7 Commandments to Rebuild Credit Score

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A low credit score doesn’t typically happened over night but often is a result of bad choices over a matter of time. It declines just as your weight creeps up – from neglect. And if you’re not watchful, it goes unnoticed until a credit or loan application is denied.

What’s a good credit score?

The median credit score for Americans is 723 out of a perfect one of 850. Any score above 720 will be rewarded with the best interest rates. And while there’s no universal number that warrants rejection, millions of people in the U.S. have a score of less than 620 that make it more difficult to secure the loans you may need. The difference in interest can be as much as 6 percent between an excellent and a poor credit score. This is why it is so important to raise a low score.

While the algorithms used to calculate credit scores aren’t made public, there are factors that we know that can be influenced by the actions of the individual. If you find yourself in the predicament of a score so low that it’s hurting your chances for the better things in life, like a new car or home, or simply want to increase your score to get better interest rates, the following ten tips can help in rebuilding your score.

First: Know Your Starting Score – The only way to measure the success of any effort is to know the starting point. Request the two scores available to consumers at myFICO.com and calculate the average. Use this figure as a comparison when you review your score to see how well you’re doing in rebuilding your score.

Second: Review your Credit Reports – Your credit scores are calculated based on the information in your credit reports, so discrepancies on your reports can really cost you by implying poor financial management skills. Review your reports from the three credit bureaus and file a dispute on any false information to have it removed. Follow up to make sure the errors have been removed. Things to look for:

• Late payments, charge-offs, collections or other items that aren’t yours. • Credit limits reported as lower than they actually are. • Inaccurate accounts listed as settled, paid derogatory, paid charge-off. • Accounts that are still listed as unpaid that had been included in a bankruptcy.

• Negative entries more than seven years old (10 for bankruptcy) that should have been removed.

Three: Make all Payments on Time – If you inadvertently make a late payment, contact the lender and ask if the mishap can be withheld from your credit report. One missed or late payment can result in a credit score drop of 100 points or more.

Four: Pay Down Revolving Credit – While paying off all your installment loans is admirable, the biggest rewards to your credit score will come from lowering or paying off the balance on your credit cards. Though most financial experts recommend paying off the highest interest rate card first, a better strategy is to pay down the card that is closest to the limit.

Five: Keep Balances Low – Having a minimum of 70% of your allowable balance in reserve is key to a healthy credit score. This applies to all forms of credit. So add up the credit limits and current balances of all accounts to see where you stand. If you’re having trouble keeping track, check with your credit card company to see if they offer a service that will alert you when you’re approaching a specific limit you define.

Six: Apply for a New Credit Accounts – This tip may seem counterproductive but the more available (unused) credit you have the better. Don’t fall for the myth that you have to carry a balance to have a good score; however, keep your accounts active by using them for small purchases at least once per year. Your credit score will benefit from a variety of loan types – mortgage, car loan, personal or student loan. Be sure that any loan you have will be reported to all three credit reporting agencies.

Seven: Use Your Older Cards – Closing an older account won’t help your scores but may hurt them. If your goal is boosting your scores, leave these alone. Unused cards may be closed by the issuer or no longer updated to the credit bureaus, a great loss to your credit score. Keep your older cards active by using them on occasion or for recurring bills.

Those most desperate for improvement will be the ones that see the biggest improvements using these tips. If your score is above the 700 mark, you will see little obvious results, but putting these suggestions in place will help ensure that your score remains at a good level. If you have a long way to go, these tweaks will result in an observable climb.

Noreen Ruth writes for Asapcreditcard.com and several other popular finance websites. She is interested in educating consumers about using credit responsibly and about legislative action that will affect their ability to borrow the money they need. She has contributed hundreds of articles to various online sites that provide content to educate consumers on credit cards, debt relief services, loans and other finance related topics.