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18 Feb 2015

Tips to Increase Your Credit Score

If you've had a few problems paying the bills lately, you are not alone. Tens of millions of Americans have blemishes on their credit reports that are serious enough to prevent them from obtaining credit cards and loans. It's easy to feel helpless during these times, but you can take some positive steps right away to repair the damage.


Even if your credit is satisfactory, but you would like to improve it, it is worth reading this article. The better your credit, the less you will pay in interest and typically insurance rates as well.

Before you can improve your credit, you must first know where it stands at this moment. It is possible to obtain free credit reports once each year, but you might have to pay to see your FICO score. Be sure you use a reputable service to get current credit reports from the major credit reporting agencies – Equifax, Experian and Trans Union.

Here are some quick tips for speedy credit repair:

Establish credit

One reason for a low credit score may be a lack of credit history, and don't fall for the myth that you must carry a balance in order to get good scores. Using a credit card or two and paying it off every month is the best way to establish a credit score. If a regular credit card is denied due to "lack of credit history," consider getting a secured card. This is where the bank gives you a credit limit that is equal to a deposit you make in advance.

Get an installment loan

Your credit score will improve fastest if you can show your level of responsibility with both major types of credit – revolving (credit cards) and installment (personal, auto, student and mortgage loans.) If you don't have one already, consider adding a small personal loan that can be paid off over time. Small community banks and credit unions are the best place to start, and look for loans that report to all three credit bureaus.

Pay down your debt

Making that final payment on your auto, student or mortgage loan is a great way to boost your credit score, but not nearly as much as paying down – or paying off – revolving debt such as credit cards.

Ideally, a lender wants to see a big gap between the amount of credit you are using and your available credit limits, so if you've been paying your bills on time it may be wise to ask for an increase in your credit limits. Debt experts recommend that you pay down the cards that are closest to their limits first, even before the highest-rate card.

Use credit cards lightly

Any time you rack up a big balance on a credit card, it can hurt your scores. This is because the balances reported on your last statements are used to calculate credit scores, and this is what is typically reported to the credit bureaus. A good idea is to limit your charges to 30 percent or less of the card's limit; with 10 percent being even better. If you regularly use up more than half your limit on a single card, consider using several cards to ease the load, or making a payment before the statement closing date.

Check your credit limits

Your scores might be artificially depressed if your lender is showing a lower limit than you actually have. Most credit card issuers will quickly update this information if you ask. If your credit card issuer makes it a policy not to report consumers' limits, the bureaus may use your highest balance as a proxy for your credit limit.

This means 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 maxing out that card every month.

If you have an American Express charge card -- the kind that must be paid in full every month, rather than the kind on which you carry a balance -- you probably don't have to worry, because charge cards typically aren't included in the credit utilization portion of the FICO formula.

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. 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 on-time payments.

Dispute old negatives

You may have fought with the phone company over an unfair bill a few years back, resulting in a collections account, but that may be fixable. Continue protesting that the charge was unjust, or try disputing the account with the credit bureaus as "not mine," and be persistent about this. 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.

Correct significant errors

Your credit scores are calculated based on the information in your credit reports, so certain errors there can really cost you. Not everything that's reported in your files matters to your scores, but there are a few problems that are worth correcting.

  • 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, which were included in a bankruptcy
  • Negative items older than seven years (or 10 in the case of bankruptcy) that should have automatically fallen off your reports.

Correcting your credit report now will save lots of time later, especially if you are planning to apply for a car loan or mortgage within the next year. By the time most consumers realize they have a problem with their credit score, it is already affecting their interest rates and credit availability. Be smart about your credit score and check your credit reports regularly.

Photo Courtesy of Stuart Miles / FreeDigitalPhotos.net

Stephen H. Swift

Managing Attorney
Law Office of Stephen H. Swift, P.C.

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