Some people believe that owing no money, having no credit cards, and in fact avoiding the whole world of credit will help improve their credit score.  The opposite is true – lenders want to see that you can handle credit, and the only way they can tell is if you have credit that you handle responsibly.  Having no credit at all can actually be worse for your credit score than having a few credit accounts that you pay off scrupulously.  If you currently have no credit accounts at all, opening a low balance credit card can actually boost your credit score.

When debtors find mistakes on their credit report, they often only contact the credit bureaus.  While this is the most effective way to resolve the issue, you should in some cases contact the creditors whose account has caused a ding on your credit report.  This can help future dings and resolve problems faster.

Consider an example: Let’s say that you were late sending a credit card payment two months ago because you were sick.  The late payment is listed as a ding on your credit report even though you have paid it already.  You should contact the credit bureau in order to get the error removed.

However, if you notice that the same credit card company has you listed as having late payments three months when you paid on time, then it is time to contact the credit company and ask how to resolve the problem.

The information reported about you to credit bureaus should be accurate – if it is not, then the credit company should work to make sure that they correct the problem so that it does not happen again.  You have an advantage in this – the credit company, unlike the credit bureau, depends on your business for their money.

This means that the credit company (or any other bill company presenting inaccurate information about you) is well motivated to correct the problem or risk losing you as a client.

If you find that a company consistently reports inaccurate information about you to credit bureaus, consider making a formal complaint to the company about it or switch companies.  There is no reason why one company’s poor organization should cost you your good credit score.

When you pull your credit report to look at it, it is counted as a “soft inquiry.”  Only “hard inquiries” from lenders will affect your credit score dramatically.  Although checking your credit score too often is an expensive habit, you should not avoid checking your credit report because you fear it will make your credit rating worse.

Many inquiries look bad on your credit report, but more than that you likely want to know who can see your personal financial information, now that you know that your personal information is stored in a credit report. If you sign a document with a lender or apply for credit online, you can be sure that someone is looking at your credit report.

However, you may want to look over other documents in order to see who is taking a peek. Insurance agents will often look at your credit report, for example. Some landlords and potential employers will, too. You need to be careful about online sources, too. In general, when you provide someone with your social insurance number, you may be giving permission to look at your credit report. You shouldn’t bar people from looking, but knowing who is looking is good financial practice.

There are a few things that people do without realizing it that have a bad effect on their credit score.  Follow these tips to avoid the common traps that can sink your credit risk rating:

Tip #1: Beware of debts and credit you don’t use.

It is easy today to apply for a store credit card that you forget all about in three years – but that account will remain on your credit report and affect your credit score as long as it is open. Having credit lines and credit cards you don’t need makes you seem like a worse credit risk because you run the risk of “overextending” your credit.

Also, having lots of accounts you don’t use increases the odds that you will forget about an old account and stop making payments on it – resulting in a lowered credit score. Keep only your used accounts and make sure that all other accounts are closed. Having fewer accounts will make it easier for you to keep track of your debts and will increase the chances of you having a good credit score.

However, realize that when you close an account, the record of the closed account remains on your credit report and can affect your credit score for a while. In fact, closing unused credit accounts may actually cause your credit score to drop in the short term, as you will have higher credit balances spread out over a smaller overall credit account base.

For example, if your unused accounts amounted to $2000 and you owe $1000 on accounts that you have now (let’s say on two credit cards that total $2000) you have gone from using one fourth of your credit ($1000 owed on a possible $4000 you could have borrowed) to using one half of your credit (you owe $1000 from a possible $2000). This will actually cause your credit risk rating to drop. In the long term, though, not having extra temptation to charge and not having credit you don’t need can work for you.

Tip #2: Be careful of inquiries on your credit report.

Every time that someone looks at your credit report, the inquiry is noted. If you have lots of inquiries on your report, it may appear that you are shopping for several loans at once – or that you have been rejected by lenders. Both make you appear a poor credit risk and may affect your credit score. This means that you should be careful about who looks at your credit report. If you are shopping for a loan, shop around within a short period of time, since inquiries made within a few days of each other will generally be lumped together and counted as one inquiry.

You can also cut down on the number of inquiries on your account by approaching lenders you have already researched and may be interest in doing business with – by researching first and approaching second you will likely have only a few lenders accessing your credit report at the same time, which can help save your credit score.

Tip #3: Be careful of online loan rate comparisons.

Online loan rate quotes are easy to get – type in some personal information and you can get a quote on your car loan, personal loan, student loan, or mortgage in seconds. This is free and convenient, leading many people to compare several companies at once in order to make sure that they get the best deal possible.

The problem is that since online quotes are a fairly recent phenomenon, credit bureaus count each such quote estimate as an “inquiry.” This means that if you compare too many companies online by asking for quotes, your credit score will fall due to too many “inquiries.”

