Improving Your Credit

You probably know that people with good credit scores get loans at lower interest rates than those with poor scores. If you are considering a car purchase soon, it might be a good idea to check your credit score so you aren’t surprised if you sit down with a loan officer soon.  But, how do you find out what your credit score is?

It’s free now

Not long ago, you had to pay money to access your credit score.  There were many institutions that would do it for you -like banks and credit unions- but you had to pay $25 or so for a report. Today, it’s different. You can get your credit score for free from a number of websites. A very popular one is http://www.CreditKarma.com. Credit Karma not only gives you your credit scores from both Transunion and Equifax, it will give you tables of payments from your creditors so you can see your payment history.

Ranked from 300 to 850

Credit scores generally range from 300 to 850. If you find that your credit score is lower than 700, it’s a good idea to see if you can build it up a little. With a score that comes in north of 700, you will get the best loan rates. Here are some of the things that you can do to get your credit history looking a bit better.

Request a higher credit limit

This may seem counter-intuitive but if you have a high credit limit, your credit score may go up. This is because of a factor called the “credit utilization ratio.” Here’s an example: If you have a credit card with a $12,000 limit and $1,200 of debt on that card, your credit utilization ratio is 10 percent. You want that number to be as low as possible.

So, how do you get a lower credit utilization ratio? The best way is to pay off any debt that you might have. The other thing you can do, believe it or not, is ask for a higher credit limit.

Look for erroneous information

Your credit score is calculated based on the information in your credit reports. Here’s what you should know: sometimes they are wrong! It is not uncommon to find financial information that is reported wrong, and sometimes not even yours i.e. it’s from another person.

Go to one of the free credit report sites, like http://www.CreditKarma.com, and talk a look at how the big three reporting agencies: Equifax, Experian and TransUnion rate you. Then carefully review the reports and see if there are any mistakes. If you find any, contact the creditors involved.

Request deletion of negatives

Just as creditors have the power to add positive/negative data to your credit report, they also have the ability to delete negative data. They are generally reluctant to do this but if you are a good customer and have a good argument, they might do it.

Here’s a good example: If you missed a payment because of medical reasons, mention that. The key here is to be able to show that the negative data point isn’t representative of the quality of customer you are. If you’re a significant and longtime customer, remind the person how much the company should value your business and that you are free to go to another institution whenever you like. They often respond to that arguement.