Q&A
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I just found out my credit score is low, in the 620 range. It took a beating in my recent divorce. Any advice on how to raise it?
Divorce can be really hard on credit ratings. Whenever two people open a joint account, both are responsible. All it takes is one irresponsible spouse to destroy a previously good credit score. Whether your spouse bought more than you could afford, made late payments or overspent as a punishment, you're on the hook for their behavior.
First thing is to make sure you've separated all your finances. Are all your joint accounts closed and reopened as individual accounts? If you own a home or a car together, has it been sold or are you both still making payments? Divorced couples often continue to share payments, thinking that it's easier than purchasing the other's share or selling the article off. You may have an informal agreement that if you continue to pay for the car, your spouse will continue the payments on the living room set. But this puts you at risk. Once a divorce is final, other than alimony or child support, there should be no ongoing financial connection between the two people.
Raising your scores will happen spontaneously over time if you pay off debt and make payments in a timely way. On-time payments are one of the biggest determiners of score. Order a free copy of your credit report (you're entitled to 3 reports a year, 1 from each bureau) and go over it carefully. If it contains errors, circle them.
Not every error leads to a drop in score (for example, misspellings of your name or a wrong address) but many do. Those include wrong information about late payments, or showing an account in default when it's actually in good standing. Often payments are credited to the wrong account, or never recorded. Get on the phone with creditors that list negative information and find out all you can about the situation. If you have evidence that shows the information is wrong, you need to file a dispute with the credit bureau to have this information removed. You can find out more about this process in our Raising Scores area.
Creditors want to see that you're responsible. As you start a new single life, pick an apartment or house that you plan to stay in for several years. A stable address is positive, along with steady employment. Use the credit you have rather than looking for more. If you need a little more to get by, then request a raise to your credit limit instead. Too many requests for credit (called inquiries) can have a negative effect on your score.
Good luck!
Everyone says your credit score is so important. But they don't say WHY it will save you money. Can you explain that more?
Your credit score dictates all the rates and terms you receive on a lot of things: credit cards, car loans, mortgages, even insurance premiums. The difference between 9% and 18% interest (common on credit cards) is that the person with the low interest card pays HALF of what it costs the high-interest person to borrow the same money. On a $1,000 balance - it costs Person A only $90, and Person B $180. Look at this chart to see the difference on a mortgage loan. Most people pay interest on a variety of loans every month so the amounts add up. You might be surprised to learn that many insurance companies look at your score before quoting you rates. It's believed that the best credit scores are less likely to file claims so those rates may be lower.
A good credit score also may give you negotiating power when shopping for a loan. More people will compete for your business, and you'll have more good rates to choose from. If you like the terms at one lender but not the rate, you can show them the better rates you've been quoted and often get exactly the payment you want. Good scores simply make more things possible.
In your financial life, few things figure as prominently as your credit report and credit score. Learning the basics of the credit report process, and keeping your credit report free of errors, is essential to good financial health. You should focus on improving your credit score as the highest credit scores receive the best interest rates and loan terms. On a mortgage, a difference of 100 points could be worth hundreds of dollars each month.
Since 2005, all Americans have the legal right to obtain a free annual copy of their credit report from TransUnion, Equifax and Experian credit reporting bureaus. This law is intended to help consumers reduce errors in their credit reports by minimizing the obstacles to viewing credit reports. To receive a free credit report visit the official site run by the bureaus: annualcreditreport.com
Your personal credit score is a number from 350-800 which stands for your credit risk. The higher numbers are considered less likely to default. Credit scores come from mathematical formulas that measure many variables in your credit report such as payment history, public records, and debt to income ratio.
The Fair and Accurate Credit Transaction Act (2003) amendment to the FCRA Fair Credit Reporting Act guaranteed all Americans the right to see their credit report once a year to check it for errors. To learn more about free credit, credit scores and financial terminology, visit our glossary page.