How to Improve Your Credit Score by Thomas Spata

How to Improve Your Credit Score

6 Simple Steps You Can Take to Raise the Number that Controls Your Financial Future

Harvey L. Cox, Attorney at Law

First Edition

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No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means, electronic, mechanical, photocopy, recording or otherwise, without the prior written permission of the author, except for brief quotations in critical reviews or articles. Such quotations must be in context.

Published by NoLegalesePublishing Company http://NoLegalesePublishing.com

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Disclaimer

The author gives no warranties and makes no guarantees to any purchaser or end-user of this book. The book is intended for informational and educational purposes only. This book must not be considered legal advice. It is not intended to be a substitute for advice from an attorney. It is solely intended to provide information about improving your credit score.

The author shall not be liable for any errors or omissions in the content or for reliance on the content, nor shall the author be liable for any damages or costs from use of or reliance on the information contained in this book.

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About the Author

Harvey L. Cox is a licensed attorney and certified mediator in the State of Texas. He has been in the private practice of law since 1990. He is the founder of NoLegalese Publishing Company and the Texas Judgment Collection Center.

In addition to this publication, he is the author of the following publications: How to Collect Your Own Judgment in Texas What You Absolutely Must Know If You Owe a Judgment in Texas

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Table of Contents Introduction!.............................................................................7 Step #1: Get a Copy of Your Credit Report!..........................7 Your Personal Information!..................................................................8 Review All of Your Credit Accounts!....................................................9 Look Through All Your Inquiries!..........................................................9 Examine Your Collections and Public Records!.................................10

Step #2: Dispute the Errors on Your Credit Report!...........10 Sample Dispute Letter!......................................................................11 Accurate Negative Information!.........................................................12 Adding Accounts to Your File!............................................................13

Step #3: Pay Your Bills on Time!.........................................13 How to Make Sure Your Bills Get Paid on Time, All the Time!...........13 Setup Automatic Payments!..............................................................14 Recurring Credit Card Charges!........................................................14 Online Bill Payment!...........................................................................15 Pay Your Bills as They Come In!.......................................................15

Step #4: Pay Down Your Debt!.............................................15 Change Your Approach to Paying Off Your Debt!..............................16 Pay Close Attention to How Much You Charge, Even If You Pay Your Balances Off in Full Every Month!.....................................................16

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Step #5: Don始t Close Credit Cards or Other Revolving Accounts!...............................................................................17 Step #6: Apply for Credit Sparingly!...................................17 Conclusion!............................................................................18

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Introduction You see the advertisements in newspapers, on TV and on the Internet. You hear them on the radio. You get fliers in the mail. You may even get phone calls offering credit repair services. They all make the same claims: “Credit problems? No problem!” “We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!” “We can erase your bad credit — 100% guaranteed.” “Create a new credit identity — legally.” The Federal Trade Commission (FTC) says do yourself a favor and save some money, too. Don’t believe these claims because they’re very likely signs of a scam. Indeed, attorneys at the nation’s consumer protection agency say they’ve never seen a legitimate credit repair operation making those claims. The fact is there’s no quick fix for creditworthiness. You can improve your credit report legitimately, but it takes time, a conscious effort, and sticking to a personal debt repayment plan. That’s what this report is all about. It gives you six simple steps you can follow to improve your credit report legitimately. Just follow the steps. You will see an improvement in your credit score.

Step #1: Get a Copy of Your Credit Report Obviously, your credit score is based on your credit report. So, to start the process of improving your credit score, you should get a copy of your credit report. There are three major credit bureaus. They are: Equifax www.equifax.com 800-685-1111 Experian www.experian.com 888-397-3742 Trans Union www.transunion.com 800-888-4213 You want to get copies of your credit report from all three bureaus. Why? Because they don’t share information. So, your report will likely vary between the different bureaus. The variations exist because information about your existing and past credit accounts is reported to the bureaus by your !

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creditors. Other information about you, like judgments, liens and bankruptcies are found by the bureaus in public records. Some of your creditors may report to all three bureaus while some may only report to one or two. The result is a variation in your credit account listings with the different bureaus. Likewise, each bureau conducts its public record searches on different schedules. Thus, each bureau may show slightly different information from your public records. You’ll get the best picture of your credit report information by getting a copy of your report as kept by each credit bureau. You can get a copy of your report by contacting each agency via mail, phone or the Internet at the addresses listed above. As a quicker alternative, you can get your reports from an online consolidating service like MyFico.com. Once you get copies of your credit report, you will need to review the details looking for specific information. The actual organization of the information varies from report to report. But, they are pretty similar. What you’ll find is that they each present your information in the following order, more or less.

