How to Clean Up Your Finances Before A Credit Check

How to Clean Up Your Finances Before A Credit Check

Getting your Credit Check can be terrifying: you’ve already provided loads of personal information to the person or institution checking your score, and now they’re about to base their decision around a number you can barely wrap your head around. 

The best way to deal with a credit score check is by engaging in responsible fiscal behavior — paying loans back promptly, for example — of the course of many years. If you don’t have that kind of time, there are still a few things you can do. Here’s where to start:

  1. Keep your credit varied.

What a credit report is ultimately trying to demonstrate is your ability to handle debt. Banks and other lenders want to know ahead of time what kind of risk they’ll be incurring by lending to you, so they use credit scores to figure that out. This means that there are a few key moves you can make to show that you’re very capable of handling debt, moves that will boost your score in the process.

One of the easiest is through credit variation. Simply put, you want your debt to be diverse in order to show credit bureaus that you can take care of whatever’s thrown at you. If all you have on the books is a student loan, go ahead and sign up for a credit card for no credit, thereby diversifying your credit pool. Keep in mind, though, that this doesn’t mean you should take out a load of short-term loans in order to diversify your credit: credit bureaus look askance at sudden borrowing, particularly from short-term or unestablished lenders. Play it cool as you vary things up.

  1. Check your Credit Check report — carefully.

Before you let someone else check your credit report, why not do so yourself? Not only will this give you a sense of exactly what they’ll be seeing, it also gives you an invaluable opportunity to correct any potential mistakes that might be there. It is estimated that around one quarter of Americans have mistakes in their credit reports, many of which will lead to artificially lowered credit scores. 

Once you get your report, go over it line by line. Verify all of the information contained therein with your own data. If you encounter an error, don’t worry. All you need to do is submit a correction request to the credit bureau you got the report from along with some documentation. If you explain that you’re about to get your credit report checked by a third party, they may be inclined to to speed up the process a bit. There’s no limit to how many errors you can correct, so don’t let any slip out from underneath you.

While this isn’t necessarily in your control, it’s important to remember that there are 2 main kinds of credit checks: “soft” credit checks and “hard” credit checks. Soft checks are often done by small lenders or employers and don’t share the full nature of your credit profile. Hard checks share the entirety of your credit profile and may even affect your score slightly. Know which kind of check you’re signing up for ahead of time so that you understand what information will be seen.

  1. Clear as many debts as possible. 

While having some healthy debt can actually look good on a credit report, nothing looks better than debt that’s been paid off. If you know that a credit check is imminent, divert more cash than usual toward paying off some of your debts. Start with the small ones, debts that you’ll be able to pay off in full without disrupting your budget, before taking command of the larger debts. 

It’s important to try and start this process as long before your credit check as possible. Not only will that allow you to pay off more of your debts, it will also demonstrate a trend that looks good to creditors. Trying to cram too much in at the last minute may mean that your actions won’t be properly reflected in your score. 

  1. Request past-due account removal. 

If you’ve ever missed a credit card payment or were late on paying back a student loan, your credit score probably took a tumble not long after. Debts like these are known as past-due accounts and they can be an albatross around the neck of otherwise good-looking credit profiles. 

While ideally you should never incur any past-due accounts, there is a chance that you can remove existing ones from your credit report. If you’re now in good standing with the institutions you failed to pay back on time, they may be willing to expunge the evidence of your past due from your credit report. They’re in no way required to do this, but there’s no harm in asking. The better your current relationship with them is, the more likely they are to do you this favor. 

  1. Keep Credit Check utilization low. 

Your credit utilization is the amount you’re authorized to use from your lenders, namely your credit card company. You’re likely familiar with the spending limits on your credit cards — think of those numbers as the maximum credit you’re allowed to take advantage of. The smaller the fraction of that credit you actually use, the better it will look on your credit report. 

You can obviously do this by decreasing your spending, but there may be a simpler fix as well. If you’re in good standing with your credit card provider, you can request that they increase your spending limit. As long as you subsequently maintain your current spending habits, you’ll have lowered your credit utilization without actually doing very much of anything. It’s a simple fix, but it can go a long way in boosting your credit score at the eleventh hour. 

Credit checks can be scary, but they don’t need to be. As long as you’re vigilant and responsible, you can be sure that your credit report looks as good as it can.