What to Prioritize on Your Credit Reports
Being turned down for credit can be extremely frustrating. But remember that lenders want to lend money to you; that’s how they improve their bottom line. So the message of a denial shouldn’t be “No” but instead “Not Yet.” But how do you know which items to prioritize on your report or what steps to take first when you need some work on your credit report? Here are some ideas for priority action items.
What the lender wants you to address
No one knows a lender’s decision criteria like the lender. Ask for feedback on negative aspects of your credit report that would be most beneficial to deal with. This is also a good time – if you haven’t done so – to access your free credit reports at www.annualcreditreport.com or by calling them at 877.322.8228 so you can familiarize yourself with aspects of your credit file the lender is referring to.
Adding on-time payments
There are two sides of the coin with enhancing your credit standing: mitigating negative information and adding positive information. Having a financial plan in place – including a budget and emergency savings – to ensure that you are able to always make your payment on time is crucial going forward. If you don’t have any open accounts that get listed on credit reports, it’s important to add at least one, like a secured credit card. In order to build credit, a payment needs to be made every month.
If false information on your credit reports is keeping you from being approved, it’s important to get it cleared up as soon as possible, especially since the dispute process can take some time. The quickest and most effective way to dispute wrong information on your credit reports is at the website of the credit bureau reporting, be it Equifax, Experian or TransUnion.
Outstanding public record items
Unpaid balances on court judgments, tax liens, child support or other public record listings are often considered the most damaging to your credit by lenders since they can result in your wages being seized. As such, these are excellent candidates for quick resolution.
It is not at all uncommon for lenders to have a policy of refusing to initiate any major loan with an applicant who has an unpaid collection account. Among the collection accounts, it usually makes the most sense to arrange settlements on the collection accounts that will be on your reports the longest. Credit reports normally list when collection accounts fall off your report, but if you aren’t sure, count seven years from the month when the account with the original creditor first went delinquent leading up to the time it was sold to a collection agency.
High-balance revolving accounts
You can have a credit report that is otherwise spotless – no late payments, no collection accounts, etc. – but if you have a credit card or a line of credit for which you are using a high percentage of your available credit, you can look like much more of a risk to a potential lender. A good initial goal is to pay all revolving accounts to below 50% of the credit limit, but seek to have all these accounts paid down far enough that you can pay each off on a month-to-month basis. The lower the balances you keep on your revolving accounts, the better for your credit.
You will likely find it easier to stay motivated if you compile a written action plan of the tasks you need to complete to qualify for a loan. When you are able to check items off the list and see your progress, you are much more likely to stay on course.
Revised January 2016.