Somewhere along the line, American consumer society has progressed to the point where access to debt is almost essential to living a middle class life. If owning a house is the modern American dream, most Americans wouldn’t be able to achieve this without the help of the finance industry.

As a result, our finances rely on credit scores. A credit score determines the types of interest rates we receive on loans, and a good credit score could save tens to hundreds of thousands of dollars throughout someone’s life. Technically, it’s possible to live without every using a financial service that requires a good credit score. A full cash-based life is not fully out of the question, but for most, is simply unrealistic.

Because so many people need a good credit score to maintain the best financial condition, choices and actions that increase that credit score. I was contacted by a radio station yesterday to appear on a show to talk about raising your credit score.

The biggest quick fix to improve your credit score is something most consumers have never done. Credit scores are driven by credit reports, and credit reports are driven by the information that lenders and card issuers send them. More often than one might expect, lenders have incorrect information. Credit bureaus make mistakes, as well. There is little excuse for not checking all three credit reports, one from each of Experian, Equifax, and Transunion, for free once each year. Correcting a problem on a credit report can result in a credit score increase of from ten to a hundred points or more.

Once each year, visit AnnualCreditReport.com to get your three free credit reports. Alternatively, you could spread this out so you check a different report every four months, but if you’re looking for an immediate change and you haven’t looked in the past year, it doesn’t hurt to get it all done at once.

After you retrieve your credit reports and avoid the gratuitous up-selling, check every piece of data on each report for accuracy. Any problem with your personal data can be corrected easily, but if there’s a negative item on your credit report that does not apply to you, you will need to file a dispute with the bureau. This involved sending a letter through the mail, with any documentation you have to support your claim attached. The credit bureau will reach out to the creditor in question and they’ll have thirty days to respond.

Some negative items are supposed to drop off your credit report after a certain number of years, but often, the bureaus overlook this on individual credit reports until someone brings it to their attention. It pays to be vigilant of this potential situation.

• Old bankruptcies must be removed from your credit report after ten years.
• Lawsuits and judgments must be removed after seven years, even if you haven’t fulfilled the court order.
• Paid tax liens remain for seven years, and unpaid liens remain for fifteen.
• If you are divorced and your spouse incurred debt when you weren’t married — either before you were married or after your divorce — it should not appear on your report.

If any of the above situations apply to you, and the time period for which the items need to remain on the report has passed, contact the bureau as soon as possible to have the negative items removed. Your credit scores should improve almost immediately.

Keep in mind there isn’t just one credit score. Each bureau has their own formulas and use their own data, and there are several varieties published by each bureau. FICO and FICO 08 are the most popular credit scores, but when lenders, landlords, employers, and anyone else checking your credit researches your history, they could be looking at any one of several sets of information. Differences in these histories can lead to different credit scores. While there are differences in scale and exact score formula, the same approaches to the use of money and credit can improve your score across all brands.

You can maintain a good credit score by developing a long history of responsible credit use, not using too much credit, and having a good mix of types of credit. Here are some specific tips:

Pay your bills on time. If you’re more than 30 days delinquent on any bill, it will negatively affect your score. Pay them on time.

• Keep credit card balances low. The ratio of debt to available credit affects your score; the higher the ratio, the higher your score. Keep this in mind if you consolidate multiple credit cards to fewer. This can result in the same level of debt but a lower level of available credit.
• Don’t open unnecessary accounts. I know from personal experience that being at a sales counter in a store and being offered a 15% discount “just for applying” for a store credit card can be enticing. 15% is a good discount! On the other hand, opening credit card accounts lowers your credit score.
• Manage your credit cards responsibly. Using cards properly by paying off the balances quickly and taking care of installment loans builds up credit history. Banks will see someone with a favorable credit history as less risk as an individual with no history.
• Closing an account doesn’t help. If you made mistakes in the past, they won’t go away from the credit report simply by closing the account. Some items can stay on the report (and be factored into your score) long after you’ve reformed your ways.
• Keep your oldest credit history. The age of your credit history is an important factor in your score, so even if you don’t like the terms on your oldest credit card, don’t cancel it. There’s no need to continue using the card, but keep it open.

What are your suggestions for increasing your credit score and maintaining a good credit history?

Photo: Andres Rueda

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