It is imperative to have a solid credit report that is accurate and up to date. As credit restrictions increase during uncertain economic times, each of us needs to make sure our credit reports is accurate and doesn’t contain errors.
Your credit history contained in your report is important as it makes up the credit score derived from it. While the report will give lenders, employers, landlords, etc. a credit overview of the person with whom they are doing business, the credit score gives them a single, solid, data point with which to make decisions that have a deep impact on your financial future.
The following are important points to be aware of as they relate to your credit report and score.
- Closing accounts hurt's your score. Instead of closing old accounts, just pay them off and leave the accounts open. The longer you’ve had an account, the better for your credit score, so you should keep the oldest credit account you have active even if you don’t use it. Creditors close accounts that aren’t used frequently themselves, so there is no need for you to do it. The negative blow to your credit score is the same as if you’d closed it yourself. In some cases, the creditor will stop reporting an unused account to your credit report, and you’ll lose the positive impact it has on your score. The best case scenario is to keep open old accounts and use the card or account every six months or so in order to keep the accounts open and actively reported.
- Check your report frequently. You’ll also want to check your report to make sure it’s correct and in doing so, this is the best way to uncover identity theft. Early detection of credit report issues and frequent review can limit the amount of damage a thief can do to your credit rating.
- Don’t worry so much about inquiries. A lot is said about checking your report and how it hurts your score. In reality, a hard inquiry costs about 2.89 points on for the first 10 inquiries.
- Spread your debt around. If you’re close to your credit limit on any one credit card or line of credit, your score will be hurt. Suppose you have three credit cards with $1000 limits, and one is maxed out while the other two have no balances. Credit-wise, you’re better off carrying a $400 balance on all three cards than keeping one of them close to the max. Even though you actually owe $200 more in the latter scenario, your score will be better. Having different sources of credit is much better for your credit score than having a credit report that is dominated by credit card debt. So keep the card and or account type in mind when applying for new credit.
- Focus on the big picture. Having one 30-day late payment on a credit report full of on-time payments is not that damaging in the big picture of the credit score. Likewise, the credit reporting agencies have also discounted the impact of collection items under $100.
To get the best possible score, focus on a healthy debt mix that includes different kinds of credit and loans. Don’t make any late payments, keep your balances moderate, and above all, be patient. You can’t improve your score overnight, but with time, good borrowing behavior and credit report diligence will have a dramatic impact on your creditworthiness.