Sunday, May 18, 2008

Fixing Your Credit – Tips And Tricks

This is part four in a series on Credit Card Education.

Part 1: General Credit Card Information
Part 2: Credit Reports and Scores Explained
Part 3: Building Your Credit - Your First Credit Card
Part 4: Fixing Your Credit – Tips And Tricks
Part 5: Where To Check Your Credit Reports And Scores
Part 6: Amex Financial Review
Part 7: Store Credit Cards
Part 8: Churning Credit Cards - Tips and Tricks

Part 9: Credit Cards With Great Signup Bonuses

Check your credit report.

Everyone has three reports, one with each Credit Reporting Agency (CRA). You should periodically check your credit reports. More than 25% of reports have mistakes in them that affect the credit score! More than 75% have mistakes that don’t affect the score.

Part five of this series will include all the best places to check your reports and scores.

If you notice a mistake, send a letter to the CRA (whichever agency has the mistake on file). They have 30 days to verify what it says on the report. If it’s a mistake, they have to take it off. Even if something is not a complete mistake, it might be worth challenging it. If they cannot verify it within 30 days, they must remove it from your report. For assistance in writing up a dispute letter to the CRA's click here.

Common Mistakes you might find:

  • Accounts which don’t belong to you.
    This could be a sign of fraud, or simply a mistake. For instance someone with a similar name to you,
  • High limit:
    Are all your cards reporting your credit limit? (Your total available credit for each card.) If they do not, your current balance might be considered your credit limit! This is not good, as it’s considered like you are using 100% of your available credit.
    Warning: Be aware that cards which offer you ‘no pre-set spending limit’ might be harmful to your credit score, as once again your balance might be considered your available credit. What will often happen in such cases is, once you have a high balance on month on your card, that balance will start getting reported as your credit limit. so, if you spend way less than that in the future, it may be good for your credit.
  • Missing accounts:
    This does not necessarily mean there is a mistake. It’s possible that this specific card doesn't report to this CRA. Some of the store cards and student cards don’t report to any of the three CRA’s. You can call them and ask them to start reporting to the CRA’s. They don’t have to listen though.
  • Personal information:
    A mistake in your name is not that important to fix, but you might want to anyway.

High Debt:
High debt on one or more of your cards:
These steps will help raise your score. You have to figure out what makes sense money-wise. (If one card has a low APR and another has a high one etc. Read part one on APR's)

  1. Spread the debt over a few cards, like that you won’t be using more than 50% of any card limit. Try and get a 0% APR offer.

  2. Transfer debt to a business credit card
    Business credit cards will show up as an inquiry on your report when applying, but your actual account (credit card) will not show up on the credit report, neither will your spending/credit limit. This works best when you can get a business card with a 0% APR on balance transfers.

    If you can’t get a 0% APR on balance transfers, you can get a 0% APR on purchases. Then, use the business card for your new purchases, and instead of paying for the new purchases, pay off your old debt.

    Warning: If you overdo this, the credit card company might close you down. (Especially Amex)

Changing Addresses
If you change addresses often, it will have a slight negative effect on your score. If you move often, try and leave your credit card billing address at a more permanent address.

Late payments and bad credit history
Time will help
. There is no way to take negative items off your report, although you can always try your luck disputing it with the CRA's. After a few months, negative items will start affecting your score less, and will continue to do so as time goes on. After 7 seven years, negative items should drop off your report. The best thing would be to make everything else perfect, then, with time, your score will rise.

You can also read Part 3: Building Your Credit - Your First Credit Card to try and raise your credit score. The tips there can be applied to someone with bad credit as well.

Disputing charges:
When disputing a charge with a regular company that you paid using a credit card, it’s simple: you can fight for your money, either you win or lose. Any company that has your social can easily mess up your credit. In fact, any debt that makes it to collection agencies can get on to your credit report. It is fixable, but think twice before you decide to fight till the bitter end with your cell phone company over $100, because it might not be worth the hassle of trying to fix your credit later.

Settling Debt:
If you owe a company money and you are settling the debt (paying part of what you owe, and not paying the rest), and you are scared that it will make to your credit report, try to negotiate that it shouldn’t say ‘settled on the credit report, rather it should say ‘paid in full’. If it would say ‘settled’ on your account, it is not good for your score. It is very often worth it to pay more, just that it should say ’paid in full’.

Related links: has a section explaining Credit Scores. has a nice video selection on credit scores.


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