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How to Improve Your Credit History and Pay Less for Loans

Review your credit reports regularly for errors or signs of identity theft.

A credit report provides a record of your history of paying loans and bills, including any late payments. These reports are important because they can affect your ability to qualify for a low-cost loan or insurance policy, rent an apartment or find a job. However, a recent Federal Trade Commission study found that a number of consumers had errors on their credit reports that could lead to them paying more for loans. What can you do to improve your credit reports?

Pay your bills on time. “If you’re late 30 days or more, the lender may report your account as delinquent to a credit reporting agency, and that will damage your credit history,” said Kirk Daniels, acting section chief in the FDIC’s Consumer Protection Branch. “But your credit history will improve over time if you can avoid another late payment on your record.”

Reduce the amount that you owe on credit cards and other lines of credit. That will help improve your credit score, a numerical summary of your credit record as prepared by one of many companies. If you close an account you have paid in full and haven’t used in a while, your debt-to-credit ratio (the amount you owe on credit cards compared to your credit limit) will increase. That could be interpreted as a sign that you have taken on more debt that you can handle. One option is to avoid closing unused accounts until you have paid down any large balances on another credit card.

Review your credit reports regularly for errors or signs of identity theft. You are entitled to receive at least one free credit report every 12 months from each of the nation’s three main credit bureaus (Equifax, Experian and TransUnion). Start at annualcreditreport.com or call (877) 322-8228. If you find errors, contact the credit bureau directly. Also be cautious of other websites and services advertising “free” credit reports because these may be attempts to sell you something else or even scams to collect personal information.

“If possible, request your credit report well before you apply for a loan to give you time to correct any inaccurate information,” said Evelyn Manley, an FDIC senior consumer affairs specialist.

There also are “specialty” credit bureaus that, for example, track a person’s history of handling a checking account. For information on your right to see and correct these companies’ reports, visit the federal Consumer Financial Protection Bureau website at consumerfinance.gov.

If you have a complaint that you can’t resolve with either the credit bureau or the company that provided the information to the credit bureau, report it to the Consumer Financial Protection Bureau (go to help.consumerfinance.gov or call (855) 411-2372). And if identity theft is suspected — perhaps your credit report says there have been loans taken out in your name and you don’t recognize them — follow the steps recommended by the FTC at consumer.ftc.gov.

For more tips, visit the FTC’s “Credit and Loans” page at consumer.ftc.gov, plus the Fall 2011 issue of FDIC Consumer News.