Today, having a good credit report and score is a necessity. Below are some methods for establishing or reestablishing positive credit, so that when it comes time to apply for a job or establish a utility account, you can provide your credit information without fear or being denied or being asked to pay large fees. 

First a bit about credit reports and scores

A credit score is a number used to help lenders identify the credit risk associated with lending you money and there are a variety of scoring methods used to determine an individual’s score.  There is the FICO Score, the Vantage Score, Equifax’s ScorePower, and Experian’s Scorex PLUS.  Additionally, some large lenders have developed their own scoring models.

You can get a free copy of your credit reports one time per year at www.annualcreditreport.com however, to receive the credit score there is a nominal fee.  This is the only site where you can receive a truly free copy of your credit report.

No credit score

It is hard to believe that some people do not have a credit score, yet it’s true.   This occurs when there is no data or a lack of data for the credit scoring methods to calculate. 

Adults that have never used credit and young people just starting out may find that it is difficult to get credit or a loan.  This is because without that information, lenders do not know if you are a good credit risk or if you will make your payments on time.   Follow these tips to begin your positive credit history:

1. Apply for a secured credit card through your bank.  A secured card requires that you put money down to secure the credit card. This makes it less risky for the lender because they know if you do not pay, they will get their money. 
2. Ask someone with a good credit history to co-sign for you.  A co-signer becomes liable for the debt in the event you do not make the payment. 
3. Once you get credit, be certain to make your payments on time, every time. 
4. On credit cards, avoid charging more than thirty percent of the limit.  For example, if the limit is $300 avoid using more than $100.
5. Avoid opening multiple credit card accounts.  Build your credit slowly and methodically.
6. Remember that you are building your history, the longer you keep an account the better. 

Low credit score

Low credit scores may be caused by a number of factors such as a short period of time using credit, late payments, too much credit, collection accounts and bankruptcy.  If you find that you have a low credit score, you are not alone.  Turn your focus to improving your credit score by following these tips;

1. Dispute any invalid or incorrect information in your credit profile.
2. Pay all existing credit accounts on time, every time.
3. For bills you have fallen behind on, get current and stay current.
4. Focus on paying down debt and credit card balances.  Avoid using more than thirty percent of any revolving credit balances. 
5.  Avoid opening new accounts in order to transfer existing balances.
6. Keep accounts with a long, positive credit history open.

It takes about six months to begin establishing credit and two years to see significant changes in a negative credit report and score. On the other hand, it can take one late payment to undo the positive credit you have established. Keep track of what is on your credit by checking it annually at www.annual creditreport.com.  Your future job, home or auto insurance rate depends on it.

1. Your credit report. Visit annualcreditreport.com and request your free credit report from each one of the major credit reporting agencies; Experian, Equifax and TransUnion.
2. Analyze your auto insurance coverage to make sure you are getting the best deal and that you are adequately covered.
3. Check your savings and investment accounts. Make sure you are taking full advantage of employer matched savings programs and check the diversity of your investment portfolio. If you need help with investments, talk to a certified financial advisor.
4. Determine your net worth. Make a list of the value of all of your assets and the amount of your liabilities. Then subtract your liabilities from the assets. If the number is negative, you owe more than the value of your assets. If part of your debt is unsecured look for ways to reduce it or eliminate it as soon as possible. Every dollar that goes to repaying interest on unsecured debts, like credit cards, is a dollar you cannot use for securing your financial future, buying a home or meeting your personal financial goals. Certified Credit Counselors can help you determine your net worth and develop plans for managing your debt. Visit the Association for Independent Consumer Credit Counseling Agencies at www.aiccca.org to find a counselor.
5. Once you know the worth of your belongings and investments, determine the level of home or renters insurance you may need.
6. Finally, evaluate your need for life insurance.  MSN Money has a great calculator you can use to determine how much life insurance would be necessary if something happened to you.

The above is just a bare bones list of items you should evaluate on, at minimum, an annual basis. By reviewing these critical areas you will have the information you need to create a plan for your financial success!

1. Open a checking and savings account at a bank or credit union, manage your accounts carefully and never bounce checks. This is the initial step to take to start proving your credit worthiness.
    
2. Get a copy of your credit report from all three of the major credit bureaus once per year and check the accuracy of your reports. If you find discrepancies, follow the directions on the report and dispute them with the credit bureau. There may be inaccuracies on your credit reports and it is up to you to monitor them. You are entitled to one free copy of your report from each bureau once per year. Go to www.annualcreditreport.com or call 1-877-322-8228.
    
3. Pay all of your bills on time, every time. Your payment history accounts for 35% of your credit score and it only takes one missed payment to hurt your score. Set up automatic payments when possible and keep a calendar of due dates and a payment reminder system.
    
