How To Improve Your Credit Score and History

Your credit history is a vital part of your financial life. Every time you apply for a credit card, make a payment on your auto loan or change your residence, that information is noted in your credit history. While some information, such as your address, gender, and marital status can’t be used to make decisions about whether or not to lend you money, financial information about your credit habits can be used to determine interest rates on loans, the insurance premiums you pay, and – in some cases – whether or not you get a job.

Because your credit history is so important, it is vital that you take care to build a history that shows you in a good financial light. You can work toward building a better credit history by understanding your credit report, and working to keep the information in it accurate and positive.

What Do Credit Bureaus Do with this Information?

Information about you is reported to the credit bureaus. Some employers report information to the bureaus, and nearly every lender and creditor makes monthly reports to the credit bureaus about your payment habits. Usually, landlords, utility companies and other non-credit service providers won’t report information to the credit bureaus unless it is negative. This means that if you are slow to pay, your cell phone service provider might notify the credit bureaus. It will count against you, and could result in a lower credit score.

Credit bureaus sell the information in your credit report to those who can be said to have a legitimate interest in knowing your level of financial responsibility. For instance, credit agencies sell information about your credit to lenders who have an interest in seeing whether or not you are likely to default. Your past history of on-time payments might lead a lender to decide that you are an acceptable risk, and likely to repay a loan. On the other hand, a history of late payments and charge-offs could indicate that you might continue the same habits, and the lender risks losing money if you default on your loan. As a result, you might be charged a higher interest rate – or denied credit altogether.

Credit bureaus don’t just sell the information to lenders. They also let insurance companies have a look at it. The information is also sold to lenders that you might not have applied with. “Prescreened” offers might be made to you, based on the information in your credit file. Employers and landlords can also have a peek at your credit report – but only if you give them permission. However, in some cases, not allowing them to look can result in rejection.

The information in your credit report is also used to create a credit score. A credit score is a numeric representation of your entire credit history. Different values are assigned to the items in your credit report, and then a complex mathematical formula is used to figure out how you rank against others with a similar profile. If you have a higher credit score, you are considered credit worthy, and likely to be approved for loans with good interest rates. If you have a lower score, though, you might run into trouble with loans.

Fair Credit Reporting Act

Now that you know a little bit about what’s in your credit report, you can figure out your rights related to your credit report. The Fair Credit Reporting Act (FCRA) was passed in an effort to make the information in your credit report more accessible to you. Some of the basic rights you have with regard to your credit report include:

Right to know what’s in your report: When you ask for the information, the credit reporting company has to provide you with everything in your credit file. Be aware that the information is reported to the bureaus, so if a creditor reports to one bureau, but not to the other, you might find variations in reports offered by different agencies. The credit bureaus do share information, but it can take some time for updates to be made. In addition to sharing what is in your report, the credit bureau must also provide you with a list of everyone who has requested your report in the last year. If requests were made with relation to employment, credit agencies have to list everyone who asked within the last two years.

Right to a free copy of your credit report each year: Once a year, you are entitled to a free credit report from each of the three credit bureaus. However, you have to request it. You can request a free report by going to You can also call 1-877-322-8228 or mail the proper form to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. If you contact the credit agencies individually, there might be confusion, and you might end up paying for your report. Instead, go through the channels set up for receiving your annual report.

In order to get your free credit report, you will have to include your name, current address, Social Security number, and birthdate. If you have moved within the last two years, you will need to offer your previous address. You may also be asked to provide security information, such as the bank where you have an auto loan, or the amount of your mortgage payment. Watch out for web sites that claim to provide “free” credit reports; the only authorized source is Many of these sites only provide you a free report after you agree to pay for a service. Additionally, you will not be contacted by phone or email, nor does this site use pop-up ads. If you are contacted by someone claiming to be from the official source, or if you see an ad, watch out – it could be a scam to get your information.

Right to a free copy of your report when you are denied credit: In most cases, if you have already received a free copy of your credit report within the last 12 months, you will have to pay to look at your credit file again. However, if you are denied credit or insurance, or if you are passed over for a job, due to information in your credit report, you can order a free copy from the agency that provided the information. You have to write to the company, though, and you have to do it within 60 days. You will need to include proof of your identity, and a copy (keep the original for yourself) of the rejection letter. The notice has to provide you with the name, address and phone number of the reporting company. You can use the information to request your free copy.

Right to a free copy of your report when your identity is stolen: If you are the victim of identity fraud, you can get a free copy to make sure that the situation is resolved. Other situations in which you can get a free copy of your credit report include if you are on welfare, or if you are unemployed and plan to look for a job in the next 60 days.

