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Check your credit first

You have the right to include a statement of as many as 100 words in your report to explain your version of the disputed item. This will be included in reports provided in the future.

The credit reporting companies make mistakes -- oodles of them. So many, in fact, that there is a 50/50 chance that there's a mistake on your report. The Fair Credit Reporting Act gives you the right to challenge the reports and have them corrected if they're wrong.

The Federal Trade Commission's Web site presents a concise summary of your rights under the act, written in language that's easy to understand.

Recheck your score -- it could be worth it

Once you have corrected mistakes, check your FICO score again in 30 to 60 days to see how much, if any, it has changed. How important is, say, a 50-point swing in your score? It could mean the difference in getting approved for a zero percent loan or paying 7 percent.

Is it worth the wait? Let's say you were financing $20,000 for five years. A zero percent loan would give you payments of $333.33 and, naturally, zero dollars of total interest over the life of the loan. A loan at 3.9 percent would mean monthly payments of $367.43 and total interest of $2,045.71. A 7.9 percent loan would mean payments of $404.57 per month and $4,274.28 in total interest, or $71 a month more than the zero-percent financing.

If you are financing $20,000 for five years

Interest rateMonthly paymentTotal interest
0%$333.33$0
3.9%$367.43$2,045.71
7.9%$404.57$4,274.28

In addition to disputing items on your credit reports, there are other ways to improve your FICO score:

  • Pay down any credit cards that are near their limit. Your FICO score suffers if it looks like you've maxed out your credit, even if you've made all the payments on time.
  • Don't apply for new credit, even if you are just exploring the option of financing a new washer and dryer. Frequent inquiries from credit providers can decrease your score.
  • Close old accounts you no longer use. That Visa with the $15,000 limit that you have in your wallet just in case of a catastrophic emergency could depress your score. FICO looks at how much credit you have available, not just what you've used. There's a catch, though. Closing all your accounts could adversely affect your FICO because the calculator likes to see that you have and use credit wisely.
  • Keep older accounts with a good history and let new credit mature. If you're just starting out and have only had that MasterCard for six months, wait a while. You'll score higher with a longer history of handling credit.

 

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