As banks look for more ways to make safe lending decisions, they’ll continue to add new criteria that help them make better decisions. If you’re feeling like it’s hard to juggle all the different factors that go into your score, I thought I’d share a few things that are immune to the FICO credit scoring calculations.

According to the myFICO website, these factors aren’t considered when determining your score:

1) Demographics Prohibited by Law
The Equal Credit Reporting Act makes it against the law for credit bureaus to factor the following into your credit score – race, religion, gender, nationality, marital status, and age.

If I had to guess, I imagine that companies would like to be able to look at these factors.  If you analyze data based on these criteria it’s possible you could see patterns based on some of those factors. Their models are complex and involve lots of variables so it’s not like any one of these things would make or break your score, just feed into their calculations. If they were able to find information they thought was predictive of your borrowing risk I imagine they’d use them.

However, the Equal Credit Reporting Act prohibits them from using those factors.

2) Your Age
Using your age as a factor is one of the things not allowed by the Equal Credit Reporting Act but I thought it deserved a closer look. Although your age isn’t factored into your score, it can indirectly have an impact if you’re young and just getting started in life.  If you don’t have any credit history at all it will hurt your score, no matter how old you are. 

But many people that don’t have credit history are just starting off in life. So if you’re young and your credit report doesn’t show any record of you borrowing and paying back money it can hurt your credit score.  If that’s you, check out this article on how to use secured credit to build your credit history.

3) Employment Information
If someone wanted to borrow a lot of money from you what’s one of the first things you’d ask them?  You’d probably want to know how they planned to pay it back.  If they didn’t have a job, or some way to generate income, would you want to lend them the money?

Well your FICO score doesn’t look at whether you have a job, how much you make, who you work for, how long you’ve had a job, or the various places you’ve worked in the past.

However, even though it’s not part of your credit score, if you’re looking to borrow money, the lender will certainly ask you to verify your income.  So if your FICO score is amazing but you just lost your job and have no income, would they still lend to you?  I guess it depends on the situation but maybe not – which is why it’s smart to have an emergency fund.

4) Where You Live
The city and neighborhood you live in don’t have any direct impact on your credit score.  However, if you took out a mortgage to buy the property you live in then where you live has an indirect effect.  If you had to take out an enormous loan to buy your home that will show up on your credit report and lenders will take this into account when they examine your debt to income ratio.

5) Current Interest Rates
If you’re paying really high interest on a loan or credit card you may be trying to raise your credit score so you can lower your interest payments.  The good news is – the fact you’re currently paying high interest rates doesn’t impact your credit score.  However, if you open a new line of credit at a lower rate, like a balance transfer credit card, that will show up on your credit report and will affect your credit score.

6) Non Loan Application Inquiries
Your credit can be accessed for reasons other than you applying for a loan. For example, if you just want to check your credit to see where it stands, that doesn’t count against you. Here’s a list of inquires that shouldn’t impact your credit:

• Requests you make for your credit report, in order to check it
• Requests from lenders for “pre-approved” offers
• Requests from lenders for account review
• Requests from employers

7) Other
Here are the remainging items that round out the list of things that shouldn’t raise or lower your credit score:

• Child Support Payments
• Rental Agreements
• Data not on your credit report
• Credit Counseling Status

So if you’re feeling uncertain about what criteria impact your score and in what way, at least you know a few things you don’t have to worry about. You can also check out the 12 steps to improving your credit to get a mix of short term tactics you can use plus longer term strategies for raising your credit score.

Credit Score Strategy & Tactics

The best long term way to improve your credit score is to make regular timely payments and keep your balances low.  This is a good strategy regardless of whether you’re trying to raise your credit or just be smart with your money.  If you follow this approach year after year then your credit should be pretty solid.

However, there are certain factors that play a big role in your credit score and it does help to pay extra attention to them.  This is where credit score tactics come into play.  If you understand a few key things to watch out for, they can pay off nicely with an even higher credit score, we’ll go through them in a minute.

