit. For example, if you deposit $200.00, your credit limit is $200.00. Select a secured card that reports payments to each of the credit bureaus.
Keep in mind that credit utilization plays a role in your credit score. Try to keep your utilization between 10% and 15%. Pay your bill on time each month and you will begin to see your credit score increase.
How Can I Keep Good Credit?
Keeping your credit scores in a healthy range can be tough. Make sure you keep your debt load low. Set a score goal, such as 720, and begin by paying your monthly obligations on time each month. In addition, try to get your credit scores on a regular basis. Consistently monitoring your credit reports and scores will alert you to any trouble. Select a mix of credit types, such as a credit card and installment loan, to prove to lenders that you can manage your financial situation. Make sure you debt-to-income ratio stays within a balanced range, as this also plays a significant role in your scores.
Monitoring your credit is essential to keeping a healthy financial profile. Managing your scores and reports requires diligence and effort. The free annual credit score and reports can help you keep an eye on this important part of your finances.