7 Surefire Ways to Improve Your Credit Score
You’ve already heard the bad news. The housing crisis has tightened up credit markets, and it’s harder to qualify for a mortgage loan. Credit scoring has always been an important part of the loan approval process, but suddenly it bears more weight than ever.
If your credit is shabby, you’ll need to shore up your score to convince a lender you’re worthy. Here’s how to boost your point total:
- Be on time. Before you worry about cleaning up what happened yesterday, get right with today and focus on your current bill-paying performance. Pay on time, and pay more than the required minimum payment each month on outstanding credit balances.
- Shrink your credit ratio. The credit-scoring process looks at the ratio of your debt to the total amount of available credit you have, so add up your credit limits to see where you stand. Your long-term goal is to get rid of all your debt, but a good, short-term target is to shrink your ratio to less than 50 percent. Then 40, then 30, and so on.
- Pay off a card, but don’t close it. Because of the aforementioned credit ratios, reducing your available credit hurts your score. If you have a $3,000 balance on one card with a $5,000 maximum and no balance on a card with a $10,000 maximum, closing the unused card suddenly makes your credit ratio skyrocket from a benign 20 percent to a troubling 60 percent. Resist the urge to close an account when you’ve paid it off; lock the card in a drawer instead.
- Get current on any outstanding debts. Got collection agencies on your trail? Pay off your late accounts, but remember that paying off a delinquent account will not erase it from your history. You simply have to wait; the further the delinquency recedes into the past, the better off you’ll be. If you have a good explanation for falling behind, a lender may be sympathetic if you’ve paid off the debt.
- Take a magnifying glass to your credit report. Credit reports often contain score-dinging errors. Check yours via
www.annualcreditreport.com, and look for obvious mistakes like erroneous balances or accounts you don’t recognize (which can be a sign of identity theft). Make sure lenders have reported your credit limits accurately, because they affect your credit ratio.
- Restrain yourself with new cards. Don’t open up new accounts to increase your available credit. This strategy doesn’t necessarily boost your score and can actually hurt it, according to MyFICO.com. If you’d like to have a new card, apply for one, but don’t open multiple accounts at the same time. This looks like risky behavior to a lender.
- Allow some time to pass. Following these tips will improve your credit score, but give them time to work their magic.
Here’s a general timetable:
- Corrected errors on your credit report should boost your score immediately;
- Paying down balances takes a little longer to work (depending on how much you pay off and how often your lender reports to credit bureaus), so you may see results in a few weeks or a few months;
- Paying off delinquent accounts gives you some leverage with lenders, but improvement in your actual credit score will be slow, so be patient.