Do you need to improve your credit score? If you’re like the majority of Americans, the answer is yes. According to FICO, 60% of all people have a credit score less than 750. This means there is plenty of room for improvement for a large percentage of the population. There are many methods for fixing your credit score . While you can’t fix your credit history overnight, there are a few things you can do to begin building a more positive credit history. Here are 7 steps you can take:
1) Pay down your credit cards. Paying off your installment loans (mortgage, auto, student, etc.) can help your scores, but typically not as dramatically as paying down — or paying off — revolving accounts such as credit cards.
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.
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) Lighten up on credit card use. Racking up big balances can hurt your scores, regardless of whether 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.)
You typically can increase your scores 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)Keep track of your limits. Your scores 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 — 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.
4) Dust off your old cards. 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, 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 negative reports. 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)Fix significant errors. Your credit scores are calculated based on the information in your credit reports, so certain errors there can really cost you. But not everything that’s reported in your files matters to your scores.
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 reports.
You actually have to be a bit careful with this last one, because sometimes scores actually go down when bad items fall off your reports. 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 an account can’t help your scores, and may hurt them. If your goal is boosting your scores, 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.
Remember, It Takes Time
It can be frustrating, but working to establish or improve your credit history takes time. There isn’t an overnight solution, so you have to approach this as a long-term goal. Before long and you’ll be on your way to building a great credit history.
If you already have a credit history but it has been damaged by something mentioned above, don’t despair. While you won’t be able to increase your score 200 points in the span of a a couple months, following the suggestions above will put you on the right track to begin increasing your score. But whatever the situation, it is important toconstantly monitor Your FICO® score & Equifax credit report.
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