December 18, 2012

Dos and don’ts of credit score

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A good credit score can make your life easier, eliminating the frustration of having to negotiate with dozens of lenders before you can obtain a loan. Also, it will help you save a lot of money on the long term, as you are more likely to qualify for good interest rates. However, getting a good score takes time and effort, but it's not extremely complicated. As long as you follow some simple rules, you should start seeing results in one or two years.

Things You Should Do

Always start by checking your credit reports, from all three major agencies. You are entitled to one free copy per year from each of them, and you can require additional copies for a small fee any time you want, so don't ignore this aspect. You cannot make a solid improvement plan if you don't know where you are right now.

If you notice any mistakes in your credit reports, dispute them immediately. The longer you wait, the more difficult it will be to correct those mistakes, and they can have a lot of unpleasant consequences, so take action as soon as you can.

Use your credit cards, accounts, and bad credit loans responsibly. It's good to have a diversified credit portfolio, but taking loans just to diversify the portfolio can become very expensive. Borrow only as much as you need, and repay the debts as soon as possible.

Things You Shouldn't Do

The very first thing you should not do if you want to improve your credit score is also the most obvious, and, at the same time, the most difficult to achieve: don't miss any payments. These include loan repayments, but also utility bills, and everything that comes in the form of a monthly payment. Check all your accounts regularly to make sure there are no overdrafts you forgot, and use automatic payments, if possible, to insure that you're never late.

If you have several credit cards, accounts, or credit lines, and you want to close some of them, avoid closing the oldest one, since the length of your credit history is one of the factors that improve your credit score. Also, do not close a lot of accounts at once; just pay them off gradually and close them one at a time. Make sure you receive the confirmation from the bank that the account is closed; never assume things are done until you have proof in writing.

When you want to take a new loan, avoid applying indiscriminately to many lenders. Just send one application, and wait for the response before going to another lender. All these lenders will check your credit score, and, if the credit agencies receive too many requests on your name within a short period of time, they will decrease your score a little.

Last but not least, do not expect any quick fixed, and do not fall prey to people claiming they can fix your score for you within days. There is no such thing – the score is meant to be a reflection of your long-term credit history, and therefore it cannot be improved overnight.

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