Of course, if you have bad credit and need to borrow money quickly at the lowest possible rate then the tactics can help you get somewhat of a score boost right out of the gate.

Credit Score Steps

I wrote recently about why a low credit score can be a problem and the factors you can work on to improve your credit score.  I mentioned that David Bach included a series of steps in his book that he recommends for raising your credit score.  Today I’ll finish out my look at “Debt Free for Life” by going over those steps and hopefully you’ll have a good basis for getting your credit score on track.

Why 12 Steps?

The negative to anything that takes 12 steps is that you could be overwhelmed by the idea of 12 things to do and not even start.  If that’s the case, I understand how you feel. 

The time rationing part of your brain might prioritize it to the back of the list.  You think, “12 steps – no time for that right now.  I’ll get to it when I have some free time”.  Of course the problem becomes that block of time never actually frees up.

Another way of looking at it, is that you only have to do one step at a time.  So, if it makes it easier to get started, you could call it a flexible 2 step program.  First do 1 step, then when you’re ready check the list for the next step.  Take as long as you want, keep going until the list is done.

Whatever mental approach works best for you, here are the things Bach recommends you do to raise your score.

1) Check Credit Report Errors 
Read the post on improving your credit score to see how issues with your credit report can impact your credit score and how you can correct them.

2) Automate Bill Pay 
I use online billpay to automate our payments and agree that it almost eliminates late payments.  Since your payment history is the biggest factors in determining your credit score, it makes sense to be sure your payments are sent.

3) Pay Off Missed Payments 
The bad news is that missed payments stick around on your credit history for 7 years.  The good news is that their negative impact decreases over time, so the sooner you pay off outstanding debt, the better it is for your credit score.

4) Keep Your Balance Far Below Your Credit Limit 
Bach uses the example of having a $1,000 balance on a card with a $2000 credit limit.  If your company suddenly cuts your limit in half, then you’re maxed out on your credit utilization on that card and that hurts your credit score.

5) Beware Continual Balance Transfers
Bach recommends against continually opening new balance transfer cards and moving your balance from card to card. He doesn’t explain the logic behind it but apparently having mutiple small balances on several cards is better for your credit score than consolidating all your expenses into one big one credit card balance.

6) Big Spender? Pay Off Early 
If you spend a lot on your card you can make payments before the end of your statement period to help your credit. That’s because the credit card companies report the Amount you owe to the credit bureaus at the end of your statement period.  Even if you pay off your card every month, those agencies are going to see high levels of credit utilization.  Paying off your balance a few days before your statement period helps keep the amount reported to Equifax, Experian, and TransUnion lower.

7) Don’t Close Old Accounts 
If you close old credit accounts it shortens your potential credit history and reduces the total credit available to you – both of which can be detrimental to your credit score. 

8 ) Use Old Cards Occasionally
Banks have been known to close inactive cards.  The impact of the bank closing your card is the same as if you closed the account – it has the same drawbacks that we just discussed above.

9) Show Responsibility 
This one falls under the credit score strategy I described earlier. It’s not a tactic as much as it is an approach to money.  Make sure you don’t borrow too much and pay back what you borrow on time. Only open new accounts when you need them.

10) Strategic Loan Applications
When you’re applying for a car loan or home loan, if you’re going to apply with more than one lender, do it all at once rather than spreading it out over months.  Each of those applications shows up on your credit report. Lots of those inquiries over time could indicate you’re trying to borrow money from multple places, which could mean you’re strapped for cash.  According to Bach, the FICO scoring system is setup to treat multiple loan applications in a short period of time as acceptable, to handle cases like applying with multiple lenders for a home loan.  If you spread out the applications over more than a month it could impact your credit score.

11) Limit “Hard Inquires”
When you check your own credit it shows up on your credit report as a “soft inquiry”, meaning that your credit wasn’t being checked with the purpose of lending you money.  In contrast, when you apply for a loan or line of credit, that creates a “hard inquiry” or a “hard pull” and the credit reporting agencies hold too many of these against you when calculating your credit score.  Make sure you understand the differnce between a soft and hard inquiry, and limit the hard pulls.

