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Toward a Better Credit Score

 

Credit scores — what advice can help you raise your scores?

Check your credit report. Request a free copy of your credit report and check it for errors. The report comprises the data used to calculate your credit score. Check to make sure there are no late payments listed in error for any of your accounts and that the amount owed for each of your open accounts is correct. If there are errors, dispute them with the credit bureau. Note that AnnualCreditReport.com is the only official site for requesting a report.

Set up payment reminders. Making credit payments on time is one of the biggest contributors to your credit score. Some banks offer payment reminders through their online banking portals, so that you receive an email or text message reminding you when a payment is due. You can enroll in automatic payments through your credit card and loan providers to have payments automatically debited from your bank account, but this will make the minimum payment only.

Reduce the amount of debt you owe. This is a satisfying achievement, but how can you do it? For starters, stop using your credit cards. With your credit report, make a list of all your accounts and then go online or check recent statements to see how much you owe on each and at what interest rate. Come up with a payment plan that puts most of your available budget for payments to the highest-interest cards first, while maintaining minimum payments on your other accounts.

Tips to fix a credit score and maintain good credit

Payment history is important and easy to manage. Just remember the following:

  • Pay bills on time. If you've missed payments, get current and stay current. Poor credit performance won't haunt you forever — its impact fades as time passes. Recent good payment patterns show up on your credit report. Good FICO scores weigh any credit problems against positive information that says you're managing your credit well.
  • Be aware that paying off a collection account (a sum turned over to a collection agency) will not remove it from your credit report right away — it stays on your report for seven years.
  • Keep track of amounts owed. Maintain low balances on any revolving credit accounts. Pay off debt rather than moving it around. Don't close unused credit cards; this strategy backfires — instead of raising scores, it lowers them. Don't open a number of new credit cards you don't need as doing so will also lower your score.
  • Consider the length of your credit history. If you've been managing credit for a short time, don't open a lot of new accounts too rapidly because they lower your average account age, which has a large effect on your scores if you don't have a lot of other credit information. Rapid account buildup can look risky if you are a new credit user.
  • Plan wisely with new credit. Open new accounts responsibly and pay them off on time to raise your score in the long term. Shop for a loan within a focused period of time. It's OK to request and check your credit report; it won't affect your score.

Fixing a credit score entails fixing errors in your credit history. Maintain consistent, good credit payments. You can raise your scores after a poor mark on your report, though it can take time. Building credit takes patience and discipline.

 

 
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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