TheCreditTruth.org

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• Where scores come from
• How to raise your credit scores
• Error rates
• Common errors that can lower your credit score
• Credit score busters
• Credit quiz
• About credit repair
• Reducing stress due to debt 

Raise Credit Scores

Your credit score is a 3 digit number that represents your credit risk. Higher scores are better than lower ones.

Credit scores are literally worth money. Higher credit scores receive excellent loan terms and interest rates which can translate into hundreds of dollars saved every month. Look at the difference on a $200,000 30-year fixed home loan.

Credit Scores:	550	650	750
Monthly Payment:	$1643	$1339	$1195
Savings:	0	$304	$448

Your credit score factors into your car loan, credit card interest rates, insurance premiums and more. It's to your advantage to raise your credit score and pay less every month in bills.

Where scores come from

Credit scores are meant to be bias free and completely objective to protect against discriminatory lending. Your scores are computed from different variables in your credit report and come from real data and statistics. Each credit bureau (TransUnion, Equifax and Experian) has its own scoring system and reporting creditors. Your score may vary by 50 points between bureaus. If it's any more than that, check into the discrepancy.

The factors measured in your overall credit score are:

• Payment History (35%)
• Amounts You Owe (30%)
• Length of Your Credit History (15%)
• Types of Credit Used (10%)
• New Credit (10%) Back To Top

How to raise your credit scores

To improve your credit score, you must improve your credit behavior. You can't rewrite your past (which can last 7 to 10 years on your credit report), but you can change the way you handle credit starting today.

1. Assess your credit standing
   To start improving your credit scores, first learn where you stand by ordering your free credit reports at annualcreditreport.com (you'll have to pay a fee to obtain your credit scores), or purchase a 3 bureau report that contains all your credit reports and credit scores (you can find credit report offers as part of credit monitoring services). Ideally your credit score should be above 720.
2. Fix errors
   If your score is below 720, you have work to do. Go through your credit reports line by line, checking for misspellings, wrong information, or accounts you don't recognize. Circle any unexplained items, negative information that is no longer pertinent (such as bankruptcies that are older than 7 years) or any information that is wrong. Dispute these errors in writing to have them removed.
3. Change credit behaviors
   Removing errors that are negatively affecting your credit report will help raise your credit scores. To drastically improve your credit scores, you need to change your behavior. Credit reports reflect a long history but they are also constantly being updated. The positive things you do today will be noted within 3 to 6 months on your credit report - ultimately raising your credit score. Recent good behavior has more weight than negative actions in the past.
4. Pay on time
   This is the number one thing you can do that has a lasting, positive effect on your credit score. Your payment history counts for 35% of your credit score, more than any other factor. Leverage this by always paying on time. Only some creditors report late payments at 30 days, but all report 60 day late bills. Make sure your payments are received by the due date.
5. Watch credit card balance to limit ratio
   Your debt should never exceed 30% of your cumulative credit limit. For example, let's say you have 3 credit cards with a combined limit of $10,000 (2 cards with $2,000 limits and one with a $6,000 limit). You should not owe more than $3,000 (or 30%).
   
   How you carry your debt is always very important. It's better to spread your debt over more cards than to carry it all on one. First, you should never max out a credit card. That tells lenders you are, or have been, over-extended. Second, it is critical to watch your debt to credit limit ratio. That’s why you should never close accounts when you have a lot of debt. Here’s why. Say you move that $3,000 balance onto one card, and close your other two accounts. This actually hurts your credit score. By closing two of your cards (which had limits of $2,000 each) you have reduced your total credit limit to $6,000. Now the same $3,000 debt represents 50% of your limit. This makes you seem maxed out to lenders.
6. Pay down balances
   Some debt is good - creditors like to see that you can handle debt responsibly, and they want to see records of your on-time payments. However, too much debt makes you look overstretched. Pay down balances and credit scores will rise. Some credit experts estimate the short-term gain can be 20 points or higher.
7. Take on new credit sparingly
   New credit applications can count against you. Be careful about new credit when you know you'll have a big loan for a car or home coming up. Avoid asking for more during this timeframe as it could be interpreted as desperation. Aim for a mix of credit accounts - including installment loans like mortgages and car loans, store charge accounts and revolving charges (credit cards).
8. Consider rapid rescoring
   Rapid rescoring can boost your credit scores in just a few days (about 72 hours). It's a way to see instant gain after paying down a big balance or having negative information removed from your credit report. Ordinarily that process might take months. With rapid rescoring, you get a new credit score based on the new information almost immediately. Before a major loan like a mortgage, a quick rescore where you gain 20 or 40 points could mean thousands of dollars saved if it puts you in the next credit tier.
9. Follow up to see your credit scores rise
   Stay on top of your credit. Check your credit reports frequently and order your credit scores, which are available for a nominal fee. If you'd like 24/7 access to your scores, consider a credit monitoring service. You'll receive unlimited access to your credit reports and scores, and email notifications whenever there's a change to your report. For those who are in the process of rebuilding credit, monitoring can be an invaluable feedback device. It also provides an early alarm in the case of identity theft. Back To Top

