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4 ways to improve your credit
Introduction
- Create a spending plan
- Review your
credit report and address any problems
- Get credit cards and
use them wisely
- Watch your debt
Credit repair clinics
Union-member-only discount
on FICO score
For most of us, it's a mystery: you fill out
a credit card application, send it in, cross your fingers, and hope
for the best.
What can you do to maximize the chances that your application for
credit will make it into the "yes" pile? Most credit card companies,
as well as many other lenders, use credit scoring systems to help
them decide who gets credit and who doesn't.
A credit scoring system works like this: a lender takes a look
at its customer base and compares those borrowers who have paid
their bills on time with those who haven't. Using sophisticated
computer programs, the lender tries to figure out what factors those
customers have in common.
For example, the lender may discover that people who move frequently
are less likely to pay their bills on time than people who stay
put. If that's the case, then they will look at how long new applicants
have been at their current address in their scoring systems.
Credit scoring has become so sophisticated that, many times when
you apply for a credit card, your application is reviewed and evaluated
by a computer rather than a person. It may sound spooky but, in
fact, lenders can review and approve a lot more applications that
way.
Scoring programs will usually evaluate information in your credit
report and your application. It's the information in your credit
report that carries the most weight, though, so you'll really want
to make sure that it's complete and accurate. Click
here for tips on how to address problems with your credit
Here are some steps to help improve credit, including factors that
are most likely to be considered for a credit score and strategies
for using them to your advantage:
1. Create a Spending Plan
Take a month or two to make lists of every outlay of cash or cash
equivalent, such as checks or debit cards used to make purchases
or pay bills. Also track your income for those months. At the end,
list every category of expense, and then write down the total amount
per month (taking an average if you tracked expenses for two months)
you spent in that category.
You are now ready to make a spending plan. One goal is to generate
enough cash each month to put toward savings - a necessary step
in rebuilding your credit. Your list indicates how much you project
spending each month. If the total exceeds your income or leaves
you with little left over, you'll have to cut back. For example,
if you love to read and spend a lot on books, you can reduce that
amount by checking books out from the library or buying only at
used bookstores. If you go out to lunch everyday, consider bringing
your lunch.
2. Review
your credit report and address any inaccuracies.
Inaccurate information can be hurting your credit score. Make sure
to check your credit score and report at least annually, then take care of any problems on your report.
3. Get Credit Cards and Use
Them Wisely
The simple truth is that if you don't have - and use - credit,
your score will suffer. Lenders need some history to get an idea
of how you are likely to do in the future. Otherwise, they are not
likely to approve credit for you.
If you don't currently have a credit card, apply for one. It's
often easiest to obtain a card from a department store or gasoline
company. These companies usually open your account with a very low
credit line. Then make sure to use your new card month and make
your payments on time. Check to make sure that new credit line is
being reported to the bureaus and soon your credit report will show
steady and proper use of revolving credit.
Once you have your first card, apply for a regular credit card
from a bank, such as a MasterCard, Visa, or Discover card. Click
here for information about the Union Plus Credit Card. You may
be eligible only for a card with a low credit line or high interest
rate. If you make your payments on time, however, after a year or
so you can apply for an increase in your line of credit or a reduction
of the interest rate.
If you don't qualify for a regular credit card, consider one of
the following:
1. Cosigned or guaranteed account - someone else promises to repay
if you default. Be sure that the payment history is reported for
both you and the cosigner or guarantor, not just the cosigner or
guarantor.
2. Authorized user account - someone will add you to an account
as an authorized user; you can use the credit line but you are not
responsible for repaying the charges. Again, make sure the payments
are reported for you.
3. Secured credit card - you deposit a sum of money with a bank
and are given a credit card with a credit limit for a percentage
of the amount you deposit. Click here
for information about the Union Plus Secured Credit Card.
Note: Every time you apply for credit and someone looks at your
credit report, an "inquiry" is added to your file. It doesn't matter
whether or not your application was approved, what matters is the
fact that someone accessed your credit report recently. Usually,
more than four or five inquiries in the previous six months will
count against you. So, be careful how many applications you submit.
Once inquiries are on your credit report, you can't remove them,
but after six months they probably won't count against you.
4. Watch Your Debt
It's amazing how much credit card debt some people can rack up
- and then still get offers for more. But, if you want to obtain
lower interest rates, having too much debt may be a problem. There
are two things that lenders may consider here: how much debt you
have in comparison to your income as reported on your application
(your "debt-to-income ratio") and how close you are to your available
credit limits. Since every lender is different, it's hard to say
how much is too much, but paying down your debts can only help improve
your financial life.
A Word
About Credit Repair Clinics
It's simple. Avoid these outfits. These companies can't do anything
for you that you can't do yourself. What they will do, however,
is charge you between $250 and $5,000 for their unnecessary services.
Federal law regulates for-profit credit repair clinics. Under
the federal law, a credit repair clinic must:
- Inform you of your rights under the Fair Credit Reporting Act
- Accurately represent what it can and cannot do
- Not collect any money until all promised services are performed
- Provide a written contract, and
- Let you cancel the contract within three days of signing.
Don't confuse credit repair companies with non-profit credit or
debt counseling agencies - which will work with you to create a
sound budget and help you to pay off your debt and restore your
credit the right way. They may request a voluntary donation, but
that amount is typically low and their practices are ethical and
legal.
You
can also obtain
your FICO credit score (with your union member-only discount).
Check out factors
that determine your credit score and 10
ways to improve your FICO score.
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