Improve My Credit Score for Free

Why does good credit matter?

The reason good credit matters is because pretty much every lender and insurance company that you may want to do business with uses your credit history as the method of evaluating you. They use the information on your credit report to determine the rate and term for any loan or insurance product for which you apply. It literally controls your ability to get and maintain credit and insurance.

What can I do to improve my credit score for free?

The recipe for a good credit score is actually pretty simple. It’s almost too simple for some people … they want to make it more complicated than it really is. It’s a combination of several things:

• First, make your payments on time. The biggest problem with consumers that have poor credit scores is their inability or their unwillingness to make their payments by the due date. Some people view the due date as a suggestion rather than a hard and fast date.
• The second most common reason why consumers have poor credit scores is that they really let their debt spin out of control, and specifically I’m talking about credit card debt. A lot of consumers make the incorrect assumption that “As long as I make my payments – and minimum payments at that - then all is well and my credit is in good shape,” and that is certainly not the case. Debt plays a very large and significant role in the consumer’s credit score and there are many points lost if you let that debt get out of control.

There are some secondary areas of your credit report that are important, but they aren’t as important … one is the excessive shopping for credit. In many cases what we’re seeing is consumers are taking advantage of the in-store offer to save 10 percent on their purchase in exchange for the consumer making an application for a store credit card. What ends up happening is the consumer saves 10 percent on their purchase, but they also end up with multiple credit inquiries that can damage their credit scores. What we always advise people to do is to just go ahead and pay the price for the merchandise and don’t use your credit report as a 10 percent off coupon because that’s never a good thing.

Is there ever a time when a consumer should pay a credit repair agency in an attempt to improve a credit score?

Credit.com and John Ulzheimer do not advocate the use of credit repair agencies. Essentially what these agencies do is charge a fee to dispute negative information on behalf of the consumer. The consumer can write those letters themselves and save the cost of paying someone to do it for them. They are really nothing more than letter-writing services.

If you want to rebuild your credit then that’s one thing, but if you’re actively trying to avoid paying your debt then I’m not sure that these type of credit repair activities are healthy for the credit system and certainly not something that someone needs to be paying to have done for them.

What are some common misconceptions about improving credit scores?

• Close credit accounts that you aren’t using; that’s a big myth.
• Opting out for credit prescreening will improve your score; that’s a myth.
• Your credit score will not change except for every few years; that’s a myth.
• If you pay a collection agency, a credit problem will be removed from your credit report; that’s also incorrect.

How long will it take to improve my credit?

There is a statute of limitations for most negative items. Most negative items can only stay on your credit report for seven years. There are some exceptions:

• If the consumer does absolutely nothing – meaning they just basically avoid using credit – then their scores are going to organically improve over time.
• As negative items get older, their value is going to diminish and the credit scores will start to improve.
• The consumer should jump back in with both feet and start to reestablish credit as soon as possible to give the credit score model something good to grab onto and to which points can be assigned. You’re going to end up having to do business with lenders that you may not want to do business with in a normal environment such as non-prime lenders, secured credit cards while you’re in this score-improvement mode.

Is a credit score something that people need to actively manage?

I don’t know that you can ever truly ignore your credit score. It passively follows you essentially from the day your credit report is created – which usually happens between the ages of 18 and 22 – until you stop using credit. I think it makes good sense to spend a little bit of time at least understanding if our credit scores: Are they average, or are they poor?

I’m not saying that you need to run out and buy your credit score every month. I don’t know if that’s necessary and it’s a little bit of overkill. But, if you’re in the market to buy anything through a lender or if an insurance company is going to be pulling your credit report, I think it’s a very good idea to do some proactive investigation to see what’s on your credit report, verify that it’s correct, and do some work to improve that score if possible.

For More Information

John Ulzheimer’s insightful new book You’re Nothing but a Number can be purchased through Amazon.com. For more information regarding credit maintenance, or to search various options for applying for credit, visit Credit.com. By following his advice, you'll be able to say "I learned how to improve my credit score for free.".