Thursday, September 18, 2008
Credit Score Do's and Don'ts
Credit score do’s and don’ts
Credit scores impact our lives in ways most of us never realize. It forms the basis for rates on home owners and auto insurance, loan repayments and even customer service categories (I am not sure what that might be).
The basis for credit scores are generally not revealed to the public for a number of reasons, mostly, because they do not want consumers modifying their behavior to conform to an assessment category. But there are some things one can do to help. Below, I have paraphrased the work of excellent writer, Liz Weston at MSN Money. You can find her complete article right here. In this article she tells all of the issues that you might want to consider for helping to get your credit score up to the best possible level.
"Now you're ready to take the seven steps to speedy credit repair:
1) Pay down your credit cards. Paying off your installment loans (mortgage, auto, student, etc.) can help your score, but typically not as dramatically as paying down -- or paying off -- revolving accounts like credit cards.
The credit-scoring formulas like to see a nice, big gap between the amount of credit you're using and your available credit limits. Getting your balances below 30% of the credit limit on each card can really help.
2) Use your cards lightly. Racking up big balances can hurt your score, regardless of whether you pay your bill in full each month.
What's typically reported to the credit bureaus, and thus calculated into your score, is the balance reported on your last statement. (That doesn't mean paying off your balances each month isn't financially smart -- it is -- just that the credit score doesn't care.) You typically can increase your score by limiting your charges to 30% or less of a card's limit.
3) Check your limits. Your score might be artificially depressed if your lender is showing a lower limit than you've actually got. Most credit-card issuers will quickly update this information if you ask.
4) Dust off an old card. The older your credit history, the better. But if you stop using your oldest cards, the issuers may stop updating those accounts at the credit bureaus. The accounts will still appear, but they won't be given as much weight in the credit-scoring formula as your active accounts, said Craig Watts, an executive at Fair Isaac & Co., one of the leading credit scorers.
5) Get some goodwill. If you've been a good customer, a lender might agree to simply erase that one late payment from your credit history. You usually have to make the request in writing, and your chances for a "goodwill adjustment" improve the better your record with the company (and the better your credit in general). But it can't hurt to ask.
6) Dispute old negatives. Say that fight with your phone company over an unfair bill a few years ago resulted in a collections account. You can continue protesting that the charge was unjust, or you can try disputing the account with the credit bureaus as "not mine." The older and smaller a collection account, the more likely the collection agency won't bother to verify it when the credit bureau investigates your dispute.
7) Blitz significant errors. Your credit score is calculated based on the information in your credit report, so certain errors there can really cost you. Here's the stuff that's usually worth the effort of correcting with the bureaus:
Late payments, charge-offs, collections or other negative items that aren't yours.
Credit limits reported as lower than they actually are.
Accounts listed as "settled," "paid derogatory," "paid charge-off" or anything other than "current" or "paid as agreed" if you paid on time and in full.
Accounts that are still listed as unpaid that were included in a bankruptcy.
Negative items older than seven years (10 in the case of bankruptcy) that should have automatically fallen off your report.
You actually have to be a bit careful with this last one, because sometimes scores actually go down when bad items fall off your report. It's a quirk in the FICO credit-scoring software, and the potential effect of eliminating old negative items is difficult to predict in advance.
Some of the stuff that you typically shouldn't worry about includes:
Various misspellings of your name.
Outdated or incorrect address information.
An old employer listed as current.
If the misspelled name or incorrect address is because of identity theft or because your file has been mixed with someone else's, that should be obvious when you look at your accounts. You'll see delinquencies or accounts that aren't yours and should report that immediately. However, if it's just a goof by the credit bureau or one of the companies reporting to it, it's usually not much to sweat about.
Two more items you don't need to correct:
Accounts you closed listed as being open.
Accounts you closed that don't say "closed by consumer."
Closing accounts can't help your score, and may hurt it. If your goal is boosting your score, leave these alone. Once an account has been closed, though, it doesn't matter to the scoring formulas who did it -- you or the lender. If you messed up the account, it will be obvious from the late payments and other derogatory information included in the file.
4 other credit mistakes
actions to beware when you're trying to improve your score:
Asking a creditor to lower your credit limits. This will reduce that all-important gap between your balances and your available credit, which could hurt your score. If a lender asks you to close an account or get a limit lowered as a condition for getting a loan, you might have to do it -- but don't do so without being asked.
Making a late payment. The irony here is that a late or missed payment will hurt a good score more than a bad one, dropping a 700-plus score by 100 points or more. If you've already got a string of negative items on your credit report, one more won't have a big impact, but it's still something you want to avoid if you're trying to improve your score.
Consolidating your accounts. Applying for a new account can ding your score. So, too, can transferring balances from a high-limit card to a lower-limit one, or concentrating all or most of your credit-card balances onto a single card. In general, it's better to have smaller balances on a few cards than a big balance on one.
Applying for new credit if you've already got plenty. On the other hand, applying for and getting an installment loan can help your score if you don't have any installment accounts, or you're trying to recover from a credit disaster like bankruptcy. "