- Your credit score--also known as FICO after its creator, Fair Isaac Corporation--is based on information provided to the three major credit reporting companies (Experian, Equifax and TransUnion) by your creditors. If that information is inaccurate, your score may be lower than it should be. You can obtain a free copy of each credit agency's version of your credit history once a year (see link to the Federal Trade Commission in Resources). If you find errors, contact the credit reporting company.
- A good credit score is built by your everyday handling of credit. Paying your bills on time counts for 35 percent of a FICO score. If monthly expenses make this difficult, consider a debt consolidation loan to bring payments in line with your income. Pay down unsecured debt, such as money you owe on credit cards. Such debt represents more risk to lenders because it is not backed by collateral (by contrast, your mortgage is backed by your house). Check the credit ceilings on your cards and bring them down to what you actually need. When your credit score is calculated, available credit is treated much as if you had borrowed the money---that is, as existing debt. Avoid frequently opening and closing credit accounts, as that is viewed as a sign of poor money management.
- Despite the claims of some credit repair companies, you can't expunge a bad credit rating overnight. The law specifies the number of years such items as tax liens, defaults, foreclosures and bankruptcy must remain on your credit report. You can minimize the negative effect, however. In some cases, such as a debt in default, you can contact the creditor and rework repayment terms. You may need to work with a credit counselor, particularly in the event of a foreclosure or bankruptcy. Contact the National Foundation for Credit Counseling at 800-388-2227 or through its website (see Resources).
