If you’re getting ready to make any big purchase that will involve a loan, you’re likely thinking about your credit score. That’s a smart move, since your credit score can impact the terms of your loan or if you even qualify for a loan at all. If you’ve never really taken a look at your credit score before, or if you suspect there’s a problem and you’re not sure how bad it is, it can seem overwhelming to begin the process. Here are some simple ways you can get started.
- Figure out where you stand. If you don’t know your credit score, the first step is to find out what it is. Each of the three major credit bureaus – Equifax, TransUnion, and Experian - will provide a copy of your credit report. You can visit AnnualCreditReport.com to obtain your copies. While you may have heard that credit inquiries can bring your score down, “soft” inquiries like pulling your annual report will not affect your score.
- Identify errors. If there’s anything on your report that doesn’t look correct, check it out. While some things can be simple mistakes, it’s possible you’ve been the victim of identity theft. Anything that isn’t familiar should be investigated. It’s also possible that information was reported to the credit bureaus incorrectly, so don’t be afraid to correct any false information you find.
- Look for the negatives. If you have any accounts past due or other blemishes on your report, address them. Outstanding balances should be paid and accounts in collections should be handled. If you are delinquent on any accounts, bring them up to date as soon as possible. While fixing these situations may not be easy, knowing what negative items are on your report will help you come up with an action plan to clear them up. If you’re having trouble making payments, reach out to your creditor. They may be able to arrange a payment plan.
- Pay down your debt. The higher your debt, the harder it will be for you to get a loan. This includes having too many accounts open or being too close to your limit. You’ll want to keep your debt-to-credit ratio, that is the amount of debt you have compared to your available credit, on each account under 30%. In other words, if your credit limit on a card is $1,000, try to keep your balance well under $300. For installment loans like mortgages or auto loans, the lower your outstanding debt is compared to the original amount borrowed, the better your credit score will be.
Remember, it may take some time to repair damaged credit. But if you chip away at it, little by little, you’ll start to see that score go up.
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