What about your credit score? Unfortunately, you are not entitled to a look at your credit score each year free of charge. Because your credit score is based on what’s in your credit history, lawmakers figure that if you know that information, you can get an idea of what your score looks like. Staring July 21, 2011, you will be able to request a free score if you are turned down for a loan. If your score results in an “adverse action” related to your finances, you will have the right to request the score that was used.

Should you add an account to your file? Most people are interested in having accounts deleted from their credit files. However, in some cases it can be better for your credit history to add accounts. In some cases, a local credit account from a community bank or credit union, or a local retailer, might not show up on your report. This isn’t usually a problem – unless your loan application is rejected because you have an “insufficient credit file.” In these cases, you might want to bulk up your file with accounts that might not be appearing in your report. You have two options:

  1. You can ask your creditor to report to the agency, and they might start. However, a lender is not required to report to the credit bureau.
  2. Ask the credit reporting agency to add it. Some agencies will add the account to your credit file if you pay a fee. The account must be verifiable, and if the creditor refuses to report, it might not be added. There is no constraint on companies to add accounts to your credit history.

Improve Your Credit History by Paying Off Debt

One of the best ways to improve your credit history, after making on-time payments, is getting your debt under control. Paying of your debt can help you look more attractive to financial services providers, and show your financial history in a better light. Here are some ideas for paying off your debt:

Budgeting: Create a realistic budget that can help you limit your spending, and start putting more money toward paying off your debt. Figure out how much your make – your income – and how much you spend. Some expenses will be fixed, but many others are flexible and can be cut from your budget. Take care of your needs, then work toward paying off your debt. Enjoying wants can come last.

Contact creditors: If you are having trouble, you can contact your creditors. Many of them are willing to work out a payment plan to help you pay your obligation without forcing financial collapse. Do this before your account is in collections, and share your sincere desire to pay off your debt. Many lenders will extend your term, or lower your interest rate, to help you make payments.

Taking care of secured debt first: When you have to make a choice about which debts to discharge, make sure that your secured debt is covered first. Secured debt includes loans that are secured by an asset. Car loans and home loans are examples of secured debt; if you don’t pay, the lender can repossess the asset and try to recoup some of the losses. Unsecured debt, though, does not have an underlying asset to secure it. Credit cards are a good example. Creditors can sue you for the unpaid portion, but they cannot repossess your home in order to get payment. If the choice has to be made, and you want to try to retain your home or car, make sure that those debts are taken care of, either with a modified arrangement with the creditor, or by making on time payments.

Credit counseling: In some cases, you might have difficulty working out a budget, or you might be overwhelmed by all of the debt. There are some reputable credit counseling organizations that can help you. Get approved company names through the U.S. Cooperative Extension Services, your local housing authority, or a respected university. These organizations can help you draw up a money management plan, and get you on the right track to paying off all of your debt.

Debt consolidation: Another option might be consolidating your debt. This means that you put all of your debt together, making one payment – and only paying one interest rate. One of the most popular means of debt consolidation is using a home equity loan to pay off all of the smaller loans. Be careful: Even though you might get a lower, tax-deductible interest rate, if you can’t make the payment on your debt consolidation home equity loan, you could lose your home.

Bankruptcy: Personal bankruptcy is one of the last options. While it may solve your debt problem, it will cause a big drop in your credit score, and it will appear on your credit history for years, making it difficult to get loans in the future. In most cases, personal bankruptcy halts collection attempts, foreclosures, and other actions related to your debt while the terms are worked out. There are two main types of personal bankruptcy:

  1. Chapter 7: You sell all of your assets that are not exempt. (Exempt assets might be your home, car, tools you need for work, and the most basic household furnishings.) Understand that “exempt” assets differ by state. In some cases, even some of your property can be sold. The proceeds from the sale of your assets go to pay of your creditors, starting with your secured debt. Some unsecured debts may not be paid at all.
  2. Chapter 13: You set up a plan to pay back some (or all) of your unsecured debt. Your creditors accept your plan, usually including a reduced amount that you owe. You might have to sell assets in order to meet some of your obligations. Usually, you cannot keep property if there is a security lien or unpaid mortgage on it.

Realize that personal bankruptcy will not wipe out all of your obligations. Alimony, child support, taxes, and some student loans will remain intact. Recent laws make bankruptcy more difficult, and you have to fulfill a number of obligations before you can file for bankruptcy.

