How to Clean Up Your Credit Rating

You discover the ultimate home business opportunity and all that stands in your way is the money to launch it. No doubt about it, having an impeccable credit rating would be one less hurdle to attaining success.
However, like a growing number of people, your credit rating (based on information in your credit report which specifies how likely you are to repay your debts), is less than desirable. Before you hang out your sign, it is imperative that you clean up your credit rating. As intimidating as that may seem at first glance, it is not impossible to achieve.

What steps should you take to clean up your credit rating?
• Order a copy of your credit rating from at least two of the three FICO approved credit rating bureaus – Equifax, TransUnion, or Experian. Ideally, this should be done at least six months before you apply for a loan so you have a chance to clean up your credit rating.
• Review the credit rating reports and immediately take steps, in writing, to correct any information that is wrong. Correcting errors on your credit report can take a long time, sometimes up to 3 months or more.
• Pay all your current bills on time. Creditors rely heavily on recent payment history when calculating whether or not you will be a good credit risk.
• This is not a good time to attempt a credit card shuffle – consolidation of debt by transferring balances from one credit card to another increases your debt ratio, thus lowering your credit score.
• Contrary to what you may think, closing out credit cards once you have them paid off is not always advantageous. Your debt ratio (how much money you owe in relation to your total credit limit) will increase when you close unused accounts, whether or not they have outstanding balances.
• Avoid opening any new credit card accounts. A repayment history that is not well established may lower your score as FICO scores are determined by factoring in the longevity of your repayment history.
• Maintain your credit card debt ratio below the industry standard 25% umbrella.
Why should you get more than one credit report?
Credit reporting is neither mandatory nor universal, therefore your credit information may be scattered within individual bureaus. Depending on the region a company operates within, they may regularly report to a particular bureau. This can result in varying information being filed with each credit-reporting agency. Often lenders will calculate your credit rating by taking the middle FICO score into account when assessing your eligibility for funding.
Why is monitoring your credit rating so important?
The higher your credit rating, the better. A high credit rating can become an invaluable bargaining tool when you are trying to raise money for your home based business. Checking your credit score regularly allows you to assess exactly what your credit rating is, and as an added bonus, can alert you to any fraudulent activity on your account (such as unauthorized charges against your credit, or identity theft).

How important is follow-up?
Once you have determined there are errors on your credit report and you have forwarded a written explanation to the relevant agency, it’s up to you to do a follow-up. Check your report again within the next two to three month to ensure your record has been adjusted.
Since your focus during this time frame will be in improving your credit score by consistently paying off your present debt, make sure that is now reflected in your credit history. If no action has been taken to remove any inaccurate reporting, contact the disputed credit grantor to determine whether or not you can have the item removed from your credit profile. It may be possible to have a consumer statement put on your credit file.
Get it in writing
And remember, talk is cheap (and worthless in a dispute); therefore, all requests should be made in writing with a copy maintained for your records.
Note added Nov. 18, 2006: Each person in the U.S. can request one free credit report yearly from Equifax, TransUnion, and Experian. Thanks to HomeBusinessWiz reader Robyn McMaster for this tip.
The above article is intended for informational purposes only and should not be construed as financial or legal advice.
If you enjoyed this article, subscribe to the free HomeBusinessWiz newsletter to get a brief email notice when new “how-to” articles are posted.