5 Ways to Clean Up Your Credit

With a little patience and discipline, you can manage your credit history and build a credit score that may save you money.

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by NEA Member Benefits

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  • A high credit score will get you better terms and interest rates on loans and credit cards.
  • Review your credit reports and dispute any incorrect data to improve your credit score.
  • Avoid credit-repair scams and instead, fix your credit report yourself following tips from the FTC.

When Jennifer decided to lease a new car, she did a lot of research online. She found her dream vehicle and used several consumer websites to pinpoint the fair market value so she could negotiate the best price. She even ran the numbers to estimate her lease payments.

At the dealer, the leasing process was going beautifully. But when the credit manager told Jennifer what her payments would be, she was shocked. They were much higher than her online estimates had suggested. She asked why and was told her FICO® score was 680, a score that put her in a higher interest rate category. Jennifer had estimated her payments assuming her credit score was good enough to get a preferred rate. Now she was wondering if there was a problem in her credit report, plus she was worried she might not be able to afford the car.

Jennifer’s story shows how important it is to know your credit score and what’s in your credit report before you apply for a loan or make a big purchase that requires installment payments. The terms and interest rate you’ll be charged are directly related to your FICO score, among other considerations. Generally, the higher the score, the lower your interest rates and payments.

Here are five action steps (plus some resources) that will help you improve your credit score and keep your credit reports accurate.

1. Request copies of your credit reports

You can request a free copy of your credit report from each of the three big credit reporting bureaus—Experian, TransUnion and Equifax—once a year at annualcreditreport.com.  The three bureaus do not share information with one another so your reports at each bureau may be a little different. To keep an eye on your credit history throughout the year, request a free report from a different agency every four months. This will help you spot any problems early.

You may also call 1-877-322-8228 to order your free reports. When you get your reports, review them carefully to make sure the information is correct.

2. Correct inaccuracies in your reports

Under a federal law called the Fair Credit Reporting Act (FCRA), both the credit reporting agency and the company that provided the credit information about you to the credit bureau are responsible for correcting inaccurate or incomplete information in your credit reports. If you find errors in your report, follow the instructions on how to file a dispute with the credit agency, which you can find on the agency’s website.

More information on the dispute process is available from the Federal Trade Commission (FTC).

3. Know your FICO score

Your FICO score is a 3-digit number summarizing your credit risk, or how likely you are to pay back credit obligations under the terms of the agreement. Your scores are based on the information on your credit reports. Lenders use FICO scores to determine who they will lend to and at what terms and interest rates.

Many banks and credit card companies now display your FICO score for free on your statement or online account. You can also get your Experian FICO score at no charge from freecreditscore.com.

4. Improve your FICO score

Your FICO score reflects your payment history, the amount of debt you have, your credit history and other factors.

Here are few ways you can improve your FICO score, courtesy of myFICO:

  • Pay bills on time
  • Get current with any missed payments
  • Keep balances low on credit cards and revolving credit accounts
  • Don’t close unused credit cards
  • Don’t open lots of new accounts within a short period of time.

5. Beware of credit-repair scams

If your credit report is a disaster zone, resist the temptation to call the toll-free number of a firm that promises to clean up your credit report. The FTC warns that there are many companies that target consumers who have poor credit histories in this manner. These companies cannot deliver an improved credit report using the tactics they promote.

It takes time and effort, but the best way to repair your credit is to do it yourself

For more on every type of consumer scams making the rounds, check the Federal Trade Commission’s Scam Alert. You can even sign up to get the latest scam alerts by email.