Your Personal Information At the top of each credit bureaus report is information that identifies you. Here’s what you want to pay close attention to as you read the report. •

Names that aren’t yours.

Don’t just look for misspellings of your own name. Look for names that simply aren’t you. •

Social Security Numbers that don’t belong to you.

•

The wrong date of birth

•

A listing of addresses at which you have never lived

The kinds of errors listed above may be indications that someone else’s information is in your credit file. That erroneous information could be the result of a simple error. Of course, it could also be evidence that you are the victim of identity theft. As you go through your personal information, you might also find unimportant errors. Unimportant errors are things like having an employer listed that you no longer work for. Or, it could be that there’s a misspelling on your current address or a past address. You may certainly ask the credit bureau to fix those types of problems. But, they really aren’t that significant and shouldn’t rise to the level of a priority issue as you work to improve your credit score.

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Review All of Your Credit Accounts The next section of your credit report lists credit accounts that you’ve opened. It also includes information such as the date you opened each account, whether the account is still open or is now closed, the type of account, the account number (this is usually abbreviated for security purposes), your payment history, your credit limits and your balances. You want to scan the credit accounts section closely for the following: •

Accounts that aren’t yours

•

Delinquencies that aren’t yours

•

Late payments and charge-offs that aren’t yours

•

Late payments, charge-offs, or other negative entries that are more than seven years old (bankruptcies aren’t included in this seven year limitation)

•

Debts that your spouse incurred before marriage

•

Any other incorrect account notations. This would include the report listing a debt as past due when in actuality it was wiped out in a bankruptcy filing

If you find a lot of incorrect information in the credit accounts section of your credit report, especially items that are delinquent or unpaid, you could be a victim of identity theft. But, don’t jump to conclusions and panic. There are plenty of times when incorrect information appears in a credit report as the result of an accidental mix-up by the credit bureau. Although it’s now rare, there are times when the credit bureaus accidentally merge someone else’s information with yours. This happens most frequently when two family members have the same or similar names.

Look Through All Your Inquiries Inquiries show who has asked to review your credit report. Your credit score doesn’t count inquiries made by lenders sending you pre-approved credit offers or your own requests to see your credit history. These are known as soft inquiries. The inquiries that matter are the ones from lenders who are checking your report because you’ve applied for credit. These are called hard inquiries. What you want to look for among these inquiries is: •

Credit inquiries older than two years

•

Hard credit inquiries that you didn’t authorize

If you find either of these two types of inquiries, add them to your list of items to dispute with the credit bureaus. !

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Examine Your Collections and Public Records The last section of your credit report contains information about any collection actions or public records. Public records include bankruptcies, foreclosures, garnishments, lawsuit judgments and tax liens. Here’s what you want to look for: •

Bankruptcies that are older than 10 years or that aren’t listed by the specific bankruptcy code chapter (in other words, make sure it shows Chapter 7, Chapter 13, etc.)

•

Lawsuits, judgments or paid tax liens older than seven years

•

Paid liens or judgments that are listed as unpaid

•

Duplicate collections (this would be like a loan that’s listed under more than one collection agency or that is listed once with the original creditor and once with a collection agency)

•

Any negative information that isn’t your information

Now, if you’ve gone through this entire review process and haven’t found any errors or incorrect information on your credit report, move on to Step #3: Pay Your Bills on Time. If, however, your detailed review of your credit report has revealed errors or inaccurate information, move on to Step #2: Dispute the Errors on Your Credit Report.

Step #2: Dispute the Errors on Your Credit Report Federal law requires credit bureaus to investigate any mistakes you bring to their attention. And, they have to investigate it and report back to you with the results of that investigation within 30 days of your dispute. What the credit bureaus typically do is ask the original credit that reported the information to check its records and report back to the bureau. If the creditor either can’t verify the information or it doesn’t report back to the credit bureau within 30 days, the credit bureau deletes the item from your report. The best way to dispute an item on your credit report is simply to tell the credit reporting company, in writing, what information you think is inaccurate. You can best accomplish this dispute by sending a letter with copies (NOT originals) of documents that support your claims of inaccurate information. Make sure your letter includes your name and address and that it clearly identifies each and every item you dispute on your credit report. Be sure to state why you dispute the information and request that it be deleted or corrected. You should include a copy of your credit report with the item(s) in question circled or highlighted with a marker. The following is a sample letter you might want to use to make your dispute:

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Sample Dispute Letter Date Your Name Your Address Your City, State, Zip Code Name of Credit Reporting Agency Address City, State, Zip Code To Whom It May Concern: I am writing to dispute the following information in my credit file. The items I dispute are circled on the attached copy of the report I received. This item (identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.) is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why). I am requesting that the item be deleted (or request another specific change) to correct the information. Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records and court documents) supporting my position. Please investigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible. Sincerely, Your name Enclosures: (List what you are enclosing) You want to document that the credit bureau received your letter and the date they received it, so send your letter by certified mail, return receipt requested. Keep copies of your dispute letter and enclosures. If your dispute results in a change on your credit report, the credit bureau must give you the written results and a free copy of your report. (This free report does not count as your annual free report under the FACT Act.) You can also request that the credit bureau send notices of any correction to anyone who received your report in the past six months. A corrected copy of your report can also be sent to anyone who received a copy during the past two years if they received it originally for employment purposes.

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If an item you dispute is changed or deleted, the credit bureau cannot put the disputed information back in your file unless the information provider verifies that the information is, indeed, accurate and complete. Understand that some creditors regularly report the same old errors and misinformation to the credit bureaus. So, it’s entirely possible you could dispute an item, have it removed, and then see it resurface on your report again in a few months. Should you have this happen, you may have no alternative but to seek the assistance of an attorney to make sure the error or inaccurate information gets removed permanently. Should you need that type of legal help, I recommend Ovation Law. They have been very successful in helping individuals make permanent corrections to their credit reports. I’ve referred numerous people to them and have only received back good reports. You should also be aware that even if you’re successful in getting errors removed from your report, it doesn’t guarantee you’ll see an improvement in your credit score. It might help you. It might not help you. It all depends on the rest of the information remaining in your credit file. The following sections present the best and most effective ways to make sure that the information remaining in your credit file reflects well on you and your score.

Accurate Negative Information When you have negative information in your report that’s accurate, there’s nothing you can do “proactively” to remove it. Only the passage of time will remove accurate negative information from your credit file. A credit reporting company can report most accurate negative information for seven years. Information on an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. You calculate the seven-year period from the date that the event took place. Bankruptcy information can stay on your report for 10 years. There is no time limit on reporting the following information: •

Criminal convictions

•

Information reported in response to your application for a job that pays more than $75,000 a year

•

Information reported because you’ve applied for more than $150,000 worth of credit or life insurance.

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Adding Accounts to Your File Your credit file may not reflect all your credit accounts. Your credit report will contain most of your national department store and all-purpose bank credit card accounts, but not all of them will be included in all three credit bureau files. Also, most local retailers, credit unions, and travel, entertainment, and gasoline card companies are usually not included in your credit report. If you’ve ever been denied credit because of an “insufficient credit file” or “no credit file” and you have accounts with creditors that don’t appear in your credit file, you can ask the credit bureaus to add this information to future reports. While they aren’t required to add this information to your credit file, all three credit bureaus will add verifiable accounts for a fee. But, you should be aware that it may not help your credit score to have them in your file. A lot of the creditors you have to add yourself don’t generally report to the credit bureaus. That’s why they’re not already in your file. So, even though you add them, their information won’t be updated in your file. If they don’t update regularly, they won’t likely have a positive effect on your credit score.

Step #3: Pay Your Bills on Time One of the reasons prospective lenders look at your credit report is to see if there are any signs that you might default if they give you credit. Late payments are a good indicator that you’re in financial trouble. Normally, a payment has to be at least 30 days overdue for a creditor to report it to the bureaus. But, that doesn’t mean it’s a good idea to be even one day late on a payment. Your payment history with your current creditors makes up about one-third of your credit score. So, making sure you pay your bills on time - all of the time - is essential. You will get a higher score if you consistently pay your bills on time.

How to Make Sure Your Bills Get Paid on Time, All the Time You’re responsible for paying your bills whether you get a statement or not. You’re responsible for keeping track of what you owe to whom and making sure that everyone gets paid. It’s your responsibility even if the U.S. Postal Service falls down on the job and loses or fails to deliver your monthly statements. One of the best ways to stay on top of what you owe and when you owe it is to make a list of every bill you have to pay each month and the date it’s due. Yes, credit card due dates can vary but they’re usually around the same time each month. At least they’re close enough to the same date that you can put them on your list and be accurate within a day or two. Next, list all of your bills that are due less regularly than once a month. This list will include any bills that you have to pay every other month, every quarter, every six months or annually.

