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6 Steps to Understanding Your Credit Report and Improving Your Score

6 Steps to Understanding Your Credit Report and Improving Your Score

When you print out your credit report in its entirety, the big stack of papers can be a little daunting. You can probably tell if you’ve got a great score, or one that could use a little improvement, but what does all the extra information mean? And how can you use the information contained in your credit report to improve your score and repair your credit?

There’s more to a credit report than just the score. If you have a low score, then the key to improving it lies within the report itself. Here are 6 steps to unlocking the secrets of your credit report and finding ways to improve your score.

Step 1: Double Check Your Personal Information for ErrorsCredit Repair Companies

At the top of your report is personal information that identifies you, including your name, present and past addresses, and employment info. If any of this is inaccurate it could negatively impact your score, so double check every little detail to make sure it’s correct. A misspelled name or incorrect address could mean that someone else’s credit history is being included on your report.

When you spot errors, these are the easiest to fix. You can send a credit dispute letter to the credit bureaus or get the help of a credit repair company. The credit bureaus are required by law to fix any errors to your report in a timely manner, and at no cost to you.

Step 2: Review Your Credit Summary

The next portion of your credit report is your credit summary. It provides an overview of the report, including the types of accounts, number of current and delinquent accounts, and your total amount of debt.

This section gives you a broad idea of what you’re working with: how much debt you have, number of opened and closed accounts, etc.

Step 3: Review Your Account History

Now we’ve reached the Account History portion of your credit report, which contains the most information by far. Here you’ll dive into all the details of all your accounts, even ones that have been closed for years.

Here’s what to look for:

  • Date Opened: Older accounts can improve your score since it shows you have established credit history, but only if you’ve stayed current with your payments.
  • Responsibility: This section lets you know if the account is individual, joint, or if you have authorized users. If it’s joint, then your score may be affected by the person with whom you share the account.
  • Balance: How much is currently owed. Check for accuracy.
  • Credit limit: Ideally, your revolving balance shouldn’t be more than 10% of your credit limit – any higher and it starts to negatively affect your score.
  • Past Due: Lets you know if you’re currently past due (or past due on the date that your creditor reported it to the credit bureau).
  • Payment Status: Whether you’re current or past due.
  • Remarks: Here you can read any special remarks you creditor put in (if they chose to).
  • Payment History: This part is crucial. It shows a timeline of your payments, and if any were past-due (which is a big factor in determining your score).

Look for any errors in this information, because if you find any mistakes or typos then you can improve your credit score simply by bringing it to the attention of the credit bureau (they’ll typically open up an investigation and contact the creditor in question). However, if everything is accurate, then you the have to look for other ways to improve your score, such as paying down your debt, making payments on time, and waiting for negative factors to be removed automatically (which takes anywhere from 7 to 10 years).

Step 4: Public Records

Here you’ll find information on any bankruptcies, tax liens, and even unpaid child support (in some states). With any luck, you won’t have anything reported here, but if you do have a bankruptcy or other public record you could be in for a wait of 10 years before it’s removed.

Consulting with a professional credit repair firm can help you better understand your options if you have anything reported in the Public Records section.

Step 5: Credit Inquiries

Finally, you have a list of all the people or organizations who have requested your credit report over the last 2 years. Too many inquiries can negatively impact your score, and so applying for several loans all at once could potentially take your score down a notch or two.

 Step 6: Get a Free Credit Consultation

Most credit repair companies will offer a free initial credit consultation, typically over the phone. They can help you decide which actions will be right for you, but remember: credit repair companies are most effective when there are actual errors on your report. If everything is accurate, then you may just have to buckle down and practice some disciplined budgeting.

photo credit: Stefan Neuweger via photopin cc
photo credit: liquene via photopin cc

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