How To Improve a Poor Credit History

A life without credit is virtually impossible for the average American. Therefore, the importance of maintain a good or even excellent credit history cannot be stressed enough! This article discusses how you can improve a poor credit history, without any external influence or assistance. It’s easy, inexpensive and not all complicated to bring your credit score to a respectable level.

Decoding your credit report

There are three credit bureaus which currently receive data from financial and other institutions, on an individual’s credit history – TransUnion, Experian and Equifax. You can ask for a copy of your credit report for free once a year from each of these bureaus. It is preferable that you get your credit report from all the three institutions, since different banks and financial companies share their data with one or the other of these bureaus. Another way of getting a free credit report is at the time when any loan, credit card or job opportunity is declined. The organization denying the facility is bound by law to provide you with contact details of the bureau based on whose report the decision was taken, provided you ask for the report within sixty days of receiving the decision.

Once you’ve received the three credit reports, check each and every entry carefully and verify that the entries pertain to your credit history and that there are no errors recorded. Generally, there will be some error you can find and it is your responsibility to ensure that these errors, no matter how minor or insignificant, are corrected as soon as possible.  This is important because these errors could be contributing to your low credit score.

What is reported to the credit bureaus

1. Details of all loan and credit facilities taken, including repayments.
2. Enquiries made by credit providers when you apply for credit
3. Identifying information such as addresses, telephone numbers, etc.
4. Matters of public records, such as details of bankruptcies
5. Closed or charged-off accounts

Making corrections to your credit report

Once you’ve identified the errors in your credit report, forward the details in writing to the credit bureau. State clearly the errors and why you’re disputing those entries. Always provide supporting documents as proof of your claims. The credit bureau is required to verify and correct the mistakes within 30 days of receiving a written notice. However, if after checking back with the creditor it is verified that the entry is true, then that entry cannot be removed. Once the entries have been corrected, the bureau is required to send you a free, amended copy of the report for your records.

Entries which cannot be removed

All details of loans or credit facilities which show delayed payments, written-off accounts, bankruptcies, etc, cannot be removed from the report. The data is required to remain for a period of seven years from date of reporting for default cases and ten years for bankruptcies.

Ideas for improving your credit history

1. Calculate the outstanding balances owed by you on all current and past, open or closed credit facilities.
2. On all current and open accounts, ensure that you make regular on-time payments as required.
3. On defaulted or charged-off accounts, contact the creditors and negotiate a debt settlement plan. Pay off the amount due after receiving a written confirmation that the entry on your credit report will be amended accordingly.
4. Close out all credit facilities which have no or small outstanding balances or unutilized credit lines.
5. Do not keep more than 2-3 credit cards in your wallet, keep your card usage to a minimum, and as far as possible clear your monthly balances in full.
6. Avoid high limits on your credit cards, as this only tempts you to spend more.
7. When applying for fresh credit, don’t apply with multiple companies simultaneously, because too many enquiries in the same period of time can also reduce your credit score.  It's best to wait two months or more between credit applications.

Remember that your credit history is dependent on exercising financial discipline; it is up to you to improve or damage you own credit history and rating!