Credit & Money Management
Five Ways to Boost Your Credit Score
A good credit score is your ticket to a home or a car or a credit card, and a slip-up can come back to haunt you.
By Jessica L. Anderson, Associate Editor, Kiplinger's Personal Finance
November 14, 2008
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With all the financial upheaval over the last year, including the subprime-mortgage mess and the rescue plan for banks toppled by high-risk loans, it wouldn't be surprising if you were starting to think of "credit" as a four-letter word.
But one point this crisis has driven home is that your credit is the financial equivalent of your good name. It's your ticket to a home or a car or a credit card, and a slip-up can come back to haunt you.
That's especially true now because the subprime crunch has spread to other types of credit. For instance, banks have been forced to write off record levels of credit-card debt, so they're requiring borrowers to have higher credit scores. A year ago, a score of 720 had lenders lining up for your business. Today, a score of 740 or 750 would get you an account but might not qualify you for the lowest rates, says Bill Hardekopf of LowCards.com.
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So it's more important than ever to have a spotless credit history and a stellar score. Here are five ways to achieve both.
1. Know your starting point. If you haven't already seen your credit report, take a look now. Log on to annualcreditreport.com and get a free copy from each of the three credit bureaus -- Equifax, Experian and TransUnion. (Note: Copycat sites often require you to purchase other services in order to get a "free" credit report.)
While you're on a bureau's Web site, you'll also have the option to buy your credit score for $6 to $8 each. If you've already used your once-a-year free pass on AnnualCreditReport.com, go to myFICO.com to download your reports and scores ($15.95 for the score from one credit bureau, or $47.85 for all three).
2. Dispute any mistakes immediately. Go through your report with a fine-toothed comb and file a dispute with each bureau that reports an error. The process isn't lightning fast -- you typically have to wait 30 to 45 days for the bureau to investigate any disputes you submit -- but be persistent until any problems have been resolved. Big issues, such as an incorrect report that an account has gone to collection or is in foreclosure, could be costing you 100 points or more on your credit score.
Gerri Detweiler, credit adviser for Credit.com, says it's also important to check the dates on any negative information that's being reported. Accounts in collection are notorious for being reported long after they should have been expunged from your record. Negative items generally can be reported for seven years from when you first fell behind. Two exceptions are bankruptcies, which can be reported for ten years, and tax liens, which can stay on your record indefinitely unless you pay them.
Other things to watch out for: paid-in-full accounts that still show a balance and someone else's record appearing in your file. If the credit bureau misspells your name or reports your address incorrectly, that doesn't affect your score.
3. Lower the ratio of your outstanding debt to your credit limits. This step is especially important now because many lenders have canceled home-equity lines of credit. With less credit available, big balances send your credit ratio up and your credit score down.
If you're a long-standing customer with a good history, ask your current credit-card issuers to raise your limits. Or focus on paying down your balances so that you're using less of your available credit. Aim to keep your balance below 30% of your limit on each card.
4. Don't apply for new credit cards that you don't need. That 10% discount you're offered when you sign up for a retail card isn't worth it.
When you apply for new credit, an inquiry is made on your credit report. Each inquiry is a tiny ding, but enough dings can add up to a dent, especially if you have a short credit history. Craig Watts of Fair Isaac, the company that compiles the FICO score, says your best bet is to take on new credit only when you need it. Buying a new shirt or skirt on a whim doesn't count as a need.
5. Make your payments on time. It's best if you can pay your bill in full each month. But if you can't, pay at least the minimum, and pay on time. Late payments lower your credit score, which raises the possibility that your lender will charge you a higher rate. And if other lenders see that, they may raise your rates, too. That could mean more late payments in the future -- and thus begins the vicious cycle of credit-card debt.
If your payment date is inconvenient, call your card issuer and request a change in the date. It may take a cycle or two to get results, but lenders are often happy to work with you.
Reader Comments (16)
Posted by: Lel at 11/21/2008 02:01:29 PM
People should know that the credit scores that are obtained from the credit reporting agencies (TransUnion, Equifax, and Experian), are NOT true FICO scores. The FICO score (only available from myFICO.com) is the score that is used by the vast majority of lenders, credit card companies, car dealerships, etc. The scores from the credit agencies will give you a decent snapshot of your credit rating nevertheless, but it is not as meaningful when thinking about your chances of obtaining new credit.
Posted by: hey, thanks! at 11/21/2008 03:58:13 PM
thanks Lel. i didnt know that! I am going to check that out!
Posted by: spinster at 11/24/2008 10:09:19 AM
FICO is the credit scoring system used by the three credit bureaus, TRW, Experian and Equifax. All 3 credit bureaus use a similar version, but as the information reported to them may be different, the scores will vary. When you go to myfico.com, you get an Equifax credit report and score. I do find Equifax to be the most accurate, but most banks use Experian, which is unfortunate as in my case this bureau's report is riddled with errors and they have refused to correct them. They rely on the reporting creditors to agree to changes, so if a creditor chooses to ignore an error, it persists. My score with Experian is over 100 points lower than with the other two companies...
