Seven Steps to Improve Your Credit Score

Categories: Buyers posted on October 8th, 2008

Improve Your Credit Score

There are more than 30 million people in the United States with credit
blemishes severe enough (and credit scores under 620) to make obtaining loans
and credit cards with reasonable terms difficult.

Or maybe your credit is OK, but you’d like to make it better. After all, the
better your credit, the lower the interest rates you can secure on mortgages,
car loans and credit cards.

Know the Score

In order to improve your credit score, it’s important to
know where you stand currently. Despite all the media attention given to free
credit reports, you still have to pay to find out your credit score, the
three-digit number ranging from 300 to 850 that is the key to your borrowing
costs. You can obtain your FICO credit scores, the ones lenders use, from MyFico.com.

Now you’re ready to take the seven steps to speedy credit repair:

1) Pay Down Your Credit Cards. Paying off your installment
loans (mortgage, auto, student, etc.) can help your score, but typically not as
dramatically as paying down – or paying off – revolving accounts like credit
cards.

The credit-scoring formulas like to see a nice, 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.

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.

2) Use Your Cards Lightly. Racking up big balances can hurt
your score, regardless of whether you pay your bill in full each month.

What’s typically reported to the credit bureaus, and thus calculated into
your score, is the balance reported on your last statement. (That doesn’t mean
paying off your balances each month isn’t financially smart – it is – just
that the credit score doesn’t care.)

You typically can increase your score by limiting your charges to 30% or less
of a card’s limit. If you’re having trouble keeping track, consider using a
check register to track your spending, logging into your account frequently at
the issuer’s Web site, or using personal finance software like Microsoft
Money or Quicken, which can download your transactions and balances
automatically.

3) Check Your Limits. Your score might be artificially
depressed 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.

If your issuer makes it a policy not to report consumers’ limits,
however – as is the usual case with American Express cards and those issued by
Capital One – the bureaus typically use your highest balance as a proxy for
your credit limit.

You may see the problem here: If you consistently charge the same amount each
month – say $2,000 to $2,500 – it may look to the credit-scoring formula like
you’re regularly maxing out that card.

You could go on a wild spending spree to raise the limit, but a more sober
solution would simply be to pay your balance down or off before your statement
period closes. Check your last statement to see which day of the month that
typically is, then go to the issuer’s Web site about a week in advance of
closing and pay off what you owe. It won’t raise your reported limit, but it
will widen the gap between that limit and your closing balance, which should
boost your score.

4) Dust Off an Old Card. The older your credit history, the
better. But if you stop using your oldest cards, the issuers may stop updating
those accounts at the credit bureaus. The accounts will still appear, but they
won’t be given as much weight in the credit-scoring formula as your active
accounts, said Craig Watts, an executive at Fair Isaac & Co., one of the
leading credit scorers. That’s why Ferguson often recommends to her clients that
they use their oldest cards every few months to charge a small amount, paying it
off in full when the statement arrives.

5) Get Some Goodwill. If you’ve been a good customer, a
lender might agree to simply erase that one late payment from your credit
history. You usually have to make the request in writing, and your chances for a
“goodwill adjustment” improve the better your record with the company (and the
better your credit in general). But it can’t hurt to ask.

A longer-term solution for more-troubled accounts is to ask that they be
“re-aged.” If the account is still open, the lender might erase previous
delinquencies if you make a series of 12 or so on-time payments.

6) Dispute Old Negatives. Say that fight with your phone
company over an unfair bill a few years ago resulted in a collections account.
You can continue protesting that the charge was unjust, or you can try disputing
the account with the credit bureaus as “not mine.” The older and smaller a
collection account, the more likely the collection agency won’t bother to verify
it when the credit bureau investigates your dispute.

Some consumers also have had luck disputing old items with a lender that has
merged with another company, which can leave lender records a real mess.

7) Blitz Significant Errors. Your credit score is calculated
based on the information in your credit report, so certain errors there can
really cost you. But not everything that’s reported in your file matters to your
score.

Here’s the stuff that’s usually worth the effort of correcting with the
bureaus:

Late
payments, charge-offs, collections or other negative items that aren’t
yours.

Credit
limits reported as lower than they actually are.

Accounts
listed as “settled,” “paid derogatory,” “paid charge-off” or anything other than
“current” or “paid as agreed” if you paid on time and in full.

Accounts
that are still listed as unpaid that were included in a bankruptcy.

Negative
items older than seven years (10 in the case of bankruptcy) that should have
automatically fallen off your report.

You actually have to be a bit careful with this last one, because sometimes
scores actually go down when bad items fall off your report. It’s a
quirk in the FICO credit-scoring software, and the potential effect of
eliminating old negative items is difficult to predict in advance.

Some of the stuff that you typically shouldn’t worry about includes:

Various
misspellings of your name.

Outdated
or incorrect address information.

An
old employer listed as current.

Most
inquiries.

If the misspelled name or incorrect address is because of identity theft or
because your file has been mixed with someone else’s, that should be obvious
when you look at your accounts. You’ll see delinquencies or accounts that aren’t
yours and should report that immediately. However, if it’s just a goof by the
credit bureau or one of the companies reporting to it, it’s usually not much to
sweat about.

Two more items you DON’T need to correct:

Accounts
you closed listed as being open.

Accounts
you closed that don’t say “closed by consumer.”

Closing accounts can’t help your score, and may hurt it. If your goal is
boosting your score, leave these alone. Once an account has been closed, though,
it doesn’t matter to the scoring formulas who did it – you or the lender. If
you messed up the account, it will be obvious from the late payments and other
derogatory information included in the file.

Thinking of
buying of selling? Call The Herrington Realty Co. Today or visit us online at
www.herringtonrealtyco.com

If you would like
to know what homes have sold for in your neighborhood and want a free market
evaluation on your home click on the Home Value Button now.

Ready to make your next move? The Herrington
Realty Co. has several Homes for Sale in
Madison MS, Brandon MS, and Ridgeland MS. We have a
Team of Experts
waiting to assist you. If you need to sell your home we can help with that
too. Contact us
today to start the process.

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Local MLS for 1000’s of
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If you’re Relocating to the Jackson, MS Metro Are a or live
in this area and would like to view some of the homes currently listed on the
market call Herrington
Realty Co. today at 601-977-1114

This entry was posted on Wednesday, October 8th, 2008 at 4:13 pm and is filed under Buyers. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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