12) 3 in 1 Reports & Credit Monitoring
Bach thinks it’s worth your money to sign up for a 3 in 1 report that shows your credit scores from all three major credit burueas and also provides you with identity monitoring.  Based on all the things we’ve covered in the last few credit posts, he feels like your credit score is important enough that the cost of the report and monitoring is more than paid for by the benefits of knowing your score and being able to keep it an eye on it.

Improving Your Credit Score

Bach’s suggestions fall into three main types of categories: information gathering, credit tactics, and credit strategy.

Information Gathering

Information gathering are things like getting a 3 in 1 report, checking your credit report for errors, and using credit monitoring.  They let you know where you stand from a credit score perspective and help you keep an eye on your score.

Credit Tactics

Other recommendations are tactics – such as keeping old accounts open, submitting all your loan applications within a short timeframe, and paying off big balances before your statement period ends.  They’re all based on a knowledge of how your credit score is calculated and following those tips can keep you from getting negative marks that lower your credit score.

In reality they have nothing to do with the health of your finances but it’s good to know about them and make use of them to keep your score higher.

Credit Strategies

The last set of recommendations are more strategic approaches, like automating your bill pay and responsible use of credit.  These help you create long term habits that not only help your credit score, but also help your finances as a whole.

Any of these individually are good steps to take and can help you make progress towards raising your credit score.  The real benefit comes from combining all of these approaches together, do that and you can really see your credit score go up.

The following chapter of “Debt Free for Life” goes into detail about things you can do over time to improve your credit score – and as a result, pay less interest.  He starts off by covering your credit report and how it determines your credit score.

Credit Report to Credit Score

Your credit report contains identifying information about who you are, a list of all your credit accounts,  credit inquiries made on your SSN, and any collection activity like foreclosures, liens, or bankruptcies.  The role of the credit scoring agencies (Equifax, Experian, TransUnion) is to analyze all this data and use it to determine how big of a credit risk you are.

They sift through all your data with mathmatical formulas that compare the specifics of your situation to all the information, history, and assumptions they have about borrowers. The end result is a number that’s supposed to take into account everything on your credit report and define how safe, or risky, it would be to lend you money – that number is your credit score.

So basically your credit report is all the data about you and your credit score is a summary of that information that lenders use to decide whether to lend to you and at what terms.  Since all the data on your credit report helps make up your credit score, Bach’s book points out how an error on your credit report can potentially hurt your credit score.

Bad Credit Report Data

Bach cites studies that have shown a surprsingly high number of people who have errors on their report, so he suggests the first thing you should do when trying to improve your credit score is check your credit report for any errors.

The Fair Credit Reporting Act (FCRA) can help you out in two different ways.  One thing it does it require the credit bureaus to give you one free copy of your credit report each year, which you can find at annualcreditreport.com.  

Example Credit Letter

Another thing the FCRA does is require that inaccurate information on your report be corrected if you can prove that it’s wrong.

After you send in a request to a credit bureau to correct your information they have 30 days to respond back.  Another important point that Bach mentions is that you have to fix any errors separately with each different credit bureau.

His book gives you a form you can use to ask a bureau to fix your credit report and also provides the addresses where you can send your request for Equifax, Experian, and TransUnion.

Why a Good Credit Score Matters

As I mentioned the intent behind your credit score is supposed to be a standard gauge to help lenders decide whether to lend you money, how much, and at what interest rate.

What Bach brings up is that your credit score is now being used for more than just lending decisions.  I don’t have any exeperience with this but there are cases where credit scores are used when making hiring decisions and evaluating you for insurance coverage.

One example he gives in his book is that in the military, soldiers with poor credit scores could be passed up for promotion because the bad score might represent a security risk.  I don’t have any data on how widely credit scores are being used for things other than lending decisions but if it becomes more widespread then your credit score could influence more than just you borrowing money.

Should You Care About Your Credit Score?

