If you want the best loan, make sure your score is the best it can be. When a person is applying for a home loan or auto insurance and the first thing your lender is going to do is to check on your "grade." Your "grade," of course, is your credit score.
It is that three-digit number that measures the likelihood you will repay what you owe. How your credit score is calculated is based largely on the information found in your credit report.
Get your Credit Report
And that is why the first step in improving credit score is to get a hold of your credit report from all three major credit bureaus - Equifax, Experian, and TransUnion. Note, however, that your reports must come from all three bureaus.
A credit report wouldn't be any good to you when improving credit score if it only comes from one credit bureau. That's because there may be errors found in your report from one credit bureau that you might not see in reports from the other two. So for comparison purposes, get your credit reports from all three credit bureaus.
Check for Any Errors or Mistakes in Credit Report
Once you have all three credit reports with you, the next step in improving credit score is to review them for any errors and mistakes. See if there are any line items there you are not aware of or credit accounts that you don't remember opening. Reporting any mistakes or errors to the credit bureaus immediately after you find them is vital to improving credit scores.
Under the law, credit bureaus are obliged to conduct an investigation every time they receive a complaint about any errors or mistakes in the credit reports they released. Within thirty days, they are supposed to inform you about the outcome of their investigation and strike the errors from your credit report.
If you find no errors in your credit report however and your score still doesn't look too good, there are other ways of improving credit score.
Your Payment History
This includes all payment transaction within three months. Frankly repayment (plus interest of course) is the bread and butter of lenders and creditors, even with the presence of security. So timely payments always results in improving your credit score, in fact payments have the biggest percentage (35%) in the actual credit score computation.
Generally, lenders won't consider a missed payment once in a while since even the most dedicated borrower inadvertently misses payments once in a while.
But missing payments for a consecutive of three can get the impression that the consumer won't be repaying the loan ever again so there would be a decrease in the credit score. And since payment history is 35% of the credit score, expect a huge decrease.
Reduce debts.
Another important step to improving credit score is to reduce your credit card balances. Your existing credit card debts are a heavily weighted factor in calculating your credit score so lowering them down or keeping them at a minimum will help you in improving credit score.
Using the Credit
As a general rule, financial advisors always say that the best credit practice is maintaining a credit balance of 25%. Though lenders openly agree, they also want the credit to be used so that more interest does pile in.
Funny thing though that they would consider that having maximized the credit line can spoil your credit score. So, for improving your credit score, try maintaining a 25% credit balance or even just a below 50% credit balance.
The Presence (or Absence) of Credit Accounts
Having a number of accounts especially if those accounts have been existing for some time have ways in improving your credit score. The accounts can generally give a more accurate condition of your paying ability.
In effect the absence of credit accounts will be a bad mark on your credit score. Say you are new to the credit account area so there's no data to be assessed. Lenders will generally make you a credit risk therefore you are awarded a smaller loan with a high interest rate plus a shorter term.
Likewise, a couple too much credit accounts even if you are doing well on all of them will be a bad credit score mark. Lenders will worry that you are spending beyond your means therefore they will see an eminent dark spot on you and will be faster to withdraw their deal than you can convince them.
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