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Four Steps to a Healthier Credit File

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Paying down debt and staying diligent about monitoring your credit report can help you clean up your file.Keeping your credit clean is essential to your overall financial health, and taking a proactive approach can help you stay on top of mistakes or behaviors that may dragging down your credit score. There are four primary steps you can take to give your credit a boost and protect your financial reputation.

1. Examine Your Credit Reports Closely
Obtain a copy of your credit reports from each of the three national credit bureaus—Experian, Equifax and TransUnion. Each one may have slightly different information on file because lenders have discretion over which bureaus they report your payment information to. Therefore, it’s imperative to check your report with all three companies. Recent studies show that nearly 80 percent of credit reports contain some form of error, and roughly 25 percent of errors are serious enough to warrant a denial of credit. For this reason, check all of your information, ranging from your personal identifying data to your account balances.

2. Dispute Erroneous Information
Removing false information from your credit report can lead to a jump in your credit score and improve your eligibility for financing and advantageous loan terms. If you spot an error, send a dispute letter to the credit bureau that listed the information incorrectly. You may benefit from also sending a copy of your credit report to the bureau with the inaccuracy circled in red, along with supporting documentation to prove your case. The credit bureau has 30 days to investigate the error and respond to your request. Make copies of all documentation and correspondence during this process.

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3. Pay Down Debt
High amounts of debt can drag down your credit score, so institute a repayment plan to lower your credit card balances. Downsizing and formulating a tight but realistic budget may help you tackle large balances, and be assertive about negotiating better rates and terms with lenders. Once you pay down credit cards, avoid carrying a balance—use the card sparingly so the issuer doesn’t close the account, and be sure you pay the balance in full each month. Do not close paid off credit card accounts as this may hurt your credit score.

4. Get Some Variety in Your Credit Report
A healthy mixture of credit will benefit you in the long run—this means having a car loan, mortgage and student loans in addition to credit cards. Remember that credit can actually help you build a stronger score if you can manage your accounts and spending responsibly. This is especially true if you have negative information on your file, such as a bankruptcy or foreclosure.

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  • Ricardo Costa

    Good explanation about healthier credit.

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