I’ve had people complain on this site that the whole credit scoring system is out of control.  For example, they think it’s ridiculous that college students or young professionals should borrow money just to build a credit history.  The obvious fear is that you create debt, or a habit of borrowing, just so you can prove to the system you’re not a risky borrower.

I agree it does seem silly to borrow money when you don’t need to, promoting borrowing, instead of saving.  However, I don’t think it’s something that you can ignore simply because you don’t agree with the system. Everyone who wants to borrow money will be compared to millions of other people by the credit scoring models.  Good or bad, right or wrong, the credit scoring system is how lending decisions are made in the US.

The longer you don’t acknowledge it’s importance and avoid taking steps to build a credit history, the more difficult it might be to borrow money when you need it someday.  It takes time to build up a credit history so it’s better to start when you don’t actually need the money and do it gradually over the years, rather than wait until you really need the money and time isn’t on your side.

Bad Credit Scores

Halfway through the chapter on your credit score, Bach highlights the fact that last year FICO announced about 25% of US adults had credit scores below 600.

This is a big deal because a score below 600 makes it difficult for you to get approved for a credit card, car loan, or home loan.  I imagine many of the people that fell below 600 had some sort of financial complication caused by the “Great Recession” of the last few years.

The reasons he highlights the big drop in credit scores in the book is to demonstrate how your credit score can change over time.  The median credit score in the US is estimated at 720 and it could be that some of the people who dipped below 600 at one point had a score of 720 or better.

The scary thing about your credit score is that the time you most desparately need to borrow money could be when your credit score is at it’s lowest. So if you have a good credit score but then lose your job and your house and can’t pay your bills, your lenders will inform the credit bureaus and your credit score will fall.

I think the important lesson here is to think twice before depending on something like a home equity line of credit for your emergency fund.  If your financial life has a melt-down it can take that emergency fund with it, as well as your credit score.  At that point, you’ll be really glad if you saved up an emergency fund to help you get back on your feet.

Good Credit Scores

Now that we’ve covered why you have to watch out for a bad credit score, let’s look at what you need in order to have a good credit score.  FICO lists the different credit score factors on it’s website, Bach discusses each of those compenents in his book and gives example of what to consider for each.

Each factor has a different weight and the ones that make the most sense are the ones that make up the biggest portion of your score.  The top three are your payment history (35%), amounts you owe (30%), and your length of credit history (15%).  These make sense, lenders want to know what you’ve done with your loans in the past, how much you owe right now, and how much experience you’ve had with borrowing and repaying loans.

The other two factors are how much new credit you’ve opened recently (10%) and the different types of credit (10%) that you currently have.  New credit applications make sense because they want to know if you’re scrambling to borrow a bunch of money. Of course, another scenario could be that you got a much higher paying job and can afford to borrow more – something your credit score won’t tell them.

In terms of the different types of credit you use, apparently a bigger variety of credit can benefit this portion of the score.  Not only that, having only one type of credit can actually hurt your credit score.  I don’t really understand the logic behind this part of the criteria so I can’t explain why it works that way.

Negative Credit Score Factors

Bach points out some helpful research done by Liz Weston that gives insight into what actions can really hurt your FICO score. She talked FICO into giving her an estimate of how the following things impact your credit score:

• Maxing out your credit card
• Skipping a payment
• Debt settlements (ex: short sale)
• Foreclosure
• Bankruptcy

He goes into more detail about each of them and the potential number of points each could drop your credit score.

The Cost of a Bad Credit Score

Bach ends the chapter with a 12 step action plan to improve your credit but right before he digs into the action plan there’s a section on how much money your credit score can save you, or cost you, when applying for a loan.

I’ve talked before about what a good credit score is worth and how your credit score affects interest rates when applying for a home loan. The book has a table that shows an estimate of what your interest rate and monthly payment would be based on your credit score range.  According to the table a drop of 130 points in your credit score could mean an extra $300 a month in mortgage payments.

