Simple Ways to Improve Your Credit Score
(Nudging Your Credit Score Higher)
It happens – people have damaged credit reports. But it’s easier making big strides towards improving your credit score than you might think. These techniques won’t overcome major problems like bankruptcies and foreclosures. However, you can fix errors in your credit report and even overcome a few late payments that may be holding you back from qualifying for a better interest rate. This might be all it takes for you to become pre-approved for a mortgage.
Even if these tips don’t solve all credit problems, these are known to move people’s score in the right direction.
Removing Errors and Derogatories
Errors happen that you probably don’t even know about. Derogatories are any negative marks on your credit report dragging down your score. Derogatories show up in codes that you probably don’t understand. These could be valid or have nothing to do with how you’ve managed your credit. The credit industry wants you to think that you are responsible for proving any mistake they make. If you read the consumer laws, the responsibility firmly sits with this massive industry. All you are doing here is making them follow the law by validating the codes they entered onto your credit report.
Maybe there is a 30 day late pay because you or the lender made an error but it has been brought current, contact the lender to ask that they remove it. They almost always will because they know how damaging it is to your credit score.
More Than One Missed Payment
Every time a payment is missed, another derogatory is added. Another one is added at 60 days, 90 days, 120 days, and so on up to 180 days. At about 180 days, the lender charges off the money as bad debt. This is when they add a derogatory saying they charged off the bad debt.
As you can imagine, getting multiple late pays and charge offs removed is more challenging but there are a few simple ways it can be done.
First, you can dispute the derogatory for several reasons. Federal law requires all information on your credit report to be accurate and complete. So begin by looking for inaccurate and missing information.
Sometimes, late pays do not have a date associated with them. This is important missing information. Send the credit bureau a letter saying, “I dispute the undated late pays on account [XXXX]. Delete the account immediately.”
Notice, you don’t ask them to update the information or give them the correct information. There might be six late pays listed on the account but only one has a missing date. You want to make them delete the entire account because of a single missing or inaccurate piece of information.
Maybe the account has been charged off but shows that it is still open. A charged off account cannot still be open and active. Write saying, “I dispute account [XXXX]. It is not an open account. Delete it immediately.”
These types of errors are made all the time and consumers pay for it with higher interest rates and denied credit. All because lenders don’t keep accurate records.
Credit bureaus can verify or update the information instead of deleting the account but first they have to find the correct information. This can mean going back to the lender to find it in their records. That is a lot of work. Sometimes, they will or sometimes they will just delete the account.
Credit Information Must Be Accurate
Something else you can do is review the reports from all three bureaus for consistency. If different bureaus are reporting different information, you might really be on to something that can help your cause.
It might be different account balances, different dates for the same late pay, different status of the same account, or one of many other reasons.
This time you want to contact the lender to ask them for the correct information that appears differently on the three reports. Hopefully, the reason it is different is because the lender no longer has a file on you and the bureaus cannot verify the information.
When this happens, what you do is write to all three bureaus demanding that they validate the account. Again, this comes under federal law. They must contact the original lender to obtain and provide you with a copy of the file they have on you. You already know there is no file. When they cannot validate the debt, they are required to delete it.
In fact, if the account has been charged off, there is a very good possibility that the original lender purged the account and cannot document any of the negative information. If this is the situation, it’s probably a good idea to ask to have the account validated at the very beginning.
Other errors on their part to keep your eyes peeled for:
Delinquencies or late pays after charge off.
Delinquencies or late pays for $0.
Delinquencies or late $123.
Balances that are above the “high balance” or “balance limit”.
Accounts that have been transferred from one collection agency to another but the balance at the old collection agency is not “$0”.
Often you will find accounts with incomplete information. Remember the information must be both accurate and complete. All you need to do is send a letter say “You are listing an incomplete account. Delete it immediately.” Unless they want to go to the trouble of figuring out what is missing and finding the missing information, they have to delete the derogatory account.
Debt to Credit Ratio
This one is very important. Those with a good payment history will find this is probably the best technique for quickly raising your score even higher.
You may find it amazing but you can often improve your score by taking on a little more credit. Credit card companies make money by charging you interest on the borrowed money. They want to see you borrowing and repaying in a responsible manner. Your debt to credit ratio may not be something you pay attention to but lenders find it very important.
Lenders like to see you borrowing between 10% and 30% of your credit limit. That means if your Visa account has a $1,000 limit, you should have a balance between $100 and $300 on the account.
Paying off the account in full each month is counter rational to what the credit bureaus are looking for. They want to earn interest from you but they don’t want you borrowing near the limit because that indicates you might be out of control with your credit.
This is where you might want to open a new account and transfer part of the balance from any accounts that are above 30%. If you have a card with a $10,000 credit limit, and have borrowed $8,500, your debt to credit ratio is at 85%. You should move $3,000 to a new card with a $10,000 limit and pay part of the first account off to get both cards down to 30%.
It sounds crazy but that is how the scoring models work.
Make this work best for you, find a new account that offers 6 months or a full year interest free when you transfer the balance from an existing account.
All of this is about managing your credit report so that you are pre-approved for a mortage.
I encourage you to continue reading our blogs for more valuable information about becoming a homeowner. A blog you might be interested in is: Top Ways to Develop Money Saving Habits.
If you need more information or have questions, please send us a note. You can also reach us by calling at (678) 570-8123. We'll be glad to help you!
