Credit Report
Your credit report is the major factor used by lenders to determine whether you are eligible for credit. There are three major credit bureaus in the United States, each of which uses its own formulas to determine your creditworthiness. In general, the better your credit score, the better terms you will be offered on loans. If your credit is less than perfect, you may wonder how you can legally fix it. Although there are no magic quick-fixes, the tips below can help ensure that your credit report is the best that it can be.
Examine Your Credit Report
Each of the three major bureaus is required by law to furnish one free
copy per year to the consumer. Order your reports online or by mail and
scrutinize them carefully. Due to the sheer volume of information processed
by each bureau, it is fairly common for errors or omissions to appear.
Additionally, negative information is supposed to fall off the report after
a number of years (typically seven, or ten for bankruptcy and judgments).
This information is not always removed in a timely fashion.
You can contact the credit bureau in writing to have errors, omissions and expired information removed from your credit report. Examining your report is also an excellent way to ensure that you have not become a victim of identity theft.
Pay Down Debt
A major factor in your overall credit score is your credit-to-debt ratio.
If your credit cards are near their limits, pay them down. Asking for
credit limit increases is not recommended, as it may improve your
credit-to-debt ratio but worsen your credit-to-income ratio. Additionally,
a credit limit increase may show up on your report as new credit, further
weakening your credit report.
Redistribute Debt
Lenders typically like to see a variety of debt types. If most of your
debt is focused in one area, such as credit cards, consider taking out a
personal loan to pay off some credit card debt and add an additional type
of credit to your report.
Pay Off Some Debts
Be very careful when paying off your debts. Creditors like to see a long
credit history on your credit report. Paying off your oldest card could
artificially shorten your credit history. Paying off newer accounts is
generally recommended, while continuing to use and make payments on the
oldest account.
Give It Time
Ultimately, there are no legal ways to significantly change a poor credit
report quickly. The tips above can improve your score by a few points,
which may be all that you need to secure the loan that you want. To
dramatically improve your credit, however, you will need to establish a
significant recent history of incurring debts and paying them consistently
on time.