4. On your revolving accounts (credit cards) keep the balance you owe under 30% of your credit limit. One more thing; paying your bill in full each month is the smartest way to use credit and will have the greatest positive impact on your score.
    
5. Be sure that your lenders are reporting your credit limits accurately. If the limits are too low, it can affect your score. Remember the 30% rule!
    
6. Do not apply for more credit if you already have open, unused credit lines. Also, do not open new accounts simply to pay off existing accounts. Opening several new accounts can cause your score to drop.
    
7. If you do not have a credit history and are trying to build one, consider a secured credit card, but shop carefully! The lender will require you to deposit money up to the credit limit. Try your own bank or credit union first and make sure that the card you pick:
    
   1. Has no (or a very low) application or annual fee
   2. Converts to a regular unsecured credit card after 12 – 18 months of on-time payments
   3. Will be reported to all three credit bureaus. If the issuer does not report to the credit bureaus, the card will not help build your credit history

    

8. Keep older credit card accounts open. *One thing you shouldn’t do if you’re just trying to boost your score is close unused accounts, says Craig Watts, consumer affairs manager for Fair Isaac Corp. “If someone tells you to close unused accounts to improve your score, they’re pulling your leg,” he says. “It won’t help you and it can hurt you.”
    
9. Be patient. It takes time to build or rebuild credit. Continue paying all of your debt on time, and if you are behind on accounts – get current.
    
10. Look for help if you feel overwhelmed. Credit counselors can help you put together a plan to manage your credit. You can find a credit counselor by contacting the Association of Independent Consumer Credit Counseling Agencies by visiting www.aiccca.org, or calling them at 1-866-703-8787.
     

Source:

*Curry, Pat. 2007 August 3. Tips for Boosting Your Credit Score. Bankrate.com. Retrieved from http://www.bankrate.com/finance/credit-debt/tips-for-boosting-your-credit-score-1.aspx.

First, you have to know that the condition of your credit impacts many areas of our lives now. If you want to rent a place to live, qualify for certain jobs, pay less for auto insurance or pay a smaller down payment on things like utilities and cell phones, you must have good credit.

The popular credit scoring model from FICO uses the following model to show people how information in their credit report impacts their credit scores. We’ll start with the items that make the biggest impact and work our way down to the smallest.

Payments – if you are not current, get current. The most damaging items on credit reports are late payments, items in collections, or items that have ended up in court. Manage your bills carefully.

• Don’t skip payments – if you are juggling or struggling with bills, contact your creditors and ask to make payment arrangements.
• Pay your bills on time.
• Try to avoid bankruptcy. Declaring bankruptcy is one of the worst things you can do for your credit score.

Debt – if you have it, get rid of it.

• If you have credit cards and carry a balance on them, pay those balances down. Carrying a balance that is more than 30% of your available credit limit may have a negative impact on your score.
• Review your credit report for any errors and correct mistakes that are not accurate (but are still hurting your current score).
• Manage your bills carefully.  Monitor your checking account carefully to avoid bouncing a check or worse – having it returned.
• Don’t skip payments – if you are juggling or struggling, contact your creditors to see if some accommodation can be arranged.
• Pay off debt rather than moving it around. Avoid balance transfers.

Length of history matters – Keep accounts that you have had for a long time!

• If you have an old credit account that you’ve always paid on time, keep the account. Closing the account may negatively impact your amount of available credit and prevent the positive history from helping your score.

Mix of credit and new credit –

• It is good to show you can handle different types of accounts. Having a credit card, auto loan, student loan, etc. looks better than having only credit cards on your credit report.
• Refrain from opening a lot of new accounts over a short period of time, especially if you have very little credit history.
• Don’t open any credit lines you probably won’t use. For example, don’t open store credit cards just to get the initial 10 percent discount.

The bottom line – to have a good credit score, you need to:

• Make payments on all bills and debts on time.
• Use less than 30% of your available credit limit on credit cards.
• Keep open 1 or 2 credit accounts, use them responsibly, and again, make your payments on time.
• Try to use your credit cards less – even better, pay them off every month. Too much credit is just as detrimental to your credit report as not enough.
• Get help from a credit counselor if you need it!

Keep in mind; negative items have a lot more power over your credit score than positive items. A little effort will save you a lot of money in the long run!

Report your dispute to the credit reporting agency (CRA) in writing. List what information you believe is inaccurate. Include copies (NOT originals) of documents that support your position. In addition to providing your complete name and address, your letter should clearly identify each item in your report you dispute, state the facts and explain why you dispute the information, and request deletion or correction. You may want to enclose a copy of your report with the items in question circled. See our Sample Dispute Letter.

