Order your credit reports. Before you can conduct a credit checkup, you’ll need to order credit reports from each of the three major credit reporting agencies (Equifax, Experian, and TransUnion). You’ll be charged less than $20 for each report. Each year, you can order one free report from each bureau by visiting AnnualCreditReport.com (www.annualcredit report.com), so you can monitor your credit at no cost by ordering a report from one of the bureaus every four months. But for this end-of-year checkup, it’s best to have all three reports. Adam Levin, chairman and founder of Credit.com, a consumer advocacy site, suggests that you ask yourself the following as you conduct your review: Am I keeping balances on my credit cards reasonable? Am I making payments on time? Also be sure to check for errors. To correct any mistakes, write to the credit bureau and enclose copies—never originals—of any supporting documents, and ask for a correction or deletion.
Purchase your credit score. You can obtain your credit score for less than $20 from MyFICO.com. Many credit scores are available, and some lenders use their own scores, but the FICO score is the one most widely used by bankers and lenders. What’s a good score? John Ulzheimer, president of consumer education at Credit.com, says 700 used to be an excellent score, but it’s now considered average. “An elite score is now 750 or higher,” he says.
Monitor your credit utilization. Your credit utilization ratio makes up 30% of your FICO score. This ratio measures how much credit you’re using of the credit you have available. It’s best to use less than 10% of your available credit. Ulzheimer says, “Those with FICO scores of 760 or higher use just 7% of their available credit.” Having a lot of credit cards isn’t an issue, but using more than 10% of your available credit is. Once you have your credit report in hand, determine how much outstanding debt you have. Resolve to pay down as much of it as you can, because using too much of your available credit—even if you pay your bills on time—will lower your credit score. Most financial experts do not recommend closing credit card accounts, however.
Identify and change bad habits. All poor scores are not created equal. You could be missing payments, running up large credit card debts, applying for too many retail store cards, or all of the above. “Identify what you’re doing wrong and stop doing it,” says Levin. “Only then will your scores get to where you’d like them to be.”
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