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How to Increase Credit Score

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How to Increase Credit Score

Most New Year’s resolutions require consumers to spend money, but here’s one that actually doesn’t cost anything and ultimately helps people save: Boost your credit score.

Low credit scores result in higher interest charges for all types of debt, including credit cards and home loans. Borrowers with a FICO credit score (the score used for most consumer lending decisions) of 700 save an average of $648 in interest on their credit card, $1,392 on their car loan and $2,340 on their mortgage each year, compared with borrowers who have scores below 620, according to a study by CardHub.com , a credit-card comparison website. Those savings get even larger for borrowers whose credit score is above 700. Separately, lower scores can lead to larger home and car insurance bills and make it harder to rent or buy a home.

Fortunately, there are ways to improve a low credit score and most involve scaling back on credit-card usage. That’s because in the world of credit scores, all debt is not treated equally. FICO scores tend to drop as consumers rack up more credit-card debt but don’t decline as much if someone signs up for a student loan, car loan or mortgage. Here are five steps to improving your credit score.

Pay down credit-card debt
To improve their credit scores, borrowers need to lessen their credit-card debt.

Once a borrower surpasses a 10% “credit utilization ratio” — that is, the amount of their credit card debt in relation to their total spending limit — their FICO score will likely drop, says John Ulzheimer, consumer credit expert with CreditSesame.com, a credit-management site, and a former manager at FICO. For instance, borrowers whose credit-card spending limits total $10,000 should not surpass $1,000 in debt — whether or not they pay off their balance in full each month.

That can be an onerous task for many borrowers. They’ll need to adhere to stricter limits if they want the highest score possible. According to FICO, borrowers with the best credit scores — of 785 or greater — use an average of 7% of their total credit-card limit. In contrast, student loans, car loans and mortgages are not considered by the credit-utilization ratio.

Consumers can consider asking their card issuers to increase their credit-card limits, which could in turn increase their credit score. Of course, that will require not swiping for more purchases on those cards.

Convert credit-card debt to personal loans
Borrowers with a lot of credit-card debt aren’t out of luck. They can actually improve their score before they even pay down their debt — with a bit of strategizing: They can consider rolling their credit-card debt into a personal loan.

Here’s why: Credit-card debt tends to be more damaging to credit scores than a personal loan, which is considered installment debt. The credit-utilization ratio (see previous section) does not take installment debt into account. This strategy would result in zero dollars of credit-card debt on the borrower’s credit report, which could boost their score by 100 points or more, says Ulzheimer. They’ll also pay lower rates to boot: The rates on personal loans currently average 11.36%, according to Bankrate.com. In contrast, rates on credit cards average just over 13% to 15.4%.

This strategy will only help borrowers if they stop using their credit cards or if they pay off the charges they make on their card quickly. Otherwise, their score won’t stay up for very long. Of course, consumers should pay off all their credit-card debt with their savings rather than signing up for a loan. But that assumes they have enough cash set aside after paying this debt for their emergency fund. (Financial advisers typically recommend people have savings equal to six to eight months of living expenses in a savings account.) More at 5 ways to boost your credit score

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How to Dispute Credit Report

“Credit reporting errors can have an impact on your credit score and financial future.  These tips will help you on how to dispute credit report. Read them now!”

How to Dispute a Credit Report

When you get your credit report, you may find information on it that is not correct. When that happens, you’ll need to understand how to dispute an error on your credit report. Here, we will explain how mistakes wind up on credit reports and how to fix them.

Three major credit reporting agencies; Equifax, Experian and TransUnion, maintain credit information about consumers. These companies are competitors and they each collect and maintain their own individual reports about consumers. In other words, they don’t share information with each other. The data they collect is compiled into credit reports, also referred to as “credit files” or “credit histories.”

Your credit report is a record of how you’ve managed credit accounts, including credit cards, auto loans, mortgages, and personal loans. Some types of accounts – such as medical debt or utility accounts – are not usually reported unless those bills go to collections.

