As we move into the New Year, many of us are looking for ways to improve our lives. One area where many people could use some help is their credit score. Your credit score reflects your financial health and can affect everything from your ability to get a loan to the interest rate offered on a mortgage. Fortunately, there are several ways to take control of your credit in 2022 and improve your credit score.
Last week we explored the resolution to become debt free in 2022.
This week, we turn our eye to taking control of credit in the year ahead.
Let’s begin by looking at guidance offered by Attorney John Farrell, head of National Legal Center’s Credit Correction Division.
Building a Good Credit Foundation
“A key component to having good credit is to have “positive” open accounts with a sustained usage and payment history. Ironically, as we head into 2022, many individuals who have worked on getting negative items off their consumer credit report fail to realize the need to re-establish their credit and lay the solid foundation necessary for building a positive credit file. At one point, the main focus for many of us was the collection accounts or other derogatory items reporting on our credit. In an effort to improve our credit, we disputed the incorrect information with the credit bureaus and creditors, or it “fell off” the credit report over time.
Now that they are gone, we moved on with our life. However, we failed to focus on the rebuilding phase of our credit rating. Improving our credit is not simply removing the bad stuff. We must establish our credit foundation similar to when we began this journey many years ago. However, this process must be done methodically and gradually for many reasons. The old adage that “Rome was not built in a day” also applies to rebuilding one’s credit.
At first, one may consider applying for a personal loan or a credit building account now offered at many banks and credit providers. Others can take the traditional approach of applying for a credit card. Whatever one decides, we must be patient and not open too much credit at one time. Doing this can be counterproductive and lead the individual to incur additional debt that they may not be able to pay back thereby, creating a vicious cycle of debt, collections, and bad credit. The truth of the matter is that most of us need credit in order to operate in our financial society, but it must be done with knowledge and perseverance to see results and to enjoy the benefits of having a positive credit rating.”
Attorney John Farrell, January 2022
As we see from Attorney Farrell, improving a credit score boils down to two things:
- Reducing the negative
- Improving the positive
Let’s take a look at several ways you can achieve those two things and improve your credit score in the New Year.
Improving the Positive
You have a few options when it comes to improving the positive side of credit.
Before considering these approaches, ensure they fit into your big-picture financial plan. You don’t want to set yourself up for trouble by opening a line of credit you aren’t prepared to handle responsibly. Likewise, you don’t want to make qualifying for a home loan difficult by having too many lines of credit added to your credit profile recently. These are sound suggestions, but everything is relative and will hinge on your specific needs, goals, and circumstances.
Increase Credit Limits to Improve Credit
One of the biggest factors impacting your credit score is how much outstanding debt you have on all of your credit cards. One way to improve that factor is to increase your maximum available credit on some—or all—of the accounts, you hold by asking card issuers for increased limits. As long as you don’t go overboard and apply for too many new accounts in a short time, asking your creditors to increase your credit limits can be an effective way to improve your credit score in the New Year.
Leverage Trust as an Authorized User
Credit is trust. Sometimes, a lender is not prepared to trust you based on your credit history. In this situation, it can be helpful to leverage the trust of a family member or friend by being added as an authorized user on their credit card. Being added to the account will associate the entire credit history (good and bad) of the line of credit to your credit profile and can significantly boost the report of someone with a thin credit report.
Simply being added as an authorized user on someone else’s account can raise your credit score, but there are caveats to keep in mind.
As an authorized user, the entire account’s past and future credit activity will reflect on your credit report. If that account is not paid responsibly, then your credit score could suffer as a result. That’s why you need to ensure you’re added to accounts with individuals who have an excellent payment history.
Also, you don’t want to use this as a way to trick lenders or the credit scoring system. That’s not the point. The point is to leverage the trust of a friend or family to show the lender that they, too, can trust you.
There’s nothing wrong with taking steps to attempt to improve your credit score. Just make sure everyone involved understands what they are doing, why it will (or won’t) help them achieve their financial goals, and that the sole purpose of being added isn’t for the goal of increasing your credit score. In reality, the cardholder should be entrusting the new authorized user to use the line of credit, even if there are restrictions to the amount or types of purchases they allow.
Reducing the Negative
Now that we’ve explored ways to improve the positive side of your credit score let’s review how to reduce the impact of negative remarks on your credit report.
Again, the same disclaimer applies: these are broad strategies. Again, consider your specific financial goals and circumstances to determine if an approach is right for you.
Dispute Inaccurate Credit Information
One of the most effective ways to improve your credit score is to ensure the information on your credit report is correct and verifiable.
Per the Fair Credit Reporting Act, every credit report should only contain accurate information.
Errors can range from minor inaccuracies like misspelling your name or address to major problems like an account balance showing unpaid when you resolved it years ago.
Sometimes, you can fix these errors simply by contacting the credit reporting agency in question and asking them to update your report. In other situations, though, you may benefit from getting help from an attorney familiar with debt and credit matters. It will all depend on the complexity and severity of the situation.
Dispute Unverifiable Credit Information
According to Experian’s interpretation of the Fair Credit Reporting Act (FCRA), “Consumer reporting agencies must correct or delete inaccurate, incomplete, or unverifiable information.” Our consumer rights law firm helps people overcome debt and credit issues, and we share this interpretation.
Not only does the information contained in your credit report need to be accurate, but the information furnished needs to be capable of proving that it is accurate. If they can’t prove that something is true, it shouldn’t be on the report in the first place.
Now, this isn’t to say that you should go and dispute every negative item as that would be frivolous. However, suppose you have reason to believe that information on your credit report is inaccurate. In that case, you should consider disputing it to be sure it can be verified by whoever is reporting it.
Lower Outstanding Debt
Whether it’s credit cards or student loans, your outstanding debt is another factor that impacts your credit score. The amount of debt you carry compared to the amount of credit extended to you makes up 30% of your credit score. So, improving this area can greatly impact your overall credit profile.
If you can lower the amount of money you owe to creditors, this will help improve your credit score and potentially open up more doors for future borrowing if needed.
Plus, it’s just an all-around good idea to reduce the amount of debt owed, especially if you’ve fallen behind on credit cards in the past.
Deal with Collections
One of the biggest factors that can negatively impact your credit score is the presence of collections accounts.
If you have any negative or unpaid collection accounts on your credit report, it’s time to start taking control and getting rid of them. It may take some work—and it probably won’t happen overnight—but getting rid of these items will improve your credit score as well as increase your financial health overall.
Do you need help dealing with collection accounts? The debt settlement attorneys at National Legal Center are here and ready to help you resolve your debt as quickly and affordably as possible. Reach out to us today for a free case evaluation.
Why You Should Hire an FCRA Attorney
The benefit of hiring an attorney specializing in debt and credit law is that they are familiar with the Fair Credit Reporting Act. They know:
- what specific reasons are necessary for items to be deleted or updated with a consumer reporting agency;
- what creditors and collection agencies tend to report incorrect information;
- whether a violation is actionable and worth pursuing FCRA litigation.
Some violations of the FCRA are worth pursuing beyond a simple dispute of the remark. In some cases, you might find an FCRA attorney can help pursue damages against the company reporting the incorrect information. If you believe you have inaccurate information on your credit report that has made it hard for you to qualify for the credit, reach out to us for a free evaluation of your case.
We hope that this article has been helpful and provides you with some useful tips on taking control of your credit in the New Year. Remember, it won’t be easy, but it is definitely worth it in the end. Good luck!