Improving Your Credit

This page explains how to correct and improve your credit report, which should be done prior to applying for a real estate loan. Often, this can be done by simply sending a few letters to past creditors and credit reporting agencies. In fact, the services of a credit repair company are not needed, and most of the so-called credit repair companies are ineffective and disreputable. Instead, anyone can take the easy steps outlined on this page to improve their credit.

To establish and maintain good credit, it is essential to understand the credit system. Basically, there are three major credit reporting agencies that maintain credit history files, namely, Equifax, Experian (formerly TRW), and Trans Union. These files contain a lot of information about you, including, your birthdate, social security number, past employment, residences, credit payment history, requests for credit, as well as the existence of judgments, liens, or bankruptcies. However, the information that one credit reporting agency has about you is oftentimes different than what another agency has because they are all separate companies. Also, it is important to know that having a high number of requests for credit (especially if the credit wasn't granted) or frequent changes in your residence are considered negative items on your report.

Under a Federal law called the Fair Credit Reporting Act, these credit reporting agencies must provide you a copy of the information they have on file about you and remove information from your file if it is outdated or erroneous. For instance, derogatory information must be removed after seven years and bankruptcies after ten years. In addition, any erroneous information can be removed by sending a letter to the credit reporting agency stating that the information is incorrect and requesting its removal. The credit agency must then investigate the information, and, if it cannot be verified, remove it from your report. If the information is accurate but is the result of a dispute between you and a merchant, you can add a 100 word statement to your report telling your side of the story. Additionally, if your report does not include good credit information about you, like a loan that you paid off, you can request that it be added.

To request a copy of your credit report, to add a statement about an entry, or to request the removal of incorrect information, you need to send a letter that states your full name, social security number, addresses for the last five years, and date of birth. Although there is no cost to add a statement to your report or to ask for erroneous information to be corrected, some agencies do charge a nominal fee for a copy of the report. However, if you have been denied credit in the past 30 days because of information provided by a credit agency, you are entitled to a free copy of your report from that agency. In that case, enclose a copy of the letter denying your credit application along with a request for a free copy of your credit report.

The web sites for the major credit reporting agencies are:

Equifax

Experian

Trans Union

In addition to making corrections to your report, it is possible to build up your credit by:

• Obtaining credit cards, including, department store cards and secured credit cards.
• Receiving a second credit card on someone else's credit card account.
• Taking a personal loan secured by a savings account.

With a little bit of effort, it is possible to greatly improve your credit picture. Of course, when dealing with bureaucracies like credit reporting agencies, everything takes time. So, start today, and get the ball rolling!