How to raise your credit score for free
We all know that good credit scores are really important to getting a good deal on any type of financial product, from credit cards to mortgages. But, sometimes life gets in the way and you make mistakes that cause your credit to plummet. Or, sometimes credit reporting companies make a mistake and include items that simply aren’t true. Did you know that 8 out of 10 consumer credit reports contain an error?
Here, we will break down what you need to know about your credit and exactly how to fix your credit so that you can get the best rates. It’s a step-by-step process of what you need to know to make sure your credit score is as high as it can be before you shop for financial products (also, in light of the Equifax and Uber hacks, you also will want to read this article on how to protect your credit given the security breaches).
Check your credit report
It’s easy and free to get copies of your credit report. In advance of applying for loans or new credit cards, this is an easy first step.
Get copies of your credit reports
There are three major reporting agencies, TransUnion, Experian, and Equifax. If you visit www.annualcreditreport.com, you can get a free copy of all three reports once a year (just visit this exact link. If you google “free credit report”, you might end up in the hands of companies with deceptive offers who appear to be the source of a free credit report, but then bill you).
Check your report carefully for errors
Issues you want to look for include:
- Is your name, social security number, current address, and current phone number correct?
- Are the previous addresses listed for you correct?
- Is your employment history correct?
- Is your marital status correct and is everything listed in the personal information section correct?
- Is there anything listed in the public record section and if so, is it correct?
- Are the accounts on the list of active accounts still open and are all of the balances correct?
- Are accounts where you are a joint owner or authorized user listed and are they correct?
- If you had a bankruptcy, are they listed correctly?
- For debts paid in full, are they listed correctly?
- If you are a co-signer on a loan, is it listed correctly?
- Are accounts that you closed listed as “closed by consumer”?
- For negative information, such as late payments and missed payments, are they listed correctly?
- Are there any accounts listed more than once?
- Is there any indication that that you might be a victim of identity theft after reviewing your credit report (such as accounts you aren’t familiar with)?
What to do if you find errors on your credit report
With your report in front of you, mark all of the errors you find. Remember, 8 out of 10 people find errors on their credit report, but there’s a simple way to contest them.
How to fix errors on your credit report
Homeownering credit letter that you can use in order to contest your credit report mistakes. It includes all of the addresses that you need to send to each of the three reporting agencies, and a format you can use to easily list each mistake that you find.
Here’s what you need to do:
- Homeownering credit letter
- Swap in your personal information – name, address, etc.
- Add the descriptions of the mistakes in the credit reports
- Mail it to the credit reporting agency at the address listed.
Report credit report errors to the source of the misinformation, also
Because credit reporting companies get their information from many places, just to be absolutely certain the mistake doesn’t appear on your report again in the future, it’s a good idea to send a letter to the source of the misinformation, also. Let’s say a credit card company reported that you paid your credit card late and you did not. Contact them directly so they can fix the error on their end, too.
What affect will raising your credit score have on your finances?
Depending on the types of mistakes you have on your credit report, you could see a several point improvement up to 100 points or more, resulting in much better rates and products available to you when you go to shop for financial products.
A bad credit score can mean that you pay on the high end of interest rates for credit cards which can be up to 28% in some cases. A low credit score can mean you pay as little as 3%. That is a huge difference and means a lot more money in your pocket if you ever run a balance. For mortgages, a score above 740 means that you qualify for much better rates and products and over time, will pay much less in interest with more of your money going to principal payments and increasing your equity.
Raising your credit score even by a little bit really pays off!
What is the difference between a credit report and a credit score?
We just talked about how to get errors removed from your credit report, but what is a credit score? A credit score is a number calculated off of the data in your credit report, and you may have many different scores calculated by different companies. Also, there are things called “educational scores” versus actual scores. If you want to see your credit score, make sure that you are getting your actual score, not an estimate as there is often variation between the actual score and the “educational” one.
How to get your credit score
There are several ways to get your credit score.
Talk to a non-profit counselor
Non-profit counselors are available to help you. Many people think non-profit counselors only work with consumers who are in credit trouble, but they can be just as affective to borrowers who are looking to improve an already good score, without the risk of getting scammed.
Non-profit counselors can provide you with a free credit report and score and help you review them. You can find them online or by calling 1-800-569-4287.
Look on your credit card or auto loan statement
Many credit card companies are offering their customers a look at their credit scores every month as part of their service, and some auto loan companies are providing them as well.
Buy a score
You can go to FICO and other scoring companies and purchase access to your actual score.
Sign up for a credit score service
There are many sites that try to entice you to sign up for a credit monitoring service by advertising a “free credit score”. Often they have free trials where if you don’t cancel, you may be billed, so beware and read the fine print.
Does checking your own credit score lower your credit score?
Checking your own score does not affect your score. Your score is only affected when companies check it.
When a bank checks your credit score, does it lower your score?
Yes, whenever you apply for a financial product, it will reduce your credit score by a small amount simply because the financial institution obtained your credit score. It counts as an “inquiry” and tells other creditors that you are thinking of taking on new debt.
However, if you are shopping for a mortgage, many banks can obtain your credit score without it affecting your score anymore than if you only had one bank making an inquiry. This is because if credit inquiries for a mortgage are made within the same 45 days as each other, it counts as one inquiry. This is because credit reporting agencies assume that while there are many inquiries, you are only buying one home. If you applied for many credit cards, for example, they would assume you were trying to obtain many credit cards.
This is why when you apply for a mortgage, you don’t want to also be applying for other types of credit, as it will lower your credit score.
Beware of scams
Steer clear of any company that charges an upfront fee and never engage with one before you talk to a non-profit counselor who may be able to solve your problems for free. Many “credit repair” companies charge you for the same thing you can do yourself with our step-by-step method of contesting errors on your report listed above.
Don’t believe companies who claim that they can get legitimate negative information removed from your credit report. Many times, all the companies are doing is sending letters similar to what you can get here for free. There is no magic bullet.
Tips for credit success
Did you follow the steps to get your credit report errors removed? Great! Now, here are some tips to maintain good credit for the future:
- Checking your own score does not affect your credit score, only when companies check it.
- Pay your bills on time
- Don’t apply for credit that you don’t need
- Order a free credit report every year and make sure you correct any mistakes that you find.
- In light of the Equifax and Uber data breaches, make sure you take necessary steps to protect access to your credit. Learn how with our article getting a loan after the Equifax hack that gives you the steps you need to take to protect yourself.