How to Pump Up Your Credit Score
We’ve
all watched as a majority of banks have tightened up approving home mortgages to
people with a FICO credit score of 620 and a 10 percent down payment than they
were in 2006, according to the report. Lenders are also less likely to do so
even for those with a score of 720.
For those with a credit score of 720 or higher can expect a rate
of 3.70 percent on a 30-year, while someone with a score of 620 to 639 can
expect a 5.07 percent rate or an extra $80 per monthly payment for every
$100,000 they finance.
Let’s face it, if you don’t have good credit, you’re not going to
get that crazy low rate. But there are tactics that consumers could use to
raise their scores.
1. Get a credit card if you don't have one
Don't fall for the myth that
you have to carry a balance to have good scores. You don't, and you shouldn't.
But having and using a credit card or two can really build your scores
If you can't qualify for a regular credit card, consider a
secured credit card, where the issuing bank gives you a credit line equal to
the deposit you make. Look for a card that reports to all three credit bureaus.
2. Add an installment loan to the mix
You'll get the fastest
improvement in your scores if you show you're responsible with both major kinds
of credit: revolving (credit cards) and installment (personal loans, auto,
mortgages and student loans).
If you don't already have an installment loan on your credit
reports, consider adding a small personal loan that you can pay back over time.
Again, you'll want the loan to be reported to all three bureaus, and you'll
probably get the best deal from a community bank or credit union.
3. 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; getting balances below 10% is
even better.
Though 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.
4. Use your cards lightly
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.
You often can increase your scores by limiting your charges to
30% or less of a card's limit; 10% is even better. If you're having trouble
keeping track, you can set up email or text alerts with your credit card
companies to let you know when you're approaching a limit you've set. If you
regularly use more than half your limit on a card, consider using other cards
to ease the load or try making a payment before the statement closing date to
reduce the balance that's reported to the bureaus. Just be sure to make a
second payment between the closing date and the due date, so you don't get
reported as late
5. Check your 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 issuer makes it a policy not to report consumers'
limits, however -- as is sometimes the case with "no preset spending
limit" cards -- the bureaus may 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 high balance reported to the credit bureaus, but a more
sober solution would simply be to pay your balance down or off before your
statement period closes.
6. Dust off an old card
The older your credit history,
the better. But if you stop using your oldest cards, the issuers may decide to
close the accounts.. The accounts may still appear, but they won't be given as
much weight in the credit-scoring formula as your active accounts.
So you might want to charge a recurring bill to one of those
little-used accounts or take them out for dinner and a movie occasionally --
always, of course, paying off the balance in full.
7. 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.
8. Dispute old negatives
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.
9. Blitz 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.
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.
Start
by obtaining your three credit reports (available free once a year at AnnualCreditReport.com,
or call 1-877-322-8228), and study them carefully for errors or omissions. If
you think your score labels you as a higher risk, signing up for a first-time
homeowners class through Posh Realty.
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If you have any questions, please call me
9am - 7pm, 7 days
Dante "The Realtor" Walker - Posh Realty
(323) 642-7674. I'm here to help you!
