Fix your credit score, step by step

Steve Bucciq_v2.gifDear Debt Adviser,
Hi, I am 22 years old and have terrible credit. My mother used my information (for her own personal gain) as soon as I turned 18. I have a debt of about $6,000. I currently work at a bank (ironic, I know), and I am almost done with my undergraduate degree. I would like to attend graduate school, but I am certain I would not be approved for any loans because of my credit score. I would like to know what I can do to improve my credit, so by the time I am ready for grad school, I would be somewhat OK. My credit score is currently 526!
-- Yohance

a_v2.gifDear Yohance,
Let's focus on the positives in your life right now. What's done is done, although if you want to try to undo the past, we can talk about that later. But I don't recommend it. Among the positives in your life right now are that you are finishing your undergraduate degree, you are gainfully employed and you have a goal to work toward with your plan to attend graduate school. There are a lot of my readers who would willingly trade places with you! I mention this because it's easy to hold onto negative events and let them overshadow the bright future you have before you.

So, let's get to work on your credit! Your credit score is made up of five components. Here they are, along with a suggestion to help with each one:

Elements of your credit score

1. Paying on time (35 percent): Since you know your credit score, I assume you have a copy of your credit report. If not, it shows your account payment information. If you have any late accounts, you will want to bring them current as soon as possible. Pay any past-due items and don't miss any payments going forward.

2. Amount and type of debt (30 percent): You owe $6,000. This isn't a huge amount unless it represents a significant proportion of your credit limit. You should try to get each balance owed on a credit card or loan to be as small a part of the maximum as possible.

3. Length of time you have been using credit (15 percent): Your credit history lengthens as you get older, but accurate, negative information stays on your report for seven years. Even so, positive accounts (those "paid as agreed") that have been open for at least two years on your credit report will help your credit score.

4. Variety of accounts (10 percent): It will help if you can show that you can handle more than one type of credit. Adding different types of loans like an installment loan or a car loan will help. However, given your low credit score, a passbook loan may be a good way to start. You essentially borrow money that is backed by a savings account and make regular monthly payments to pay it back. Be sure the bank will be reporting the account to the credit bureaus.

5. Number and types of recent inquiries (10 percent): Don't apply for credit unless you need it. Every time you do, whether you get turned down or accepted, your score will suffer.

If you follow these tips, your credit should start to improve over time. Be sure to check with your employer to see if it offers tuition reimbursement for employees. If so, working and taking classes over time may get you started while your credit improves.

Now, back to your mom! What your mother did by using your personal information without your permission is identity theft. It is always a difficult and personal decision whether or not to report identity theft perpetrated by a family member. As long as your mom no longer has access to your credit, I'd just move on. In time, your relationship with her may be more important than a mistake made in the past. You may want to consider putting a freeze on your credit just to be sure that neither she nor anyone else can open accounts without your permission in the future. For information on freezing your credit reports, check out the Web site of each credit bureau -- Equifax, Experian and TransUnion. It's usually free or very low cost.

Good luck!

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