Improve Your Credit Score By Adding Positive Lines Of Credit To Your Credit Report

Published: 08th September 2006
Views: N/A

Copyright 2006 Liz Roberts

Reading and understanding your credit report maybe difficult for many people. You really do have the power to take the mystery out of understanding what your credit report is, how it affects your life, and what you can do to improve that all important credit score. Let's begin with some basic definitions.

What Is A Credit Report And Why Is It So Important
This is a written record of your financial transactions. It details the amount of your current debt, and how well you are repaying it. It also includes a record of past debts, and how/if they were repaid. Every open account you have will be listed, as well as any record of bankruptcies, foreclosures and judgments.

Credit Score
Based on the details in your credit report, you will be given a numerical score, that reflects your level of 'credit worthiness'. This number is based on:

* The number and types of accounts you have open.

* How long you have held the accounts.

* How many late payments you've made, and just how late.

* Your current total accumulated debt.

* Any attempts you've made to open more accounts.

Every company you apply for credit with will examine this score, to determine how likely you are to repay them any money they advance to you.

Would you like to apply for a home or auto loan? A credit card account, or home improvement loan? Your current credit score will be the biggest determining factor in whether your request is approved. Currently the average credit score is a 678. Most lenders feel that a 650 and above is good credit. The higher your score the better your credit is viewed by lenders. Which means lower interest rates.

The Big 3 Credit Reporting Agencies

*Equifax, ( based in Atlanta, Georgia.

*Experian, ( based in Costa Mesa, California.

*TransUnion, ( based in Chicago, Illinois.

Each of these nationwide credit-reporting agencies maintains a credit report on you. Since you have no way to know which one of these agencies a potential lender will contact, you need to keep track of the info contained in all three reports.

How To Improve Your Credit Report Score
Your credit report is a living, breathing document, changing with every entry made. If your score is bad now, there are a few things you can do to improve it.

* Examine each report thoroughly to make sure there are no mistakes. If you find a company listed with debt outstanding, but you know you've paid it and have a receipt or cancelled check to prove it, you can make a challenge to that item on your credit report. The company you are challenging has up to 90 days to respond and defend the item, or remove it from the report. You should resist the urge to make a challenge without proper documentation of your payment.

* Close old credit card accounts, that you are not using.

Even if you aren't actively charging on them, these old accounts that remain open still add up in your total amount of credit available. This total line of credit is compared to your income, and alerts lenders to the fact that you can become overextended any time you choose.

* Keep your debt ratio low

Never use more than 50% of your available credit. Potential lenders want to see that you have money left over after paying your debts. They take this as a sign of good money management skills.

* Add favorable accounts to your credit report.

You can boost your credit score by making sure that debts you are paying on time now, or in the past, are listed in your credit report. These accounts are referred to as tradelines in the industry. It is entirely possible that a company you deal well with hasn't even made a report in to one or all three of the nationwide credit reporting agencies, so it's up to you to see that the good info makes it's way into your report to counteract the bad info.

Examples of tradelines:

* Installment loans

Car loans are a good example of an installment loan. Your current car loan may already be in your report, but what about car loans past? You can add a former car loan that was appropriately repaid onto your current report, adding favorably to your overall score.

In-store accounts for items like refrigerators, washer/dryers, and jewelry that are being paid for on an installment plan should also be included on your credit report if you are making your payments according to schedule. Many of these smaller stores only report to the credit bureaus if an account is placed in collections, ask them to send in a report of your payment history to add a positive tradeline to your credit report. Make sure the creditor notifies all three credit bureaus.

* Mortgage Loans

Again, a current mortgage would likely be listed already, but if this is not your first mortgage, and you have other successful mortgages in your financial past, make sure they are listed. This all still weighs in your favor. If you have paid your mortgage on time with an individual who holds the lien to your home, you should get credit on your credit report for it. Most individuals would be fairly baffled at your request for them to manual add a credit account to your credit report, simply write the three credit bureaus and ask that the account be added and give your point of contact's name and phone number for verification. The bureaus will verify the information and have it added to your credit report. Repeat this process a few times a year to keep your information current.

* Secured Loans/Secured Credit Cards

These are types of credit accounts that you have secured by putting up something as collateral, such as your vehicle or home. You can obtain a secured credit card by depositing a pre-determined amount of money in an account with the individual company. You can then use that credit card to charge up to that amount and your deposit guarantees the company of being repaid, even if you miss a payment. Secured accounts are a viable way to rebuild credit after a bankruptcy, as long as you pay on time

* Utility Accounts

Do you pay your monthly utilities in full and on time? Then try to add them to your credit report. Utilities usually only find their way onto your report if you're behind in your payments. Paying these items faithfully each month should boost your credit record, but if your local utility companies don't actively report in to the credit bureaus via a tape system the firm may decline your request to add your history to your credit report. Most will comply and the benefit of having a new positive account on your credit report makes it well worth the try.

* A Quick Boost

Does your credit need a quick shot in the arm? A quick way to improve your credit score would be to have someone add you as a signer to one of their credit cards. In that way, their good payment record with that card gets put on your credit also.

* Getting A Co-signer

You can also ask someone with good credit to co-sign on a small loan for you. A family member is usually your best bet for finding someone to do this for you. Take out a small personal loan (credit unions tend to have very lenient credit guidelines, and are a great source for personal loans). If it makes your co-signer feel better you can put that money into a savings account where you both are signers. No one can take that money out without the signature of the other person. Then make timely payments on that loan until its paid off. Not only will you have a great new line of credit on your credit report, but you will have money in a savings account earning interest.

While there is really no substitute for paying your debts on time each month, it's good to know that there are ways to improve your credit score. The key is knowing what's in your report, and making sure it's kept accurate

Liz Roberts is a loan consultant with NewHorizon Finance and has been providing consumers and business owners with financing since 1989. Looking for a credit card, feel free to read our credit card reviews

Report this article Ask About This Article

More to Explore