Error rates

Almost 80% of credit reports contain some sort of error. Fixing them is generally not a big deal. Credit reporting bureaus are required to open an investigation into any errors that are called to their attention. They contact the reporting creditor and request that they verify the information. If the information can't be confirmed, it must be removed from your credit report. The process typically takes from 30-60 days. The agency must send you the results of its investigation. If your credit report changed, it must provide a copy of your new report as well.

Use the CreditTruth dispute form to dispute errors in your credit report. Include any supporting information such as canceled checks or account statements. Make copies of these documents. Do not send originals. Back To Top

Common errors that can lower your credit score:

• Name confusion
  Always apply for credit under the same name. A simple change from Sue Brown to Susan Brown can create separate files. If you are a "Junior" always include that to differentiate your file from relatives. Married women who change their name should be careful to merge their former credit accounts under their new name.
• Clerical errors
  When submitting handwritten credit or loan applications make sure your writing is easy to read and very clear. Clerical errors when keying in information are very common.
• Wrong Social Security Number
  Again, make sure your handwriting is clear and your numbers are legible. If the number is misread, your file can end up in someone else's report.
• Payments Applied to Wrong Account
  Sometimes loan or credit card payments are inadvertently applied to the wrong account. The only way you will know if your accounts are accurate is by checking your credit report.
• Payments Not Applied
  If you don't receive an expected bill, follow up on its whereabouts. It may have gone to the wrong address or been lost in the mail. Your account could then show a late payment. Large companies have also been known to lose checks. Back To Top

Credit score busters

While raising your credit scores, avoid these common mistakes:

Late fees
Inattention to due dates can be costly. Credit card companies can charge $30 or more as a "penalty." If you usually pay on time, call and ask that the late fee be waived. Point to your excellent history (if you have one). Change your due date if the bill falls at an inconvenient time. Consequences from paying late may include sudden rate hikes, so watch your bill carefully.

Lower your interest rate
Pay attention to the most important number on your credit card statement. Your interest rate. If it's 18%, is borrowing $2,000 worth the $360 each year to carry that debt?

At 18.5% interest, it will take you more than 11 years to pay off that $2,000 if you only pay the minimum balance due each month. During this time, you will pay interest charges of $1,934 -- almost doubling the cost of your purchase. (This calculation is based on making a payment which is 1/36th of the outstanding balance, or $20, whichever is larger.)

Call your credit card company annually and request a lower interest rate. Often there are special promotional rates that representatives are allowed to give existing customers - but only if you ASK. The better your credit, the better able you are to use this leverage. Even if your credit is bad, move your debt to a card with a lower interest rate. You'll pay it off faster and your credit score will improve.

Credit report errors
Check your credit report frequently. An estimated 79% of reports have errors, with 25% or more serious enough to deny you credit. You are entitled to view your credit report once a year from the big credit bureaus - TransUnion, Equifax and Experian - but amazingly many people have never ordered their free credit report. They have no idea what's inside or whether it's hurting them. Remember, errors can hurt your credit and credit score. If you don't correct them, no one will.

Avoid new credit
Seeking new credit can really ding your credit report. It's a red flag that you are over extended. Instead use the credit you have wisely and ask for an increase to your existing credit limit if you need more. While trying to improve your credit score, the worst thing you can do is ask for more credit.

Minimum payments
Making only the minimum payment each month keeps you in debt for years and impacts your credit score. Only payments above the minimum make a dent toward the principle (the amount you charged in the first place). If you keep paying the minimum amount, you'll get trapped into paying the interest only and your debt will most likely increase over time, digging yourself in deeper. Check into using the Snowball Principle to work your way out from under.

