Looking For Ways To Improve Credit?

Once you've discovered you need to improve your credit, how do you go about it? One step at a time is the answer! Following the tips below will help you get off to a good start and make steady progress to improve credit.

Step One: Check Your Credit Report For Mistakes

Credit reporting agencies are the companies that report your credit record to lenders. They do their best to compile accurate credit histories, but don't always have fully up-to-date information, and mistakes can creep into your report. Even people who are fairly confident that they don't have issues can sometimes get an unpleasant surprise!

Checking your credit report at least once a year will help you to identify incorrect reporting long before it prevents you from getting a home loan or an urgent personal line of credit. Free credit reports are available once a year to U.S. residents from each of the three credit agencies. For the credit report to be free, it must be ordered by:

• Going online to www.annualcreditreport.com; or
• Calling 1-877-322-8228; or
• Completing the form in the Annual Credit Request brochure and mailing it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281

If you've been turned down for a loan, credit card, insurance policy or job due to a negative credit report, you're also entitled to a free credit report from the credit bureau. In those cases you would contact the credit bureau separately.

When examining your report, be sure to look out for mistakes or inaccuracies, incorrect mailing addresses or someone else's Social Security number, inaccurate reporting of late payments, etc.

Step Two: Report Credit Report Errors And Follow Up

If you find any errors, be sure to send the credit bureau—TransUnion, Equifax or Experian—a certified letter that clearly explains the problem, and include supporting documentation if necessary (such as a receipt copy or a copy of cleared check to show that a loan payment was made and the date of payment).

Although they are legally required to respond to your inquiries within about 30 days, we recommend that you follow up to ensure that any mistakes do in fact get removed. Remember: if they stay on your report, they'll count against you, so following up with the credit bureau is well worth your time and effort to help improve your credit.

Step Three: Close Your Unnecessary Credit Accounts

Think about your approach to credit realistically. Why have more accounts than you can effectively use and pay? Once you've paid your living expenses and made all your regular debt repayments, you should have at least 10% of your monthly net income left. If not, it could be that you have more debt than you can easily control. Closing any extra accounts will help remove the temptation and means to over-spending—and can improve your credit score if you have credit the agencies consider excessive.

Be sure not to close all your accounts though, as you need to have some to maintain a solid credit history. Besides your mortgage, auto loans or other loans secured by collateral, generally having 2-4 credit cards or credit lines would be a responsible amount of credit.

Step Four: Live Within Your Means

Not spending more than you earn – or not spending more than you can comfortably repay – is one of the soundest ways to keep your credit record stable and healthy. It's also absolutely necessary to improve your credit. Timely bill payment is also essential. Request that your bank make automated payments to the companies you write checks every month, and always budget towards paying your regular living expenses before you go shopping!

Next, learn how to improve your spending habits to improve your credit.