Posted by: H at 11/24/2008 10:28:46 AM
Why don't the credit card companies give us a copy of our credit report when we give them permission to check our credit (score) report for (a) new credit card?
Posted by: George at 11/25/2008 02:54:20 PM
I second the recommendation to not apply for any store credit cards. They are the worst and have huge interest rates and no other benefits than the one time 10% savings. If you will apply for a credit card, do your research. I use a good site that has lots of offers: iCreditStore.com. All those offers I get in the mail are often not as good as what I can find online.
Posted by: Jessica Anderson at 11/26/2008 01:38:33 PM
Hi, I'm the author of this article. In answer to spinster's reader comment, when you go to myFICO.com, you can get your true FICO score for each of the three bureaus. Equifax is the only bureau that sells the FICO score through their own site. TransUnion and Experian sell the VantageScore, which is another scoring method that they developed with Equifax to compete with Fair Isaac (the company that compiles FICO scores). VantageScores range from 501 to 990, while FICO scores range 300 to 850, so that will be part of the difference in your score if you're not comparing apples to apples.
Posted by: Jessica Anderson at 11/26/2008 01:45:44 PM
This is in response to the reader comment of H...as the author of this article, I can't say for sure why the credit card companies don't give consumers copies of their reports. But I suspect is has a lot to do with money. They'd have to spend a lot to do what you propose and they wouldn't necessarily benefit from it. But, the good news is that because of the Fair Credit Reporting Act, if you are denied credit, you can get a free copy of your report. If you're turned down, the lender has to tell you which bureau's report that decision was based on, and you then have 30 days to request a free report from that bureau.
Posted by: Monica at 12/11/2008 02:32:54 PM
How about if you have a credit card that you got so behind on the payments that they charged it off? Can you try to settle that amount to a lower amount and will that show as paid on your credit report?
Posted by: pepardue at 12/18/2008 08:55:07 PM
If you have a choice between paying off your maxed-out, in=arrears credit cards or your house, which is best?
Posted by: Mike S at 01/16/2009 05:53:21 PM
Always pay your mortgage first, then pay off the credit cards next.
Posted by: karen at 02/08/2009 01:35:53 PM
The article implies that a FICO score of 740 or 750 is good. What would be a target goal for VantageScores?
Posted by: Stephannie at 03/11/2009 08:07:33 PM
I have been working on my credit hard core for 16 months now. I'd raised it a 100 points on average of the three and then in Jan 09 some stupid...account that has been in collections for about 3 or 4 yrs contacted me about my $73 bill. I totally forgot about it and they ended up posting it to my credit! Not one, ALL THREE OF THEM! Because of their addition my scores dropped 40-80 pts! And of course, the only report that my bank reports my PERFECT payment history on my loans to is the one that got dropped 84 points!! What can I do?! We were so close to being able to buy a home and now we're sunk! Please, any advice--can I make them take it off if I pay it off? Is there anything I can check for where they illegally reported so it can be removed? My credit stinks so I can't get a credit card to help raise my credit...prepaid is my only option and I'm really not in a position to just give up $300-$500 to prepay but if it's the only option--then ok. Other than that I have two loans, one has two payments left and the other I just got (auto loans). There is only two negative things on my credit now, including this new post, so there's pretty much nothing left for me to pay off any more to try and fix my credit! Please help!!
Posted by: Leo Leone at 03/28/2009 03:48:04 PM
Stephannie, Yes. You can call and write the collections people and offer to settle the amount due if they'll pull the reports to all 3 credit bureaus. You must get this in writing. Explain that it was a stupid mistake and you're willing to work with them but you must insist on having the collection activity removed from your credit record. Also, go to MyFico.com and review the Fico Forums for many great tips on writing good will letters to creditors to drop negative information from your credit report. If you owe a bill, you should be willing to pay it off. But if you approach these people with a sincere request to make good on your debt in exchange for a cleaner credit report, you'll find they are more intersted in getting their money than punishing you by way of your creddit scores. Good Luck!
Posted by: Mary at 03/30/2009 02:15:33 PM
We wanted to buy our first home this year but our credit is less than perfect and upon research from a financial expert who was trying to pre-qualify us, we really need to boost our scores roughly 100 points. We do not currently have any open and revolving credit cards. We want to boost our scores to buy a home so we're trying to pay things off but someone told us we really should get low balance credit cards, use them here and there and pay them immediately to boost our scores. Only I'm afraid because my "What If Calculator" said I'd take a hit of 29 points when I apply for a credit card. BUT...it said some credit cards meant for rebuilding credit won't hit as hard. How do I find these credit cards and know which is the best option and which will actually qualify us??
Posted by: Yavette at 06/28/2009 07:57:08 PM
I have a credit score of 550. I don't own any credit cards. Would it increase my score if I get a credit card?
Posted by: Kate at 08/20/2009 09:12:39 AM
I recently made a balance transfer from one card (13.9% APR) to a card with 0% APR for 12 months. I was told to have the credit limit lowered on the 13.9% card if I was interested in requesting a higher credit limit to the 0% APR card in case I wanted to do another balance transfer to that card from another credit card company. I'm not sure this is the right way to go about doing that. I was wondering if anybody knew if I was on the right track?