How do mistakes happen?
The details on your credit report has been supplied by creditors, and gathered from public record sources, such as the court system in the case of bankruptcies or judgments. If a creditor or other source that gathers this information makes a mistake (typing in an address wrong or Social Security number, for example), that error may wind up on your credit reports.

Also keep in mind that credit reports are only compiled when they are requested. When you or a creditor requests your credit report or credit score. To do that, the credit reporting agencies will try to “match” account information they have in their databases to the consumer for which the report has been ordered. Usually that process works fine, but sometimes information about relatives or other consumers with similar names can get mixed up with yours.

Finally, if you have been inconsistent in the information you’ve used when filling out applications (using different variations of your name or address, for example), that can show up as an error on your reports.

How do you correct mistakes on your credit report?
The first step in disputing a credit report mistake is to understand whether an item is wrong or not. That sounds logical but it can be trickier than you realize. For example, your credit report may list an inquiry from a company you don’t recognize, but if that company accessed your credit report, the credit reporting agency is legally obligated to report that inquiry. Or your report may show a collection account that you paid off. While you may think it should be removed because you paid it, under federal law it can be reported for up to seven years and six months from the date you fell behind with the original creditor, regardless of whether it has been paid. (Of course, a paid collection account should still be listed as paid.)

Once you have established that an item is wrong, you can dispute it. You can contact the lender (or collection agency) who is reporting the wrong information, the credit reporting agency that lists the mistake, or both. Asking the creditor to fix it may be the simplest approach, because if they do agree they made a mistake, they will be required to transmit the correction to all the agencies to which they report. That saves you the extra step of having to dispute it with other agencies that may be reporting the same incorrect information.

However, it’s also important to note that to protect your legal rights under federal law, you must send a written copy of your dispute to the credit reporting agencies, not just the creditor. Therefore, if you find a serious mistake or if you are having trouble getting an item corrected, make sure you also report the error directly to the credit bureau(s).

Online or By Mail?
If you ordered your reports online you will have the option of disputing it online or by mail.

Online disputes are fast and convenient; however, you may not be able to include documentation to back up your side of the story. So if you have proof that an item is wrong, you may want to send a written dispute and include the records you would like to them to review. If you do file a credit report dispute by mail, be sure to send it via certified mail and keep a copy for your records. More at How to Dispute Credit Report

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How to Get a Free Annual Credit Report

“Where and how can we get a free annual credit report? Read this now to find out!”

Getting a Free Annual Credit Report

All Americans are entitled to a free credit report every year, from each of the three major credit bureaus. The free credit reports, which used to cost as much as $9.50 each, come as a result of the passage of the 2003 Fair and Accurate Credit Transactions Act.

Thanks to the law, the three major credit reporting agencies, Equifax, TransUnion and Experian, are each required to provide consumers, upon request, a free copy of their credit report once every 12 months from a centralized source. This centralized source includes a Web site, a toll-free telephone number and a postal address.

The reports will not automatically be sent out. Consumers who want their credit reports must initiate the request in one of the following three ways.

1. Online:
Go to www.annualcreditreport.com, which is the only authorized source for consumers to access their annual credit report online for free. Be careful not to make a mistake in the URL — some opportunistic entrepreneurs have staked out the URLs that are close in spelling, and they’ll try to sell you the reports, instead of giving them for free.

2. By phone:
Call (877) 322-8228. This may be the choice for those who aren’t Internet-savvy.

3. By mail:
You may complete the form on the back of the Annual Credit Report Request brochure, and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA, 30348-5281.

You’ll be able to order all three credit reports at one time, or at different times throughout the year. It’s your choice. But be sure to order from the centralized agency. If you go directly to the credit reporting agencies, you will be charged unless you fit another criteria for a free report.

The 2003 law did not eliminate the other ways to receive a free credit report. You’re still entitled to a free credit report if: you’ve been denied a loan, insurance policy or job based on your credit report; you’re applying for unemployment or receive public assistance; and you currently reside in a state that already offers an annual free credit report from each credit reporting agency (Colorado, Maine, Massachusetts, Maryland, New Jersey and Vermont. Georgia residents are entitled to two free annual credit reports from each credit reporting agency). More at How to get your free credit report

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