Do your New Year's resolutions include improving your credit score? A low credit score makes borrowing money and using credit cards more expensive. Banks and lending companies see you as a bigger risk, so you end up paying higher interest on loans and on credit card debt.
If the difficult economy of the past few years has caused your credit score to plummet, this year could be a good time to send it upwards again. Here are some tips you can use to boost your scores:
Check your credit report for errors. Under federal law, you're entitled every 12 months to request a free credit report from each of the major credit reporting agencies (Equifax, Experian and TransUnion). Take advantage of that right. Ask for a copy of your credit report from a different agency every four months, then read it carefully to ensure that all the information listed is correct. Check to see, for example, if all the accounts and debts listed are actually yours. (This is also a good way to check for identity theft.) Are any debts listed more than once? Do you have late payments or a bankruptcy dating back more than seven years listed on your report? They should not be.
If you find erroneous or outdated information on your credit report, you should alert the credit reporting agency in writing. The agency will investigate your claim and notify you of its findings. If they agree that the information is inaccurate, they will remove it from your credit report and notify the other credit reporting agencies.
Exercise financial discipline. Bad debts, late payments, accounts sent to collection agencies--these all have a negative impact on your credit score. Resolve now to make improvements in your financial habits. Pay your bills on time. If you have outstanding debt, pay off the account with the highest interest rate (but keep all your other accounts current as well). Stop charging items so that you don't get any further into debt. Cut up your credit cards or at least hide them away for use only in emergencies.
Keep credit accounts open, and don't apply for many new ones. You may think that closing old accounts will improve your credit score, but the opposite is true. Part of your credit score is based on the age of the accounts that you have, since lenders and credit card issuers like to see that you've been able to handle credit wisely over a longer period of time.
But don't open lots of new accounts thinking that credit reporting agencies will be impressed by how many companies are willing to extend you credit. The agencies are more likely to worry about how you're going to pay off all that potential debt. If you're shopping around for a car loan or a home loan, try to keep the process contained within a short period of time. Otherwise, lenders may start worrying that you're planning on taking on too much debt.
Beware of credit repair scams. There are many unscrupulous companies out there who promise (for a hefty fee) to repair your credit rating. Although there are some legitimate companies who offer financial counseling and assistance to consumers, you should check the credentials of any credit repair company carefully before agreeing to work with them.
Understand that it's going to take time. You didn't get yourself into financial difficulties overnight, so you shouldn't expect to dramatically boost your credit scores in a month or two. The best thing you can do is stick to a course of financial responsibility over time. When you make a real effort to get your financial affairs I order--and that effort is reflected by your current payment history--you'll find your credit scores are on an upward tick.