Smart Borrower Center
Tools to help you borrow better
Lenders view your credit score as a measure of your financial trustworthiness. They’re more likely to lend you money and charge you a lower rate of interest if your score is good. So, it’s in your best interest to try to build the best credit rating you can. While you can’t raise your score overnight, you can improve it if you follow these steps:
1. Establish a credit history.
In order to have the best credit rating possible, it’s important to establish a history of responsible borrowing. If you currently don’t have any credit history, you may want to consider applying for a gasoline company credit card. Not only are these usually easy to obtain, but gas cards can be a great way to charge regular small purchases each month without being tempted to overspend.
2. Pay your bills on time.
Late payments are often the single biggest factor in a low credit score. When you receive your credit card statements, utility bills and other payment notices, put them in a prominent place where you won’t forget about them. Or, better yet, to ensure they’re always paid on time, arrange to have them automatically paid each month via direct debit from your bank account. If you do this, however, take care you maintain a sufficient bank balance to cover them so you don’t end up getting hit with charges for having insufficient funds.
3. Review your credit reports.
You can request a free credit report from each of the three bureaus (Experian, Equifax and TransUnion) once a year (go to www.annualcreditreport.com), or request your free credit report and score through LendingTree®. Review your files at all three bureaus, and if you find mistakes or missing information, contact the bureau to resolve the issue. Instructions for reporting errors are on each bureau’s Web site.
4. Reduce your debt.
Sure, it’s easier said than done, but try to lower your credit card balances and lines of credit a few months before applying for a mortgage or personal loan. One of the important factors included in your credit score is the difference between the current balances and the available limits on your accounts. Try to keep the balances under 30 percent of their allowable limits.
5. Make sure lenders report your credit limits.
Here’s a tip that few people know about: Some credit card issuers do not report your credit limit to the bureaus, so your account may appear to be maxed out even when it’s not. For example, if your card balance is $1,200 and your limit is $12,000, you’re at a very healthy 10 percent ratio, but if your limit is not reported, your score won’t reflect this. Correcting the problem -- by asking credit card companies to report your limit -- may improve your score considerably.
6. Confirm your good credit history has been reported.
When you check your credit report, you may find there’s no record of a loan you successfully paid off or a credit account that you’ve kept current. If so, ask the lender to report this positive history to the credit bureaus or send a letter to the bureaus yourself, along with copies of the statements showing you’ve paid on time.
7. Don’t apply for, or cancel, accounts you don’t need.
If your credit report shows you’ve applied for a lot of different kinds of credit in a short period of time, your credit score may drop, especially if you have a short credit history or few existing accounts. (However, multiple inquiries within 14 days for home and auto loans are counted only once.) That’s why it’s usually a bad idea to sign up for cards you’re not likely to use. If you have already opened a number of accounts, however, don’t rush to cancel them. Closing accounts, especially ones you’ve held for a long time, will reduce your available credit and may shorten your credit history, which can lead to a lower score.
8. Monitor your credit regularly.
While an annual credit check is often enough, if you’re actively trying to improve your credit it’s a good idea to track it more regularly. There are many companies that offer credit monitoring services. (For example, if you apply for your credit report and score through LendingTree, you will also receive a free trial membership in LendingTree Credit Monitoring, a service that monitors all three of your credit bureau reports daily and sends you email alerts regarding any key changes.)
Published on September 17, 2007