If nothing else, that kind of savings should be a good motivator to do what you can to improve your credit score.  If this article left you with any questions about your credit score, please ask them in the comments below. Next time I’ll go over Bach’s action plan for fixing your credit.

myFICO & Your Score

You probably already know that your FICO score is the credit score that many lenders — and even some insurance agents and employers — use to determine what sort of financial risk you represent. Variations of the FICO score are used in a number of ways to determine approval and rates for your mortgage, car loans, and credit cards.  However, the FICO score is used by 90% of the largest banks and 100 of the top 100 U.S. credit card issuers so it’s the heavy hitter when it comes to credit scores.

myFICO Standard

At the most basic level you get your FICO score, plus receive an explanation about what it means and an idea of how lenders view you.

You can choose to see your FICO score from either TransUnion or Equifax, Experian no longer participates.  FICO standard also includes a credit report from TransUnion or Equifax, whichever FICO score you choose – your score will likely vary somewhat across credit bureaus.

The FICO Standard score and report is $19.95, but as mentioned earlier you can see your credit score and credit report at no charge if you sign up for a free trial of ScoreWatch.

myFICO ScoreWatch

ScoreWatch allows you to get two FICO scores and two credit reports from Equifax each year, and it keeps tabs on changes to your credit score.

If you’re looking for the trending of your FICO score rather than just a snapshot then Scorewatch can be useful.  For example, if you’re trying to improve your credit score and want to see progress, ScoreWatch gives you a graph of your score over time as well as regular updates:

• Monitors Equifax credit report daily & FICO score weekly
• Target credit score notifications
• Notifications when you qualify for a better interest rate
• FICO score drop alerts due to changes in your credit report

Check out ScoreWatch

FICO Quarterly Monitoring

If you’re not actively tracking your credit score but want to check in on it a few times a year, FICO Quarterly monitoring can help you keep tabs on your score.  

As you may know you’re able to get a free credit report every year from each credit bureau from annualcreditreport.com.  This service uses TransUnion and makes your credit report and credit score available every quarter.  The one extra credit report you get from the myFICO service is nice but you might not really feel like you need it.  The main benefit of this service is that you get your credit score in addition to your credit report.

So every three months you receive a score and report, and an explanation of the positive and negative items affecting your score. You can identify problem accounts, as well as look for ways to improve your credit situation. The Quarterly Monitoring service will also alert you to changes in your credit score.

In the event that the change was due to identity theft, myFICO’s Quarterly Monitoring also provides identity theft insurance for up to $25,000 and a hotline to help you file id theft reports and complaints.

Suze Orman’s FICO Kit

While ScoreWatch and Quarterly Monitoring are setup to keep track of your credit score over time, the Suze Orman FICO kit is designed to walk you through the steps to help improve your credit.  Created along with personal finance author Suze Orman, there’s more coaching and what-if analysis in the FICO kit.

Suze Orman’s FICO Kit gives you three credit reports and scores a year. The kit also includes the FICO Kit Action Planner that helps you take the information in your credit report and plan out steps to improve your score.

You can tailor the tool to your personal situation with their tools like the debt eliminator, bill pay reminders, and online coaching to help you get a car loan or home loan are included. You can also use the FICO Simulator, which allows you to estimate the effect certain changes would have your score.

You can use this myFICO promo code to get a discount on the FICO kit – SUZEFKP

Credit Scores Affect Interest Rates

I saw this first hand last week when I was pre approved for a home loan by a local bank. When the mortgage officer pulled our credit report I expected my credit score to be around 750 so I was pleasantly surprised when it was over 800.  They ran a credit check with each major credit bureau (Equifax, Experian, and TransUnion) and picked the middle score, which put me above 800.

Many lenders use a tiered pricing approach where you get the best interest rates when you have a high credit score, maybe 770 and above, but the rate you pay to borrow goes up as your credit score goes down.  Since I was over 800, instead of 750 where I had projected, that put us into the best interest rate tier.

Checking Your Credit

Fortunately for me, it was a good surprise but to avoid any bad surprises you might want to get your free credit report before you start applying for pre approval so you know if you need to do anything to fix your credit first.

