In our busy lives, it is easy to miss paying a bill.

However, your lenders won’t accept excuses for why they you didn’t pay them as you agreed to do.  For example, your bankcard company cannot make excuses for being late in paying the merchants where you made your purchases.

When you don’t pay, they still have to pay on your behalf.

Missed payments can have a severe impact on your credit scores. And lower credit scores will often penalize you with higher interest rates – which can end up costing you tens-of-thousands of dollars throughout your life.

So here are five strategies to help you build the best credit scores:

1. Never miss making a payment.

One of the best ways to establish a great credit history is to demonstrate that you can manage credit and pay all of your bills as agreed.

Late payments will likely cost you in penalties and can cause your interest rate to rise significantly.

But, when you miss an entire payment for the month, it will be reported in your credit history and can have a terrible impact on your credit.

So, even if it is only the minimum amount, make a promise to start paying every bill on time. You see, paying your bills as agreed shows that you’re trustworthy and diligent in paying off debts.

When you want to apply for new services, companies will want to do business with you. They will trust you to be a good customer and are more likely to offer you their best rates and lowest down payments. And, companies will want to hire you because you have demonstrated that you manage your finances well and will likely be a good manager of their resources.

Strategies to help you pay your bills on time:

• Set-up auto payments with your bank
• Use an online calendar to set-up alerts to remind you to make payments
• Schedule an email to be sent to you when a bill is due

2. Reduce your debt on “revolving credit” accounts.

You probably know that your credit scores are impacted by the amount of debt you owe.

But you may not know that when lenders consider doing business with you, they are going to analyze your utilization rate.

That’s just a fancy term that informs lenders how much debt you have vs. the amount of credit available to you.

For example, if you owe $5,000 on a credit card and have a credit limit of $10,000, you’ve used up 50% of your available credit.  That means you would have a 50% utilization rate, which is very high and likely to hurt your credit scores.

Work on reducing to your debt so that you’re utilization rate is under 30% on all your revolving credit accounts.  Ideally, you should only charge what you can pay in full each month which means you aren’t using credit to live beyond your means.

Steps to help you find credit cards with high utilization rates:

1. Review the last credit card billing statement for each card
2. Write down the credit card debt owed
3. Find out what your credit limit is for each card
4. Divide your credit card debt by your credit limit (and then multiply by 100)
5. Calculate your utilization rate for each card, and identify any cards over 30%

3. Keep older credit card accounts active.

Some people make the mistake of closing old credit accounts simply because they aren’t using the accounts anymore.

But older credit accounts with good history can actually help you build your scores over time.

Closing the account will mean that great credit history will get deleted after 10 years, which could actually drop your score.

So keep older, good credit accounts live.

4. Audit your credit report to make sure it’s accurate.

Many people don’t realize that they are able to access their credit report for free from each credit bureau every year.

This means you could pull your credit report every 4 months from a different bureau to look for signs of fraud.

It is important to review your credit report regularly to make sure your identifying information is correct so that all of your accounts can be correctly linked to you.

You also want to make sure your accounts are being reported correctly by your lenders.

How to get your free credit report and dispute any errors:

• Go to annualcreditreport.com and verify your identity by answering authentication questions to access your credit report for free.  If you can’t pass authentication, you will be provided instructions on how to write.
• Review your credit report and look for any errors (accounts that do not belong to you, delinquent payments that were not late.)
• Dispute any errors as instructed and allow up to 30 days for the account to be verified with your lender
• If the lender changes the status of their account, they will also report the update to any other credit reporting company to which they provide their data.

5. Communicate directly with your lender

If you have a delinquent payment listed and you don’t agree that it was late, you may want to check directly you’re your lender to find out why their records do not agree with yours. If they have misapplied a payment, you may need to provide them proof of your payment.

Remember that your goal is not just to make sure that your credit report is accurate with Experian.  You want to make sure that your information is correct with the source so that it won’t impact your terms with that lender and that it will be reported correctly by that lender to all who check your credit references.

It takes time to build a great credit history, and there are no shortcuts.

By following these five strategies, you can begin the process of building a great credit history, which will produce great credit scores.

Recommended Reading:

• How to Dispute Credit Report Information Easily
• 7 Stubborn Credit Score Myths & Misconceptions Debunked
• What You Should Know About Credit Repair Companies

>> Subscribe to the Experian Blog by Email for More Credit Tips

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A credit report is like a report card that provides lenders insight into how you use credit.

If you’re paying debts on time and keeping debts low on credit accounts, you’re building a great credit history that will help you earn lower interest rates on loans and will help you in a variety of other ways, too.

There are many myths going around about what hurts or improves your credit scores.

Here is a list of seven popular myths about credit scores and credit reports you should know about:

Myth #1: Checking your personal credit report will hurt your credit score.

Fact: Reviewing your own credit report results in what is called a “soft pull,” or “soft inquiry,” meaning it will only be seen on a personal credit report.  And this has no impact on your scores.  Everyone should check their reports at least annually. It’s part of good credit management and completely free from AnnualCreditReport.com.

However, when you apply for credit, a lender will pull and review your credit report, and a “hard inquiry” will be added to your report. Hard inquiries are shown to other lenders because they may represent new debt that doesn’t yet show on a credit report as an account. Hard inquiries can affect credit scores.

Myth #2: There is only one credit score that all lenders use.

FACT: There are many different credit scoring models used by lenders in the marketplace today. And different models have different score ranges. Generic scores may be used by many types of lenders and businesses to determine general credit risk. The three national credit reporting agencies — Experian, Equifax and TransUnion — worked together to develop VantageScore®, a new generic credit score that uses the same formula for credit information from all three bureaus.