Debt collectors: You have rights when it comes debt collection. Debt collectors shouldn’t be calling you before 8 a.m. local time, or after 9 p.m. Additionally, if they know your employer doesn’t want them to call you at work, debt collectors cannot contact you at your job. Debt collectors should not intimidate, harass, lie (one example is telling you a warrant will be issued for your arrest if you don’t pay), or use other unfair practices to collect your debt. Additionally, if you write to them (use certified mail) requesting that they stop contacting you, they must honor it. However, if the debt collector files a suit against you, court-related contact is usually made. But you can designate that it be made through your attorney.

Credit report statement: If you are improving your financial situation, you can include a statement on your credit file. You can write a statement explaining the circumstances that led to your current situation, and then detail what you are doing to change matters. This can be especially appropriate if your situation is the result of high medical bills, job loss, or some other financial catastrophe.

Identity Fraud and Your Credit History

Your credit history can be affected by identity fraud. When someone gets access to your personal information, and then poses as you, it can be devastating to your credit report – and your credit score. In some cases, identity thieves steal information when they work at organizations that collect or use personal information. Others may hack consumer credit bureaus or other networks to get the information. It is also possible to obtain personal information by stealing your mail, taking your wallet or purse, or by rummaging through your trash.

If an identity thief uses your credit card account information to rack up high charges, you can see problems as your balances balloon and your level of debt grows to cause problems with your credit history. Using identity fraud, a thief could pretend to be you, establishing phone services or TV services. They might open a loan account in your name, or even give your name to the police during an arrest. There are a number of ways that identity thieves can use your personal information to their advantage – and to the detriment of your credit report.

Protecting yourself from identity fraud: While there is no way to completely prevent identity fraud, you can reduce the chances of it happening to you. Some of the things you can do to keep track of your identity include:

  • Keep your purse and wallet as safe as possible. Don’t leave these items unattended in public. Only carry what you need to in your purse or wallet; memorize bank account numbers, and your Social Security number, so that you aren’t carrying your numbers and your Social Security card with you.
  • Be stingy about your personal information. Don’t give it out online, and don’t give it to people calling you and asking for it. Government agencies won’t call or email you asking for this information. If someone wants your information, ask why. Also, remember that your bank and other financial services companies do not need your full account numbers to verify your identity.
  • Look for unexplained activity on account statements. Also, check your credit report regularly for fraudulent accounts. If your statement does not arrive, it could be an indication that it has been stolen. Be aware of when your statements should arrive, take action if they are missing.
  • Shred documents with personal information on them before you put them in the trash. Shred or cut up expired credit cards.
  • Take notice of oddities, such as receiving credit cards that you didn’t apply for, or receiving a denial of credit letter, even though you didn’t apply for credit. Also, if you are receiving calls about merchandise you didn’t purchase, or calls from debt collectors on accounts that aren’t yours, it could be an indication that your identity has been stolen.

What to do if your identity is stolen: Since there is no sure way to prevent your identity from being stolen, you need to be vigilant. If you are a victim of identity fraud, you will need to take action as soon as possible.

First, contact one of the credit bureaus and place a fraud alert on your report. The bureau you contact is required to notify the other bureaus. A fraud alert can stop an identity thief from opening more accounts in your name. Additionally, you can ask that, rather than displaying your entire Social Security number on your report, that they only offer the last four digits. You can call one of the bureaus using the following numbers:

  1. Experian: 1-888-397-3742
  2. Equifax: 1-800-525-6285
  3. TransUnion: 1-800-680-7289

Next, you should close the accounts that have been tampered with. Contact the institutions with the fraudulent accounts, and let them know the situation. If your bank account or credit card account is compromised, close those accounts.  While you should make initial contact by phone, you should also follow up in writing. You should send copies of supporting documents along with your letter. As always, keep the originals, and send your correspondence via certified mail with return receipt. Make sure you open new accounts with new PINs and security questions.

After that, you should contact your local police. File a report about the fraud. Chances are that it won’t help you catch the criminal, but it will prove that you are trying to clear your name, and that you are following procedure. Get a copy of the police report, or, if you can’t get the report, get the name of the officer you spoke with, and the number of the police report. Keep this information in a safe place so that you can document your efforts to clear your name.

Finally, you should file a complaint with the Federal Trade Commission (FTC). Make sure to keep a record of when you filed your complaint, and take down the number attached to it. You can file a complaint with the FTC at, or by calling 1-877-438-4338.

Keeping your credit history in the best shape is up to you. With some vigilance, you can ensure that the information in your report is accurate, and you can protect yourself from the unscrupulous.