4 ways to improve your credit

1. Create a spending plan
2. Review your credit report and address any problems
3. Get credit cards and use them wisely
4. Watch your debt
    

• Credit repair clinics
• Union-member-only discount on FICO scores

For most of us, it's a mystery: you fill out a credit card application, send it in, cross your fingers, and hope for the best.

What can you do to maximize the chances that your application for credit will make it into the "yes" pile? Most credit card companies, as well as many other lenders, use credit scoring systems to help them decide who gets credit and who doesn't.

A credit scoring system works like this: a lender takes a look at its customer base and compares those borrowers who have paid their bills on time with those who haven't. Using sophisticated computer programs, the lender tries to figure out what factors those customers have in common.

For example, the lender may discover that people who move frequently are less likely to pay their bills on time than people who stay put. If that's the case, then they will look at how long new applicants have been at their current address in their scoring systems.

Credit scoring has become so sophisticated that, many times when you apply for a credit card, your application is reviewed and evaluated by a computer rather than a person. It may sound spooky but, in fact, lenders can review and approve a lot more applications that way.

Scoring programs will usually evaluate information in your credit report and your application. It's the information in your credit report that carries the most weight, though, so you'll really want to make sure that it's complete and accurate. Click here for tips on how to address problems with your credit

Here are some steps to help improve credit, including factors that are most likely to be considered for a credit score and strategies for using them to your advantage:

1. Create a Spending Plan

   Take a month or two to make write down everything you spend, including bills and purchases paid for with cash, credit or with debit cards. Also track your income for those months. At the end, list every category of expense, and then write down the total amount per month (taking an average if you tracked expenses for two months) you spent in that category.

   You are now ready to make a spending plan. One goal is to generate enough cash each month to put toward savings - a necessary step to stopping the debt cycle. If you are spending close to what you bring in (or even more), you'll have to find ways to cut back. For example, if you love to read and spend a lot on books, you can reduce that amount by checking books out from the library or buying only at used bookstores. If you go out to lunch everyday, consider bringing your lunch. Remember to take advantage of the many discounts available to you as a union member.

2. Review your credit report and address any inaccuracies.

   Inaccurate information can be hurting your credit score. Make sure to check your credit score and report at least annually, then take care of any problems on your report.

3. Get Credit Cards and Use Them Wisely

   The simple truth is that if you don't have - and use - credit, your score will suffer. Lenders need information about how you are handling bills now and in the past, in order to predict whether you will pay on time in the future. They may not be willing to take a chance on someone who doesn't have a solid, established credit history.

   If you don't currently have a credit card, apply for one. It's often easiest to obtain a card from a department store or gasoline company. These companies usually open your account with a very low credit line. Then make sure to use your new card month and make your payments on time. Check to make sure that new credit line is being reported to the bureaus and soon your credit report will show steady and proper use of revolving credit.

   Once you have your first card, apply for a regular credit card from a bank, such as a MasterCard, Visa, or Discover card. Click here for information about the Union Plus Credit Card. You may be eligible only for a card with a low credit line or high interest rate. If you make your payments on time, however, after a year or so you can apply for an increase in your line of credit or a reduction of the interest rate. You can also try these strategies for getting credit for the first time:

   • Cosigned or guaranteed account - someone else promises to repay if you default. Be sure that the payment history is reported for both you and the cosigner or guarantor, not just the cosigner or guarantor.
   • Secured credit card - you deposit a sum of money with a card issuer and are given a credit card with a credit limit for a percentage of the amount you deposit. Click here for information about the Union Plus Secured Credit Card. This is one of the fastes and most reliable methods for building credit.

    

4.  Watch Your Debt

It's amazing how much credit card debt some people can rack up - and then still get offers for more. But, if you want to obtain lower interest rates, having too much debt may be a problem. There are two things that lenders may consider here: how much debt you have in comparison to your income as reported on your application (your "debt-to-income ratio") and how close you are to your available credit limits. Since every lender is different, it's hard to say how much is too much, but paying down your debts can only help improve your financial life.

A Word About Credit Repair Clinics

It's simple. Avoid these outfits. These companies can't do anything for you that you can't do yourself. What they will do, however, is charge you between $250 and $5,000 for their unnecessary services.

Federal law regulates for-profit credit repair clinics. Under the federal law, a credit repair clinic must:

• Inform you of your rights under the Fair Credit Reporting Act
• Accurately represent what it can and cannot do
• Not collect any money until all promised services are performed
• Provide a written contract, and
• Let you cancel the contract within three days of signing.

Don't confuse credit repair companies with non-profit credit or debt counseling agencies - which will work with you to create a sound budget and help you to pay off your debt and restore your credit the right way. They may request a voluntary donation, but that amount is typically low and their practices are ethical and legal.

You can also obtain your FICO credit score (with your union member-only discount). Check out factors that determine your credit score and 10 ways to improve your FICO score.