The process of improving your credit score, is a marathon and not a sprint, but improving your score is worth the effort. A poor credit score can potentially cost you tens of thousands of dollars over the course of a lifetime. It can also become a source of serious stress, making you feel like you just can’t leave the mistakes of the past behind and move on. Luckily, you’re not alone. Plenty of people struggle to improve their credit scores and there are numerous ways to build good credit, and reap the rewards that come with having a good credit score.
The first step to improving your credit score is checking your credit reports. Everyone has three credit reports — one from each of the 3 major credit bureaus Experian, Equifax and TransUnion. Credit reports can, and often do, have mistakes on them. A 2012 study from the Federal Trade Commission found that 1 in 5 consumers had an error on at least one of their credit reports, and a follow-up study in 2015 found that those who reported an unresolved error on one of their reports believe that at least one piece of disputed information is still inaccurate. Since your credit scores are based on the data in your credit reports, it’s incredibly important to make sure all of that information is accurate. If you have a mistake on your credit report, your credit score will reflect that mistake.
It’s easy to check your credit reports from each of the three major credit reporting agencies. You’re entitled to a free copy, once a year, of all three of your credit reports under the Fair Credit Reporting Act. These reports can be accessed via AnnualCreditReport.com, the government-mandated site run by the major bureaus.
Most credit scores – including the FICO score – operate within the range of 300 to 850. The credit tiers generally look like this:
Excellent Credit: 750+
Good Credit: 700-749
Fair Credit: 650-699
Poor Credit: 600-649
Bad Credit: below 600
Once you have your credit reports in hand, here’s a quick checklist of questions to ask yourself to help you spot potential errors:
• Is all of your personal information accurate? (That can include your Social Security number, birth date, full name and address.)
• Are all of your credit accounts being reported?
• Are there any late or missed payments listed that you remember making on time?
• Are there any accounts or applications for credit you don’t recognize?
• Are there any items from decades ago still appearing on your report?
It helps to go through your credit reports with a highlighter and pick out any and all inconsistencies. Keep in mind that a credit report from one bureau may have an error, while another may not. That’s why it’s so important to check all three of your credit reports for inaccuracies. You may find none, a few or perhaps many errors on your reports. That’s where the next step to improving your credit comes in.
If you find an error on all three credit reports, you’ll have to dispute it separately with each credit bureau, as they’re run separately from one another. You’ll also have to file a separate dispute for each error you find. You can dispute these errors on your own for free, or you could consider hiring a reputable credit repair company to help.
Pinpoint What You Need to Improve Simply by having an error on your credit report doesn’t necessarily mean it’s causing your bad credit. For example, if a misspelled version of your name appears in the personal information section of your credit report, that error probably isn’t causing your credit score to dip.
Other errors, like those listed in the previous section, could be to blame — and there are a number of possible reasons why those errors are there. Here are a few examples:
• Your identity has been stolen and a thief is abusing your credit.
• A collection account from years ago is still being reported, even though it’s past the statute of limitations in your state.
• A bill your ex was supposed to pay (per your divorce) has gone unpaid for a while, and now you’re suffering the consequences.
• You defaulted on one loan, and now it’s showing up as multiple defaults on your credit report because it’s been sold to debt collectors.
• Your credit information has been mixed with that of someone else who has a similar name (and went through a foreclosure recently).
If your credit report is accurate, but you still have a bad credit score, it’s important to understand why. Here are the major credit scoring factors and how each one can impact your credit score:
• Payment History: If you have a history of making late payments, creditors see you as a bigger risk, and this factor has the greatest effect on your bad credit score.
• Amount of Debt: Debt contributes 30% to a FICO Score’s calculation and can be easier to clean up than payment histor
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