How do you know if there's a problem with your credit score? Take our quiz to see if you've entered the Credit Score Danger Zone. Answer yes or no to each question. Back To Top

Credit quiz

1. You only make minimum payments each month.
2. You don't know the interest rate for each of your credit cards. Or what a "good" rate is.
3. You have received a call from a creditor.
4. You dread the mail because of credit card bills.
5. You are using credit to make ends meet.
6. You have maxed out a credit card.
7. You have juggled your debt from one high interest card to a lower interest card to try and buy yourself some time.
8. You have emptied your savings, and you're still behind.
9. You're seeking new credit.

If you've answered yes to one or more of these questions, you are feeling pain from credit card debt and your credit scores could probably be raised. If you answered yes to three or more, you've reached the danger zone and it's time to take action. Back To Top

How to escape the credit danger zone

1. Admit that you have a problem. Credit experts say this is the first step.
2. Seal your credit cards in an envelope and put them away. Save one for emergencies but do not carry it in your wallet. Don't cut the cards up - if your credit is truly bad, you may not be able to get new accounts.
3. STOP any new charges. Move to a cash-only basis immediately.
4. Begin to negotiate. Whether you use a consumer credit counseling service, or do it yourself, the first step is to talk to your creditors. Ask for a lower interest rate, and/or the ability to pay the principle without interest.
5. Learn your legal rights about creditor harassment by reading our section on reducing stress due to debt.
6. Pay off smallest balances first. As you free up those "minimum payment" amounts, apply them to your next largest balance. Over time, this has a snowball effect, finally allowing you to apply all your discretionary funds toward your biggest loan. Back To Top

About credit repair

Working on raising your scores is credit repair. There are two ways to work on credit issues:

• By yourself
• Hiring a credit repair company

The first method is free and costs only time and effort. The second method can be pricey and there's no guarantee of success. Many credit repair companies are essentially scams but some are on the level. Make sure to investigate credit repair companies carefully before engaging their services.

The credit repair process includes the following steps. You don't need to follow them in any particular order.

Remove negative information
Do this by disputing all incorrect items with the credit bureau. You'll need to order a copy of all 3 credit reports and examine them thoroughly.

Request outdated information be removed
By law credit bureaus may keep certain negative information on your report for 7 years. Beyond that point, they can't continue to report the item. Ask the credit bureau to remove the item. You may also do this prior to the 7-year expiration date.

Reduce debt
Whether it's living by a budget, earning more money, cutting costs or some combination, bring your debt down. To escape the endless cycle of interest, you must pay more than the minimum payment every month to whack away at your principle. Usethe snowball principle to cut your debt down to size.

Stabilize your profile
Look to add stability to your credit report. Remain at the same address and employer for several years. If you don't qualify for major credit cards, apply for gas cards or retail store cards which are typically easier to get. Be careful to pay on time, and in full. Make sure that the creditor reports to at least one major credit bureau so you can begin establishing a solid profile.

Snowball principle
To accelerate your debt escape, follow this plan. Make minimum payments on your lower-interest cards and reserve all your extra cash toward retiring the debt on your highest interest card. Once that card is paid off, use the extra cash (what you formerly paid in minimum payments) to pay off the next one on your list. It really works.

There are other variations on this debt reduction method. Read more in the Wikipedia entry on paying off debt. Back To Top

Reducing stress due to debt

One of the worst side effects of debt is the endless stress. From phone calls demanding payment to threatening letters, the continual anxiety just makes things worse.

Ease the stress by knowing your rights. The Fair Debt Collection Act sets out some limits on how creditors pursue debts. For instance you can demand that collection agencies stop calling you by sending a cease and desist letter. This might not apply if the debt is being collected by the original creditor, but does apply to collection agencies. Make sure to send the letter certified mail with a signature required. Keep your receipt and a copy of the letter. Collection agencies will be confined to contacting you by mail.

Download sample cease and desist letter

The Fair Debt Collection Act covers other things collections agencies cannot do:

• Call you at work if you ask them to stop
• Call you before 8 a.m. or after 9 p.m.
• Falsely imply that they work for a credit bureau, are lawyers or from the government
• Threaten to, or actually, publish your name as one refusing to pay debt
• Threaten to garnish wages, or repossess property (if not legally able to do so; such as a car)
• Demand or obtain more than the amount of the debt
• Imply you can be criminally prosecuted
• Contact you in a postcard, violating your privacy Back To Top

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