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After you get this complete list of bills, get either a paper calendar you can hang prominently on a wall or an electronic calendar on your computer and enter all your bills on that calendar. Now all you have to do is make it at least a weekly habit to check the calendar to see what bills are coming up. Using this system you can plan ahead appropriately to make sure all your bills get paid on time every time. Here are some other actions you can take to make sure your bills get paid on time.

Setup Automatic Payments An automatic payment allows your creditors to take their payments directly from your checking account each month. Once you set it up, you don’t have to take anymore action at all. An automatic payment means no more checkbook, no more stamps, no more fuss and no more late payments. Most people, however, cringe at the idea of letting a mortgage lender, utility company or other credit have regular access to their bank accounts. Some even feel like it’s an invasion of privacy. In reality, the creditor can’t “see” into your account or monitor any other activity taking place in your account. The money comes out just like you have written a check or done an electronic transfer. If you’re not in the habit of paying your credit card balances in full every month, you may think that automatic payments aren’t for you. Wrong! Most credit card companies have several automatic payment options for you to choose from. They can take out just the minimum payment required each month or a set amount each month instead of the full statement balance. Of course, if you choose one of these other options you can still pay more by check or online at any other time during the month. Federal law prohibits vendors from taking out more than you authorize. And, if some kind of error occurs where the creditor does actually take out more than you authorize, they are required to replace it.

Recurring Credit Card Charges If you’re not ready to let your creditors have access to your checking account with an automatic payment, you can have some of your bills charged automatically on your credit card. Using a credit card for automatic payments gives you an extra layer of protection against fraud and mistakes. If a mistake is made with an automatic charge to your credit card, your credit card company acts as a middleman to resolve the problem. You can dispute an erroneous charge with the credit card company and not have to pay it until the problem is resolved. This is, of course, very different than having a mistake that results in money being taken out of your checking or savings account. Using a credit card for recurring automatic payments, however, does come with two big warnings:

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1. You should only use this method of automatic payment if you can pay off the card in full each month. If you can’t pay it in full, you’ll end up paying credit card interest and that’s rarely a good idea, especially when you’re paying basic monthly expenses. 2. You should use this only with your smaller bills. Your credit score is affected by how much of your available credit you use, regardless of whether you pay your bill in full each month or not. If paying your bills with an automatic credit card charge would bring you anywhere close to your credit limit, you’ll be hurting your credit score rather than helping it.

Online Bill Payment If automatic payments don’t thrill you, whether via direct debit of your checking account or recurring charges to your credit card, you may want to look at online bill paying. With online bill payment you can set up your system so that you decide when each bill gets paid. You also have the option to set up recurring payments so that bills get paid automatically. The difference is that you decide when these recurring payments start and stop, not the creditor. Of course the automatic payment works only for bills that are the same amount each month. Since credit cards and other bills vary you will have to specify the amount that gets paid to them every month. So, online bill payment is a little more “hands on” than the other two methods. But, it’s a safe alternative to the other automatic methods.

Pay Your Bills as They Come In If you simply don’t want to consider any of the automatic or semi-automatic options listed above, you can discipline yourself to sit down and pay each bill immediately when it arrives each month. This definitely solves your worries about late payments. Of course, you should still keep a calendar to keep track of your statements and due dates so you can be sure a bill hasn’t gone awry. But, you won’t have to worry about losing a payment notice in a pile of other paperwork.

Step #4: Pay Down Your Debt The second most heavily weighted factor in credit scoring is how much of your available credit you’re actually using. The lower your balances compared to your credit limits, the better for your credit score. Your credit score gauges how much of your limit you use on each card or revolving line of credit, as well as how much of your combined credit limits you’re using on all your cards. The score also factors in any progress you’re making on paying down installment accounts such as auto loans and mortgages. What does this mean for you on a day-to-day basis?

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It means that you should be paying down your debt to improve your credit score. If you continue charging on your credit cards instead of paying down your balances, you’re using more and more of your available credit limit. As you use more or your credit limit you’re actually damaging your credit score. So, the bottom line is that you can start improving your credit score by actually paying down some of your debt.

