Your credit score is probably the most important financial instrument you have. The better your credit score, the better your chances of obtaining a home loan, personal loan, and credit cards. However, your credit score can also affect your car insurance rates, ability to rent an apartment with no deposit, and getting special offers like 0% interest rates, cash rebates, and rewards. Below I will outline what affects your credit score and how to improve it.

Your credit score is basically a calculated on a formalu created by the Fair Isaac Company, otherwise known as a FICO score. It ranges from 300 to 850. Experian, TransUnion, and Equifax check the FICO credit score, then create their own credit score based on a variation of the FICO formula using what they have on their credit records about you. Typically the score variation between the three companies is about 30 points.

Generally, a credit score over 750 means you have exellent credit. From 700-750 is very good, 680 to 699 is good, 600 to 679 is average to below average, and below 600 is considered poor credit.

When banks or other financial companies do a credit check, they will look at all three credit bureaus for your credit score. Smaller companies may only check one of the credit bureaus based on their own experience with each bureau. Remember, each bureau is competing for the credit check business, and fine tunes their credit scoring forumula to offer what they think is an accurate reflection of your credit risk to them.

If you already have a loan or credit card with a company, they may continually monitor your credit score and adjust the terms of your loan or credit card. This could mean a lower credit limit, higher interest rates, or higher payments. Thats why its important to maintain, improve, and monitor your credit score even if you don't plan on applying for any new loans and credit.

Unless you have a bankruptcy on your credit report, improving your credit score significantly can done over time. How long this takes and how much your score can be improved will depend on several factors that affect your credit score.

To get started, you first need a copy of your credit report from all three credit bureaus. These can be obtained free at -->>creditreports123.com-->>

1. Now carefully review everything that shows up for each bureau. You will see each company that is reporting their credit history with you. This includes account number, date opened, date closed, and monthly updates. Each month will have a green, orange, or red color, indicating late payments. You also want to check for companies that you have no business with. These may be accounts with companies you have long forgotten about, such as those store credit cards that offer 10% off if you apply for their credit card. Others may be indicative of more serious problems with identity theft and telemarketing scams.

2. Now go to the section, where it says items that may affect negatively. Negative items will remain there for 7 years. Typical negative items include late payments on credit cards, collection items, settlements, tax leins, etc. You can remove any items over 7 years old by writing a letter to the credit bureau reporting the item requesting it be removed. Remember, the 7 year period begins from the date of the last payment.

3. If you have legitimate explanation for a late payment or collection item other than that you simply did not want to pay the bill, then you can request removal. Lookup the provided address of each creditor that is reporting the item and write a letter to them with your explanation. You do not need to be a professional to write these letters. They just need to know what explanation is and they do not care about the format. Of Course, do your best to write a respectful letter, with proper spelling and grammer, but there is no specific format or a special document or a form required for this.
   

4. If you see a collection item below $100, write the three credit bureaus directly asking them to remove the item. The smaller the amount, the greater the chance of having the item removed. A single $10 late payment can negatively affect your credit score up to 50 points!

5. Look for credit card balances that are more than half the credit limit. Try to move these balances to a lower interest rate card or better yet, pay them off. Keeping your available credit high and your balances low will greatly improve your credit score, even if you are 100% on time on all payments.

Finally, setup automatic payments with your bank checking account for the minimum amounts with all the credit card companies. That way, if you forget to write the check or it gets lost in the mail, then at least the minimum amount is paid off on time maintaining your positive payment history. Making on time payments for at least 2 years greatly increase your score. Of course you can always pay it off, but maintaining a low balance and paying on it consistantly on time will improve your credit score more than having a zero balance.

Significant changes to credit scores can take a few months, so be patient. Your credit score will fluctuate month to month, even if you do everything right. If you follow the tips outlined above, your credit score will trend higher each month. If you are starting below 600, then you should see nice improvements within the first year.

Once you are over the 700 point mark, it will be take longer to go much higher. You will then need to mix up your credit history with different kinds of loans such as home loans, auto loans, AMEX cards, and personal loans. Having just credit cards alone will not get you to an 850 score. However, don't take on more credit than you can handle. Just because you get a credit card with a $30,000 credit line doesn't mean you should go on a shopping spree.

I hope you found these tips useful and information.

To your good financial health,

-Rob

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