This does not mean that you shouldn’t seek online quotes for loans – not at all. In fact, online loan quotes are a great resource that can help you get the very best rates on your next loan. What this information does mean, however, is that you should research companies and narrow down possible lenders to just a few before making inquiries. This will help ensure that the number of inquires on your credit report is small – and your credit rating will stay in good shape.

Tip #4: Don’t make the mistake of thinking that you only have one credit report.

Most people speak of having a “credit score” when in fact most people have at least three or more scores – and these scores can vary widely. There are three major credit bureaus in the country that develop credit reports and calculate credit scores. There are also a number of smaller credit bureau companies.

Plus, some larger lenders calculate their own credit risk scores based on information in your credit report. When repairing your credit score, then, you should not focus on one number – at the very least, you need to contact the three major credit bureaus and work on repairing the three credit scores separately.

Tip #5: Don’t make the mistake of closing lots of credit accounts just to improve your score.

This seems like a contradiction, but it really is not. Many people think that to improve their credit score, they just have to pay off some debts and close their accounts. This is not exactly accurate. There are several reasons to think carefully before closing your accounts.

First, if you close an account you need (for example, if you close all your credit card accounts) then you will have to reapply for credit, and all those inquiries from lenders will cause your credit score to actually drop.

Secondly, most credit bureaus give high favorable points to those who have a good long-term credit history. That means that closing the credit card account you have had since college may actually hurt you in the long run. If you have credit accounts that you don’t use or if you have too many credit lines, then by all means pay off some and close them. Doing so may help your credit score – but only if you don’t close long-term accounts you need. In general, close the most recent accounts first and only when you are sure you will not need that credit in the near future. Closing your accounts is a bad idea if:

1) You will be applying for a loan soon. The closing of your accounts will make your credit score drop in the short term and will not allow you to qualify for good loan rates.

2) Closing your accounts will make your overall debt balance too high. If you owe $10 000 now and closing some accounts would leave you with only $1000 of possible credit, you are close to maxing out your credit – which gives you a bad credit rating.

In the short term, closing accounts will lower your credit score, but in the long run it can be beneficial.

Tip #6: Don’t assume that one thing will boost your credit score a specific number of points.

Some debtors are lead to believe that paying off a credit card bill will boost their credit score by 50 points while closing an unused credit account will result in 20 more points. Credit scores are certainly not this clear-cut or simple.

How much any one action will affect your credit score is impossible to gauge. It will depend on several factors, including your current credit score and the credit bureau calculating your credit score.

In general, though, the higher your credit score, the more small factors – such as one unpaid bill – can affect you. However, when repairing your credit score, you should not be equating specific credit repair tasks with numbers. The idea is to do as many things as you can to get your credit score as close to 800 as you are able. Even if you can improve your credit score by 100 points or so, you will qualify for better interest rates.

Tip #7: Don’t think that having no loans or debts will improve your credit score.

Some people believe that owing no money, having no credit cards, and in fact avoiding the whole world of credit will help improve their credit score. The opposite is true – lenders want to see that you can handle credit, and the only way they can tell is if you have credit that you handle responsibly. Having no credit at all can actually be worse for your credit score than having a few credit accounts that you pay off scrupulously. If you currently have no credit accounts at all, opening a low balance credit card can actually boost your credit score.

Tip #8: Never do anything illegal to help boost your credit score.

It seems pretty obvious, but plenty of people try to lie about their credit scores or even falsify their loan applications because they are ashamed of a bad score. Not only is this illegal, but it is also completely ineffective. Your credit score is easy to check and not only will you not fool lenders by lying but you may actually find yourself facing legal action as a result of your dishonesty.

You are more likely to notice problems and inconsistencies if you check your credit score on a regular basis – at least once a year and preferably three times a year. Be sure to check your credit rating with each credit bureau, too. If you notice anything odd or anything you don’t recognize (such as a charge account you did not open) report it immediately.

Sometimes, these errors are caused by mistakes made at the credit bureau, but they could be an indication that someone is using your identity. In either case, such mistakes could hurt your credit score. Fixing such errors improves your credit score.

If you think you have been the victim of identity theft, take action at once:

1) Contact the three major credit bureaus and ask to speak to the fraud department. Explain that you have been the victim of identity theft (or believe you may have been) and ask that an “alert” be placed on your file. This will let anyone looking at your report know that you may have been the victim of fraud. It will also mean that you will be alerted any time a lender asks to look at your file – each time a lender does look at your file, it may be an indication that the identity thieves are trying to open a new account in your name.

When the lender sees that the person applying is not you, they will deny the thieves credit and in most cases the criminals will stop trying to access your identity. Most alerts on your file last 90 or 180 days but you can extend this period to several years by asking the credit agencies for an extension of the “fraud alert” in writing.

In some states, you can even ask for a freeze to be placed on your credit score and credit report which will prevent anyone but yourself and those creditors you already have from accessing your file. Any lenders the thieves contact to set up a new account will be refused access and the thieves will not be able to get any more money in your name.