The online credit report from Annual Credit Report won’t tell you your score but it does give you a chance to look at the details behind what could be giving you a poor credit rating.  If you want to check your credit score so you know where you stand there are a few different options. 

• Sites like Credit Karma will show you a version of your credit score online, it’s not your fico score but it can give you a rough idea.
• myFICO has a credit score estimator that asks you a series of questions and based on your answers estimates what your credit score will be.
• Experian offers a $1 credit report and credit score that converts into monthly credit monitoring after the 7 day trial at FreeCreditReport.
• Equifax gives you your credit score and a credit score report for $12 with ScoreWatch.

If after you view your credit report you aren’t where you need to be for a good interest rate there are things you can do to improve your credit score and rebuild your credit.  Of course it takes time for the credit reporting agencies to pick up your changes, lenders typically don’t report payments to them more than once a month.

Credit Scores & Home Loans

As I mentioned above, a good credit score can qualify you for a lower interest rate; on a big loan like a mortgage that lower rate can save you thousands of dollars.

Your credit score can also have an impact on what price home you’re able to afford.  One of the scoring factors that lenders look at is your Loan to Value ratio or LTV.  This ratio shows the relationship between the dollar amount you’re borrowing and the value of real estate you’re buying.  The higher the ratio, the more risk the bank is taking to lend you the money.

For example, if you want to buy a house appraised at $120,000 and need to borrow $110,000 (an LTV of 91.6%) that means you’re only putting down a $10,000 down payment.  On the other hand, if you had an LTV of 75% that would mean you put down $30,000 and the bank takes less risk.

Your credit score matters because banks are more likely to approve a loan with a higher LTV ratio if you have good credit.  If you don’t have much money for a down payment and you have a bad credit score, the bank might only approve a smaller loan, which means you’ll have to find a lower priced house.

One thing to keep in mind is that look at factors other than credit score, another big one is your debt to income ratio or DTI.  Your DTI is a measure of your monthly debt payments (student loans, mortgages, car loans, credit card debt) compared to your monthly income. 

Fixing Your Credit Score

There are a variety of steps you can take to fix your credit but it’s difficult to know what improvements each action will make to your overall score.  If you want to do some “what-if” analysis, myFICO has a credit score simulator that lets you enter a variety of scenarios such as on time bill payment, paying down credit card balances, opening credit lines, and missing payments to see how they might affect your credit score.

I had a few follow up questions come in about credit reports and credit scores so today I’ll talk more about how your credit can affect your life after college and what you can do about it.

Renting an Apartment

As you’re out looking for an affordable apartment be aware that many landlords will run a credit check before deciding whether to rent to you or not.  Having bad credit or no credit history could lead them to decide not to rent to you at all or charge you a huge deposit to cover several months rent.  If this applies to you and you can talk your parents into co-signing on the lease then the landlord may agree to let you move in.

Buying a House

One of the first things a bank will do when you’re applying for a home loan is to check your credit report.  A poor credit score might mean they won’t lend to you; and even if they will it probably means that you’ll pay a higher interest rate on the money you do borrow.

When my wife and I tried to get a mortgage pre approval when buying a house right out of college, she had no credit history at all and I had great credit.  The interest rates they offered were higher than what I qualified alone for so we ended up applying for the loan only in my name to get a better rate.

Getting Insurance

You might not realize it but your credit history can affect your insurance rates.  The worse your credit, the more you might have to pay for car insurance.  As we talked about yesterday, people in your age group typically have to pay higher rates anyhow, you certainly don’t want to raise them even more.

Credit Reports & Scores

The first step is to learn about the various credit agencies and types of credit scores, such as your fico score.  If you don’t know where you stand, there are several ways you can get a free credit report; I just got my Experian report for free through my American Express card.

Fixing Your Credit

If you find anything incorrect in your credit history, here are some tips on how you can dispute your credit report and have it corrected.  Then take a look at these 5 steps to improving your credit score.

Another option the above article doesn’t discuss is to get a secured credit card.  This takes the risk off the lender and lets you open a credit line that you can use to start building up your credit history.  Of course you have to be smart with your card, here are some college grad credit card tips for picking the right card and using it wisely.

