Name a three-digit number between 300 and 850 that can have a huge affect on your quality of life. It's your credit score-- sometimes referred to as your FICO (Fair Isaac Corporation) score.
Many people are not aware that if you have poor credit history, this number can haunt you as much as a poor college transcript or criminal record. In the case of renting an apartment or buying a home or car, a poor FICO score can hurt you even more.
There are two main types of Credit: First, there is revolving credit, credit that is extended to you by a merchant or bank. Here, your payments vary with the amount of credit you have used. A Macy's card is an example. A home equity loan or home equity line of credit (HELOC) is another example.
Then, there is installment credit. This is credit that is given in exchange for fixed payments over a fixed time. Student loans, car loans and home mortgages are the most common installment loans.
5 Ways to Get Your Credit Up!
1. Get credit: No credit record is almost as bad as having poor credit. If you pay you bills on time, all the time, gain the benefits of doing so. None of the main credit scoring agencies (Experian, Transunion & Equifax) are keeping records of your good behavior if you do not have some form of credit.
2. Pay small bills with credit cards: A record of steady payments over a long period of time is the number one way towards building an A+ credit score. Ask yourself, what are the three things you can pay on time every month without fail. For most people that would be their gas, electric and cell phone bills.
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Have these bills paid by three separate credit cards. Then have the bill from the credit cards automatically debited from your bank account. Remember, this is a numbers game that strives off of consistency. If you pay these particular bills by check or debit card, the payments will not be recorded by the credit agencies.
3. Do not close accounts in good standing: Closing a paid off credit account is a common tactic used by people in an attempt to help their credit score. The only issue is, this tactic has a reverse effect. Length of credit history is one of the main factors used in building up your credit. Closing a long standing account in good standing is like passing a final with and 95 and then withdrawing from the class.
4. Check your credit often: There are online services that, for a monthly fee, will monitor your credit score and also send you alerts if your score dips or peaks beyond a set of numbers you preset.
Though it's true that everyone is allowed one free credit score a year, it would serve you best to pay for monthly monitoring. The money you save in organizing your credit will pay for the service many times over. Popular sites are www.myfico.com & www.creditexpert.com
Myth: Checking your own credit lowers your score. Fact: Though credit inquiries as a result of your applying for new credit do lower your score minimally, pulling your own credit does not harm your score.
5. Dispute errors: While checking your report you may notice:
1. someone has taken a loan out in your name. Or
2. An account that you have paid is still showing up as unpaid on your record.
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In each of these situations, you can dispute this information. Once the dispute is resolved, your score will reflect an improvement in a few months. I've know people who have gone from the 500's to the 700's using this tool.
Warning: There are scammers out there who claim that they can erase your poor credit history for a fee, usually a large one. This is fraud. Most times they will simply take your money and tell you "it didn't work this time". Should that happen to you, there will be no legal recourse because you would have participated in a crime. Don't do it.
Even if your credit history is wreck with delinquencies, bankruptcy and such, all is not lost. Negative information stays on your report for seven years. The more time that passes, the less it hurts your overall score.
Martin Tkalla Keaton is a senior associate and Multi Million-Dollar Club member of the Corcoran Group.
