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Every week I post all about amazing credit cards offers, but they mean nothing if you can’t take advantage of them due to your credit score. Having good credit is absolutely critical for people who want to take advantage of lucrative credit card deals and will help you out in other ways as well, such as with mortgages, refinancing, loans, etc. There are a lot of misnomers about opening credit cards, so I’ll do my best to answer the many questions I’ve received, or at least point you in the right direction.
Before you go applying for tons of credit cards, you should understand your current credit situation. There are two easy ways that will help you do that:
1) Get your free credit report from each of the major credit reporting agencies: Equifax, Experian and Transunion. Each of them will provide you with a credit report that shows all of your current and past credit accounts and inquiries. They will each try to sell you useless services like credit monitoring and their own credit scores, but you probably don’t need them. The credit scores that they sell are absolutely useless and they are not used by credit card companies when determining whether to grant you a card. The score most credit card companies use is FICO, which I’ll explain below. The credit reporting agency arbitrary scores are often called Fake-O scores. Don’t bother with them. You can check annualcreditreport.com or go to each company’s website. They will give it to you for free, but make sure they don’t sign you up for the monitoring service automatically. If they do, make sure to cancel it right away.
2) Examine your credit report for any errors or items that don’t belong.
3) Dispute negative items. There are two ways to dispute with each credit bureau: online and via certified mail. I had some bogus items on my report that I disputed online and they were taken off within 45 days. Many people recommend doing it all via certified mail, but I recommend disputing first online to see what you can get taken off easily, then wage a paper war. When you dispute online, its an electronic system that analyzes your request whereas when you do it via mail, people get involved and actually contacts the proper creditors and demands a much higher threshold of evidence than the online system. Many collection agencies/creditors (especially those that are now out of business) won’t take the time to deal with the paper requests and if they don’t, that item will most likely be taken off your report. To my knowledge, there isn’t a limit on disputes, so you can keep trying until you get satisfactory results. This website is a great resource for learning how to mount your dispute.
4) Once you get your disputes under way, get a real picture of your financial situation. I personally use mint.com which helps me visualize my financial picture and has alerted me to phony finance charges and bank fees (I’m talking to you Chase!). These alerts have notified me when I would have other paid close enough attention and I’ve successfully gotten them taken off my account. Whether you want to see it or not, it’s good to visualize your current debt and what you spend your money on every month. As much as you may want to stick your head in the sand, understanding your financial situation is key in life, whether you want points earning credit cards or not.
5) Pay down your balances. When you apply for a new credit card, they want to see a healthy ratio of credit used to credit available. Plus, if you have high credit card balances on your credit cards, the finance fees and interest payments will potentially cost you many times more than the value of the points you are earning.
6) Get your FICO score. 700 is average and 850 is perfect. If your score isn’t as high as you want, you may want to rehab it before trying to open up cards.
7) Don’t start closing all of your old credit cards so you can get new ones. Having a long credit history with a card issuer is important, so it may behoove you to keep them open. Also, when you close accounts you decrease the overall amount of credit available to you and can inadvertently lower your FICO score.
Like I said, I’m not a credit expert, but I have done my research and have improved my own score by using the tricks above. In short, the easiest way to increase your score is to educate yourself, remove incorrect negative information from your reports and pay down your balances.