Change Your Approach to Paying Off Your Debt When you’re trying to get out of debt, the usual advice you get is to pay off your highest interest rate debts first and to use any lump sums you get to pay off any bills you can afford to pay in full. That advice makes a lot of sense financially. But, it isn’t the fastest way to improve your credit score. If you want to emphasize the improvement of your credit score instead, then you should do the following: 1. Prioritize your debts by how close the balances are to the credit limits on the account. Once you’ve isolated the credit card or other revolving account that closest to it’s limit, focus on paying that card down below 30% of it’s limit. After the first one is paid down, focus your attention on the next card that meets the same criteria and pay it down below 30% of its limit. Your goal should be to eventually pay off all of this debt. But, you should do so in this alternating fashion. 2. Avoid consolidating your debts There’s a lot of talk today about consolidating your debts. Many people want to transfer multiple balances onto a single credit card to either take advantage of a low rate of interest or simply for the convenience of having only one due date and payment to worry about. But, for credit scoring purposes, this is a mistake. It’s actually better to have small balances on a number of cards than a large balance on one card or line of credit. The reason it’s better is that the credit score looks at the gap between the balance and the limit on each card AND the gap between total credit limits and actual balances on all your cards put together.

Pay Close Attention to How Much You Charge, Even If You Pay Your Balances Off in Full Every Month Your credit score doesn’t differentiate between the balances you pay off and those you carry from month to month. The balances your creditors report to the bureaus each month are typically those that are on the monthly statements they send you. Practically, this means that even if you pay your statement balance in full on the day your statement arrives, you’ll still have that balance appear on your credit report. And, if that balance shows on your credit report for that month, it will factor into your credit score. !

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So, even if you do pay your balances in full every month you still need to pay attention to how much you’re charging each month. Make every attempt to stay well below your credit limits every month. Your balances shouldn’t exceed 30% of your total credit limit at any given time.

Step #5: Donʼt Close Credit Cards or Other Revolving Accounts If you want to improve your credit score, don’t close any of your current credit accounts. Closing accounts never helps your credit score. There is even some evidence that closing accounts may actually hurt your credit score. Why? Because closing down accounts reduces your total available credit. By reducing your total available credit your balances are larger in relationship to your overall credit. That narrowing gap between the credit you’re using and the total credit available to you is one of the things that can hurt your credit score. The formula for determining your credit score takes into account the age of your oldest credit account and the average age of all your accounts. It only stands to reason then that closing older credit accounts can also hurt your credit score. It’s particularly important that you not close your oldest account because doing that will make your credit history look years younger than it actually is. The result would likely be a drop in your credit score. Be aware, however, that it may not be sufficient to simply keep your oldest credit card active but tucked safely away in a drawer somewhere. If you don’t charge something on it every now and again, your creditor could decide that the account is not worth the trouble of keeping open and close it for you. To keep the card active you can charge some small recurring bill to the card, like health club dues or something similar. Just make sure you pay the balance off every month.

Step #6: Apply for Credit Sparingly The number one rule for being a responsible credit user is to only apply for credit you need. To say it another way, responsible credit users don’t apply for credit they don’t need. You should also pace your credit requests so that you’re not opening a lot of different credit accounts in a short period of time. While your first few credit accounts do serve to build and improve your credit history, there does come a point when each subsequent credit card application can actually reduce your credit score. No one really knows where that point is for sure. I suspect it has a lot to do with the totality of information in your file. But, don’t let that keep you from applying for any credit you might need. If you need a car loan, apply for it. If you need a mortgage or would benefit from refinancing your current mortgage, go ahead and do it.

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But, if you have four or more credit cards, you might think again before applying for another one. Likewise, you should resist the urge to apply for those “instant” accounts retail stores offer you. To entice you they generally offer a certain percentage off your current purchase (usually 10%). But, it could cost you in the long run if the application lowers your credit score.

Conclusion Regardless of your credit history or your credit score, you should review your credit report periodically. There are three main reasons for regularly reviewing your credit report: 1. The information in your credit report affects whether you can get a loan or insurance as well as how much you will have to pay for it. 2. It’s important to make sure the information in your credit report is accurate, complete and upto-date before you apply for a loan for a major purchase like a house or car, buy insurance or apply for a job. 3. It can help you deter, detect and defend against identity theft. If you’ll review your credit report regularly and follow the six steps outlined in this report every time you do review your credit report, you’ll definitely improve your credit score - and you’ll do so legitimately and legally.

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