You are entitled to a free copy of your credit report if you have been the victim of identity theft. Be sure to take advantage of this offer so that you can check exactly how your credit has been affected. Dispute those items that are not yours.

2) Call the Federal Trade Commission (FTC) at 1-877-438-4338. This is the special hotline that the FTC has set up to help customers deal with fraud and identity theft. You will be able to get up-to-date information about your rights and advice as to what you can do to improve your credit score and keep in safe in the future.

3) Contact the police. Identity theft is a crime and you need to file a police report (be sure to keep a copy of this report) so that you can help the police potentially catch the criminals responsible. Contacting the police will also give you a paper trail and proof that a crime has been committed. Keeping a paper trail of the crime and your response will make it easier for you to repair your credit if it has been damaged by identity thieves.

4) Contact your creditors or any creditors that the identity thieves have opened an account with. Ask to speak to the security department and explain your predicament. You may need to have your accounts closed or at least your passwords changed to protect yourself.

You may also need to fill out a fraud affidavit to state that a crime has been committed – be sure to keep a copy of this form for your records. The security team of the creditors should be able to advise you as to what you can do. Be sure to note down who you contacted and when so that you have records of the steps you have taken to deal with the crime.

If you have been the victim of identity theft and you are deeply in debt to creditors you never contacted, you will not be held responsible for the charges – but you will have to prove that you have been the victim of identity theft, which is tricky since the thieves are using your name and claiming to be you.

It is a frustrating experience because lenders will want to be paid and you will want to avoid paying for charges you did not run up. Being persistent and keeping good proof that you have been the victim of a crime will help to clear your credit score. In the meantime, however, you will be faced with a much lower credit rating than you deserve and you may have to put off larger purchases that may require a loan.

To stay safe from identity theft, always follow safe banking and financial practices:

1) Keep account numbers and PIN numbers safe.  Cover your account and PIN numbers when using debit at the store and refuse to give your PIN number to anyone. Avoid writing down your PIN and account numbers – you never know when this information could fall into the wrong hands.

2) Only do business with businesses you trust.

3)If you get applications for credit cards in the mail that are “pre-approved” rip up the applications and enclosed letters before discarding them.  No, this is not paranoid. Identity thieves sometimes go through garbage in order to find these forms so that they can fill them out and steal your identity.

4) If you use a computer, install good firewall and anti-virus protection system and update it religiously.  Better yet, take a course in safe computing at your local college or community center.  You will learn many good tips for keeping all your information safe while you are online.

5) Never buy anything online from a company you do not trust of from a company that does not have encryption technology and a good privacy policy.

6) Even with all computer precautions, avoid providing private information through email or your computer.  Be especially cautious if you get an email from your bank asking you to verify your information by clicking on a link – this is a popular scam that comes not from your bank but from criminals posing as your bank.  Ignore the email and phone your bank about the message.

7) Be wary of unsolicited emails, phone calls, or mail advertisements.  Most are from legitimate companies but there are companies who promise you a credit card over the telephone only to charge your existing credit card without sending you anything.

Similarly, letters will sometimes promise you specific items or services.  Once you send in your credit card information (usually to a post office box) you hear no more from the company.  If you need or want to buy something from a company, be sure to check the company’s standing with the Better Business Bureau first.

Send a money order instead of a check (which had your account number) or your credit card information.  If you do use a credit card, report any unusual charges or any payments you made for a product that did not arrive to the credit card company.

In some cases, they can stop payment or refund your money as well as take steps to keep your credit card number safe.

Be wary of offers that seem too good to be true.  If you get an offer for a ten million dollar check – for which you need to put down $5000 as a “sign if good faith”…if you get an offer for a free state-of-the art computer – if only you provide your account information… take a deep breath and consider before sending in your money and your information.

Offers that are too good to be true always are.  Scam artists often rely on your belief in others and your trust to make money.  They depend on the fact that you will be so excited about a product or service that you will throw good judgment out the window.  Prove them wrong.

When faced with an offer that seems too good to be true, do some research on the web, through the Better Business Bureau, or ask the person making the offer some questions. Never take someone up on an offer that you have been given unsolicited unless the company and the offer both check out.

9) Read the fine print.  Some services or companies will have tiny print in their contract or agreement that allows them to charge you extra hidden fees or that allows them to retract certain offers.  If you get an offer through email or the mail, make it a habit to read the fine print.

10) Be alert for a sudden disruption in your mail service.  If you do not get mail for some time, contact your post office and ask whether your address was recently submitted for a “change of address” service.  It sounds strange, but it’s true.

One way that criminals steal identities is to change your address at the local post office.  They redirect your mail to a post office box number and steal your mail looking for personal information such as bank statements, pre-approved credit card applications, and other pieces of mail they can use to steal your identity.

They use this information to pose as you with lenders and run up huge charges in your name. Simply keeping an eye out on your mail can help you keep your credit score safe.