|  |
|
| Beef up your credit score in 5 steps - Page 1 of 2 So you’ve had a few problems getting the bills paid lately, and you’re wondering what you can do to repair the damage. You’ve got plenty of company. There are more than 30 million people in the United States with credit blemishes severe enough (score under 620) to make obtaining loans and credit cards with reasonable terms difficult. Or maybe your credit is OK, but you’d like to make it better. After all, the better your credit, the lower the interest rates you can score on mortgages, car loans and credit cards. New glimpses into the once-secret process of credit scoring have made it easier than ever to improve your credit – and reversed some of the advice once given to consumers about managing plastic. (For the uninitiated, credit scores are three-digit numbers increasingly used by lenders when evaluating your creditworthiness. Insurers, employers and landlords also use the scores in evaluating the applications they get. Scores range from 300 to 850. Only about 11% of the surveyed population ranks above 800; 29% ranks between 750 and 799) Anyone who wants to improve a credit score should first do some basic housekeeping: Get a copy of your credit report from one of the three major credit bureaus, scour it for any mistakes and ask the bureau to remove incorrect information. Once that’s accomplished, you can start to work on burnishing your score. Here, then, are the five steps to credit repair: 1. Pay your bills on time Payment history is the single most important factor in determining your credit score, making up 35% of the total. Since recent history carries more weight than what happened five years ago, getting in the habit of making on-time payments is an incredibly powerful way to start rebuilding your credit rating. Likewise, delinquent payments can devastate your score. Missing even one payment can knock 50 to 100 points off a good score. Skipping payments for a single month on all your bills can lower your number from a respectable 707 to the dismal range of 562 to 632, according to a new credit score simulator at www.myfico.com a joint venture between leading credit scorer Fair Isaac & Co. and credit bureau Equifax. The simulator lets you see the impact of various credit behaviors on a sample score. For $12.95, consumers can order their own scores and see how a wider array of actions, from opening new accounts to maxing out their credit cards, could affect their numbers.
2. Pay down your debts – and consider charging less. Lenders like to see plenty of breathing room between the amount of debt reported on your credit cards and your total credit limits. The more debt you pay off, the wider that gap and the better your credit score.
Your credit issuer takes a look at your account once every month or so and reports the outstanding balance on that day to the credit bureaus. This snapshot doesn’t reflect whether you pay off that balance a few days later or whether you carry it from month to month.
This kind of advice, by the way, makes the folks at Fair Isaac more than a little nervous. Credit scorers and lenders don’t want to see people “artificially” changing their behavior to pump up their scores. Moderation in using plastic is never a bad thing, however, and if the desire for a better score has you using credit more wisely, who’s the loser? Oh, other than the fee charging, interest-rate-boosting credit card companies, of course. |
|
What many people don’t know is that credit scores don’t distinguish between those who carry a balance on their cards and those who don’t. So charging less can also improve your score – even if you pay off your credit cards each month.