To make it easier for people to understand, a letter grade is associated with the number ranges for the VantageScore. A grade of “C” is considered good, but, of course, an “A” should be your goal. Custom credit scores are developed by many different companies to predict risk for specific types of lending or for individual businesses, such as auto loans or retail debt.

Myth #3: Paying cash for everything can help your credit score.

FACT: Using credit accounts is the only way to help you establish and build credit.

Using cash or debit cards, which are like electronic checks, for everything isn’t better than using credit because you aren’t building your credit references.

In order to qualify for the best rates when you want to buy a car, or house, or apply for a student loan, you need to have demonstrated that you can manage credit responsibly.

The best way to build a positive history is to use credit cards for purchases that you can pay in full each month and be sure that you make all loan and rent payments as agreed.  Over time that positive history will produce the best scores and ensure that you are offered the best terms when you apply for new services, including cell phones and utilities.

Myth #4: The best way to improve credit scores is to pay off all accounts and close them.

FACT: Paying off all debts can be one of the fastest ways to improve credit scores. Closing accounts, though, can hurt credit scores. One of the most important elements in credit scores is the proportion of total balances to the total credit limits. Paying off debts lowers that proportion, improving credit scores.

However, closing accounts eliminates some of the available credit limits, making the balances appear to be higher compared to the overall limits. For example, a person who has $15,000 of credit available on multiple credit cards but only has a balance of $5,000 is only using 30 percent of available credit, which is good. However, if the person closes a $5,000 credit account because the credit card is not being used, the available credit amount drops to $10,000 and results in 50 percent of available credit being used — a level that can knock points off of that person’s credit score.

Myth #5: Great credit is tied to how much money and assets a person has.

FACT: Credit reports don’t list bank account balances or assets, so those numbers don’t impact credit scores.

Information about income, investments or assets such as stocks or bonds will also not be in a credit report. Likewise, there is no information about savings accounts, certificates of deposit or other non-debt banking relationships.

A bank account does, however, may affect credit scores if a consumer bounces checks and does not pay the money back.

If the balance owed to the bank gets turned over to a collection agency, then that information will show up on a credit report.

Most importantly, having savings and investments can be a critical factor in protecting your good credit if you have a financial emergency and can’t make all of your payments from your monthly income.

Myth #6: Academic background and degree level can affect your credit score.

FACT: Education level is not part of a credit report, so it has no bearing on credit scores. Information in credit reports pertains only to debt-related information. Therefore, loans, credit cards and payment history will be reported, as well as bankruptcy, tax liens (debt owed to the government) and civil judgments (debt owed through the courts).

Information about income, investments or assets such as stocks or bonds will also not be in a credit report. Likewise, there is no information about savings accounts, checking accounts, certificates of deposit or other non-debt banking relationships. Additionally, under the Equal Credit Opportunity Act, a creditor’s scoring system may not use race, gender, marital status, national origin or religion as factors.

Myth #7: Poor credit can’t prevent you from getting hired.

FACT: Federal law allows potential and current employers to view a modified version of a candidate’s credit report for employment purposes, such as hiring and promoting, but the decision to include a credit check is left up to the individual employer.

In certain industries, knowing that a candidate has a sound credit history is a very important part of the hiring and screening process and can help in preventing application fraud. Credit reports used for employment purposes are reviewed manually and never scored. There is also a requirement to obtain written permission before accessing a credit report for this purpose. So, you will never be surprised and will have the opportunity to explain any issues reflected in your credit references.

Have you heard of other credit score myths? Or curious about other factors that might hurt your credit? Let us know in the comments.

Recommended Reading

• 5 Ways to Rebuild Your Credit Score
  
• 20 Common Credit Myths You Should Know About
• Why Credit Scores Change With Little Account Activity
• Checking Your Own Credit Report Will Not Hurt Your Credit Scores
• The Credit Impact of Missing One Mortgage Payment

>> Subscribe to the Experian Blog by Email for More Credit Tips

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Unfortunately, many people have received poor credit advice and been taken advantage from credit repair companies.

Many people don’t realize that there isn’t anything that a credit repair service is able to legally do for you that you can’t do yourself for little or no expense.

In 1997, a federal law was created as a response to the number of people who have suffered from a consumer repair scam.

Under this act, credit repair companies:

• Are prohibited from taking consumers’ money until they fully complete the services they promise
• Are required to provide consumers with a written contract stating all the services to be provided and the terms and conditions of payment. Under the law, consumers have three days to withdraw from the contract
• Are forbidden to ask or suggest that you mislead credit reporting companies about your credit accounts or alter your identity to change your credit history
• Cannot knowingly make deceptive or false claims concerning the services they are capable of offering
• Cannot ask you to sign anything that states that you are forfeiting your rights under the Credit Repair Organizations Act. Any waiver that you sign cannot be enforced

Quality credit counseling services are often non-profit and charge little or no fee for their services. Look for non-profit credit counselling organizations in your area if you need help. They will offer, and in some cases require, that you complete budget training and money management courses as part of their non-profit programs.

If all a credit counselor offers is to negotiate a debt repayment plan or to set up a “debt consolidation” plan, look elsewhere.  Unless you also learn to manage your credit, you will end up with the same problems or find yourself even deeper in debt in the future.

As always, you can always work directly with us to dispute lender debts on your credit report.  It’s completely free to report errors with us and you can get started right now on our simple app.

Recommended Reading

• 5 Ways to Rebuild Your Credit Score
• You Can “Fix” Your Credit Report Without Help
• There is No Need to Pay to Improve Your Credit
• Debt Management Firms Aren’t Necessary to Negotiate with Lenders
• What Accounts to Start Paying Off First When You Have Bad Debts

>> Subscribe to the Experian Blog by Email

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