If you haven’t already, you’ll also want to start an emergency fund after college so that when you’re hit with an unexpected expense you don’t have to take on more credit card debt to pay it off.

Today we looked at why having good credit is important and some things you can do to get yours where it needs to be.  Don’t put it off, get started today.  Good luck!

American Express partnered with Experian to offer the credit reports so you don’t have access to your Equifax and Transunion reports but just getting the Experian one for free was nice.

Credit Report Access

As I mentioned above, you have to login to your American Express account first to get the offer and then you’re taken to the Experian Direct website where you enter in the standard information needed for a credit report: name, adddress, email, social security number, phone number, and your year of birth.

Once you’ve submitted that info you create a login so you can come back later and access your credit report.  Then you have to agree to the terms and conditions of the offer, I read through them to make sure there was no fee for the report and here’s a summary of what I read.

Credit Report Terms & Conditions

The free credit report is available for 30 days and you can’t enroll more than once in a 12 month period. Experian is the credit reporting agency providing the PLUS credit score and you’re giving them permission under the Federal Credit Reporting Act (FCRA) to obtain the information from your personal credit profile.  Then they include some (FCRA) disclosures and let you know you can dispute the information in your credit report if you don’t think it’s accurate.

Then the last step is answering two challenge questions to verify your identity, mine were about a street I used to live on and an auto loan from a few years back.  Then you’re taken to your credit report, you can see the different sections pictured below.

Don’t Pay Your Bills Late

Your payment history is the most heavily weighted factor that goes into your credit score so make sure you’re at least making your minimum payments.  If those are more than you can afford sometimes the companies you owe money to are willing to put you on an extended payment plan.

Maintain Low Credit Card Balances

The next most important factor making up your credit score is the percentage of your available credit that you borrow.  If you’re constantly using up over 30% or 40% of your credit available you will be deemed a higher risk.

Build Credit History

The average age of your credit accounts is the next biggest component of your credit score.  If you add a bunch of new credit and cancel old cards this will drag down the average age of your credit accounts and your credit score along with it.

Use a Mix of Debt

This matters because companies look at the different types of debt that you have and weigh some more heavily than others.  For example, your credit card debt carries more weight than your mortgage or car loan.

Reduce New Credit Lines

Credit reporting agencies Experian, Equifax, and TransUnion monitor for attempts to open new lines of credit.  Each time a lender does a hard pull on your credit report that credit inquiry is noted and the more you have the worse an effect it can have on your credit score.

1) Start off by getting a copy of your free credit report and looking for any errors.

2) If you find anything, check to see if the mistake shows up on your reports from other credit bureaus. You will need to file separate disputes with each credit bureau that shows the mistake.

3) Go to each bureau’s Web site for instructions on how to file a dispute, what happens after the bureau receives a dispute, and what actions to take if you think your identity has been stolen:

• Equifax
• Experian
• TransUnion

4) Clearly identify each error in the report and explain why you think the information is wrong.
Keep detailed records of what corrections you requested, along with copies of supporting documentation.

5) Don’t send any original documents if you submit your dispute in the mail; make photocopies and send those instead. 

6) Keep a record of when and how you contacted each credit bureau, noting any follow-up phone calls and the names of the people with whom you spoke. In case the correction isn’t resolved smoothly, these records and notes will come in handy.

7) If you find any evidence of identity theft, such as an open account that you know you never opened, make sure to follow the credit bureau’s instructions for reporting identity theft.

The credit bureau should respond to your dispute in writing within four to six weeks. If the bureau agrees with you, the bureau will correct the mistake. If there is a dispute over the corrections you’ve requested, or if you think that someone has stolen your identity and is using your credit, be prepared for a long period of back-and-forth communication with the credit bureau and your creditors.

The burden of proof lies with the bureau, if it can’t prove that the information in question is correct then it has to delete it. However the process of resolving a dispute or unraveling a case of identity theft can be complex and lengthy. Good luck!