Raising Your Credit Score
by Evan Vanderwey on 30/09/09 at 8:55 am
Not happy with that credit score? More importantly, is your lender not happy with it? Well, here’s some good news: it’s not a fixed number. It’s like your cholesterol level. There are things—short-term and long—that you can do to improve it, and things to avoid…
First, some short-term fixes:
1. Correct errors in your report. Your credit score is based on the information in your credit reports, and like any other complicated collection of little facts, some of it will just be plain wrong. So look for errors on things like…
- negative items that don’t belong to you—late payments, charge-offs, collections
- credit limits reported lower than your actual limit
- accounts listed as anything other than “current” or “paid as agreed” that either aren’t yours or have been paid on time and in full.
- accounts listed as unpaid that were included in a bankruptcy
- negative items older than 7 years (10 for a bankruptcy)
2. Look for goodwill. Your lender might agree to erase that late payment if you’ve been an otherwise good customer. Requests like this need to be done in writing.
3. Dispute old items. Here you’re banking on the inefficiencies in a system. Credit bureaus will investigate your dispute over an old item—say, a collections account over a bill you thought was unfair. The smaller and older the account, the less likely it will be verified by the collection agency. Lenders that have merged with another company also run into tangles when tracking back on old records.
4. Check your credit card limits. Your scores might be artificially low if your lender is showing a lower limit than you’ve actually got. Most credit-card issuers will quickly update this information if you ask.
Longer-term fixes:
1. Pay down your credit cards. Paying off your installment loans (mortgage, auto, student, etc.) can help your scores, but not as dramatically as paying down — or paying off — revolving accounts such as credit cards. While most debt gurus recommend paying off the highest-rate card first, a better strategy here is to pay down the cards that are closest to their limits. Lenders like to see a big gap between the amount of credit you’re using and your available credit limits. Getting your balances below 30% of the credit limit on each card can really help.
2. Use your cards sparingly. Racking up big balances can hurt your scores, regardless of whether or not you pay your bills in full each month. What’s typically reported to the credit bureaus, and thus calculated into your scores, are the balances reported on your last statements. (That doesn’t mean paying off your balances each month isn’t financially smart — it is — just that the credit scores don’t care.)
4. Get out that old but still active card. The older your credit history, the better. But issuers may stop updating your activity if the card goes unused for too long. The accounts will still appear, but they won’t carry as much credit-scoring weight as your active accounts. Try making a small purchase every few months on these types of cards, being sure to pay it off in full each month.
3. Ask your lender to “re-age” your account. For example, if the account is still open, the lender might erase previous delinquencies if you make a series of 12 or so on-time payments.
And some DON’Ts:
1. Don’t ask a creditor to lower your credit limits. This will reduce the gap between your balances and available credit, which could hurt your scores.
2. Don’t make late payments. This is especially true if your score is healthy. In fact, the better the score, the bigger hit you’ll take for a late payment.
3. Don’t consolidate your accounts. Applying for a new account or transferring balances to a lower limit card can bring your scores down. Think smaller balances on a few cards (with higher limits), rather than a big balance on one.
4. Don’t apply for new credit if you already have plenty. Credit improves with age. At least that’s how credit reporting sees it.
So, to get that credit score up where you need it, you can take some steps today that may get you immediate results. You can also start putting into place some longer-term strategies and habits. Stick to the diet. You’ll be better off for it.
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