Send your letter by certified mail, return receipt requested, so you can document that it was received by the CRA. Keep copies of your dispute letter and enclosures.

The credit reporting agency must re-investigate the items in question – usually within 30 days – unless they consider your dispute frivolous. They also must forward all relevant data you provide about the dispute to the information provider (creditor, lender, etc.). After the information provider receives notice of a dispute from the credit reporting agency, it must investigate, review all relevant information provided, and report the results to the credit reporting agency.

According to the Fair Credit Reporting Act disputed information that cannot be verified must be deleted from your file, erroneous information must be corrected, and incomplete items must be completed.

When the investigation is complete, the credit reporting agency must give you the written results and a free copy of your report if the dispute results in a change. Also, if you request, the credit reporting agency must send notices of corrections to anyone who received your report in the past six months. Job applicants can have a corrected copy of their report sent to anyone who received a copy during the past two years for employment purposes. If a reinvestigation does not resolve your dispute, ask the credit reporting agency to include your statement of the dispute in your file and in future reports.

Tell the creditor or other information provider in writing that you dispute an item. Again, include copies (NOT originals) of documents that support your position. Many providers specify an address for disputes. If the provider then reports the item to any credit reporting agency, it must include a notice of your dispute. In addition, if you are correct-that is, if the disputed information is not accurate-the information provider may not use it again.

Accurate Negative Information – when negative information in your report is accurate, only the passage of time can assure its removal.

Accurate negative information can generally stay on your report for 7 years. There are certain exceptions:

1. Information about criminal convictions may be reported without any time limitation.
2. Bankruptcy information may be reported for 10 years.
3. Credit information reported in response to an application for a job with a salary of more than $75,000 has no time limit.
4. Credit information reported because of an application for more than $150,000 worth of credit or life insurance has no time limit.
5. Information about a lawsuit or an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer.

Adding Accounts to Your File. Sometimes your file may not reflect all your credit accounts. Although most national department store and all-purpose bank credit card accounts will be included in your file, not all creditors supply information to credit reporting agencies: Some travel, entertainment, gasoline card companies, local retailers, and credit unions are among those creditors that may not report your accounts to all three credit reporting agencies. If you’ve been told you were denied credit because of an “insufficient credit file” or “no credit file” and you have accounts with creditors that don’t appear in your credit file, ask the credit reporting agency to add this information to future reports.

Although they are not required to do so, many CRAs will add verifiable accounts for a fee. However, if these creditors do not report to the CRA on a regular basis, these added items will not be updated in your file.

Lenders use credit scores to evaluate the probability that a person will repay their debt responsibly and on time. The score is a numerical “grade” of your credit. FICO uses scores between 300 and 850 to indicate a consumer’s level of risk. The lower the score, the more risky someone looks to lenders. Higher scores indicate more reliability in paying and managing your debt in a responsible manner.

[1]According to Myfico.com, the consumer division of Fair Isaac and Company, there are five components that make up a credit score. Here they are listed in order of impact to the score:
- Payment History – 35% of score
- Amounts Owed – 30% of score
- Length of Credit History – 15% of score
- New Credit – 10% of score
- Types of Credit Used – 10% of score

Payment history has the biggest impact on your score. Paying bills on time is critical to maintaining good credit. If you cannot pay a bill on time, contact the lender and set-up a plan to get caught up as soon as possible.

The second biggest influence on your score is how much you owe on your accounts. On debt like credit and store cards, the maximum balance owing should be 30% – 50% or less of the available credit limit. For example, if your credit card has a limit of $1,000, the highest balance you should carry on that card is $500. Any higher and you run the risk of damaging your score.

Length of your credit history and new types of credit refer to how long you have had accounts open or how long it has been since you opened new accounts. These categories also take into account how long the specific type of account has been open. Opening numerous accounts at the same time may appear risky and may reflect negatively in your score. Having an account on your credit report that shows a long history of on-time repayments benefits your score.
The last piece of the score looks at the different types of credit you use. Having a mix of types of credit such as installment loans, credit or store cards, mortgage, and auto loans can be important in showing your ability to handle debt.

Creating and maintaining good credit is a balancing act. Your score reflects only the information found in your credit report, so it is important to check the information in your reports at least once a year through http://www.annualcreditreport.com/ or by phone (1-877-322-8228). For more help understanding your credit score or credit report, contact an accredited credit counselor at 1-888-282-5899 or http://www.myfinancialgoals.org/. You can also access additional FICO score information at www.myfico.com.
[1] http://www.myfico.com/