Question: How do you Improve a Credit Score?

The thing that frustrates me the most - the most! - about the credit system is all the scammers and liars out there telling people that they need to buy this or do that to improve their credit. It can be nearly impossible for consumers to tell the difference between the good guys and the bad guys. Here's a question I got today:

Can you comment on the idea of improving your credit profile in order to improve your score? I listened to a free podcast from Trump University last night. It was basically to get you to buy a program from Eschelon Credit Advisors. He talked about how the score is created, tier 1 score, how much credit toward your score you get for each type of account, etc. Thanks.

Point 1: There is NO WAY to buy a better credit score. Credit counseling programs are junk. Credit repair is a fraud. Like Liz Lemon would say "Deal breaker!"

Point 2: The best way to improve your credit is on your own. There's nothing that these paid services do that you're not better off doing on your own for free. And if you have access to Google, there's no reason you can't figure it all out.

To improve your credit score you first have to know what went wrong. Diagnose and prescribe...just like healthcare. Here are a few of the common issues and treatments:

• No Score: You don't have enough credit history to generate a score. The solution is to open an account and use it responsibly for a few months. Auto loans and secured credit cards are the easiest to get.
• Too Much Debt: There's an extremely confusing part of credit scores where they calculate how much of your total credit card limits you're using. Basically, if you're maxed out it is hurting your credit. So, either pay down your credit card debt or increase your credit limits.
• Skeletons in the Closet: Old collection accounts, late payments, bankruptcy filings, etc are very damaging to your credit. Unfortunately, these all have set 7-10 year expiration dates and can't be removed earlier. Your best bet is to work on adding positive information to your score with a secured card or other account and to wait patiently for the expiration.
  
• Errors: They're not as common as you would think, but mistakes or fraudulent records on your credit report can hurt your score. For these, submit a detailed dispute letter to each of the credit bureaus. The process takes a couple weeks but can be rushed by a mortgage lender.

If you know more specifics on the "diagnosis" for your damaged credit, I'd be glad to go into more detail on the cures!

How to Keep an Eye on Your Credit

Credit: One hears all the time that not keeping a constant watch on one's credit score will instantly lead to life-crushing identity theft, financial problems and life in a van down by the river. I know it well, I helped to spread this particular message for several years. But it's not really true.

A friend recently wrote me to ask about watching her credit:

I'm finding myself a bit lost in my internet searches trying to determine what the best way is to keep an eye on my credit score. Do you have any advice on whether it is worthwhile to use a monthly or annual monitoring service, or do you just check your credit report with each agency once a year on a rotating basis? If you use a monitoring service, what do you use?

If you're planning on buying a house or something else huge in the next year, I would invest in a credit monitoring program. TransUnion and Identity Guard both have offers that are pretty reasonable and give you good access to your data. It's a good idea because you want to make sure you have the highest score possible before you apply. But be very careful about making changes in an attempt to boost your score a few points - more often than not, these changes can lower your score.

If you're not on your way to buying a home, don't bother. You can check your credit reports online for free once a year here - https://www.annualcreditreport.com/ - and upgrade for $7 to your FICO score from Equifax (don't pay for the other two scores - they're junk). As long as the data is pretty much the same on all three reports, that one FICO score will be plenty.

What would it take to be rich?

Here's an interesting question: what would it take for you to consider yourself to be rich? When I ask this at seminars, most people say that it would take doubling or tripling their income.

Of course, these are all people who make vastly different amounts of money. It's not actually the amount but the increase over what you have now that people strive for.

So, if we're never considering ourselves rich because the target is always moving, what is really the goal? Financial security? Wealth?

Here's what I strive for:

• Lots of savings. A big retirement fund and enough cash to cover my basic expenses for a least a year. I'm crazy about saving.
  
• Funny money. The ability to splurge on a fancy dress, dinner or ticket once in a while without worrying about it.
  
• Buying a home. Ha! This one isn't yet a possibility for me in San Francisco.
• Good credit. To be able to get the loan, credit card, etc when I need it.
  

That's basically it. For me, it all comes down to the freedom that money can provide. What's on your list?

Endings and Beginings

I gave my last "official" personal finance seminar today. I couldn't have asked for a better conclusion to my former career. Dress for Success does great work and I've been lucky to speak with them a few times.

I suppose it is the end of an era...but it can also be a start. I realized today how much I sincerely enjoy talking to women about money - even if it isn't my job.

Money can be such a threatening, boring topic - so it is amazing to be able to get people laughing about credit cards and feeling powerful about saving.

I decided to create this new blog as a way to continue the conversation about money. After nearly a decade working in personal fiance and with a national credit bureau - I have some answers to share. We'll see how it goes.

New Blog Coming Soon!

Stay tuned for details!