5 Ways to Boost Your Credit Score


NEW YORK (MainStreet) — California resident Jacob Gabrie was getting ready to buy a home when he realized that his credit score of 560 would severely hamper, if not destroy, his chances of getting a mortgage.

Intent on pursuing the purchase, he pulled his credit report from all three credit bureaus and quickly discovered some inaccuracies.

“There were many errors,” he recalls. “Addresses that did not belong to me, my name was misspelled, many accounts reported two and three times and also accounts that were [closed].“

Gabrie immediately contacted the bureaus to have all the errors fixed and, when the corrections had been made, his score was bumped up to 680. The new score was high enough to net a loan with reasonable interest rates.

Based on the fact that a record number of individuals are currently saddled with a subpar score below 600, Gabrie isn’t the only consumer in need of a boost. But is it really possible to quickly hike your score? 

According to Tom Quinn, consumer credit expert for Credit.com, the current credit scoring model allows scores to change from day to day, since that is how often the three credit bureaus receive new information from those who report to them. 

However, significant improvements in the score typically take some time, primarily because payment history comprises 30% of everyone’s total score and old delinquencies need time to age off your report. This means that a consumer’s long-term solution for increasing his or her credit score is fairly straightforward.

“You need to decrease your number of delinquencies, clear out your debt and get current on any outstanding balances,” Ken Lin, CEO of CreditKarma.com, says.

However, when it comes to short-term solutions, the options are admittedly limited. MainStreet talked to credit experts to see what type of tactics actually work to help consumers boost their credit scores.

DO run your credit report before you apply for a loan.

Gabrie isn’t the only person to have an inaccuracy appear on his credit report. According to Lin, about 30% to 40% of all credit reports have some type of error on them and often their removal can significantly boost a person’s score. As such, those who know they will be soon in the market from some new credit should pull their score (you are entitled to one free report a year from each of the three reporting agencies, at Annualcreditreport.com) and scour it for incorrectly attributed delinquencies, accounts or inaccurate balances, which can skew your credit to debt ratio and drop your score.

However, trying to find others’ mistakes shouldn’t be the only thing you do once you have your current report in hand. You’ll also be able to spot what you did to deserve a score that could be improved upon.

“After you pull your report, you’ll know exactly what’s making your score go down,” Quinn says, explaining that, while they may do nothing to affect your score in the short-term, it can help you develop a long-term strategy for achieving more desirable results.

DON’T increase your amount of available credit in an effort to boost your score.

People commonly believe that they can make up for a poor credit utilization ratio – the credit you have available to you (in the form of credit lines) versus the amount you have actually used (balances) – by adding more credit to an already existing, but nearly maxed out credit line. It may improve that ratio, but all of our experts agree that this is likely to do more damage than good.

“You’ll lose points for taking on the new credit,” Quinn says, explaining that the exact amount of points you’re likely to lose will vary depending on how many credit card inquiries you already have on the books over the last year. (Generally speaking, the more inquiries, the greater the negative impact will be.)

Quinn also points out that you could end up lowering the age of your credit report (a bad thing) since your time in file is determined not just by the age of your oldest credit account, but on an average of all the credit you have on record at the time the score was pulled.

“Sometimes what seems like a good strategy on the surface can come back to haunt your later,” Bruce McClary of ClearPoint Credit Counseling Solutions agrees. “Lenders may view someone that has too much available credit as a risk since  maxing out those credit lines can leave you incapable of paying back the new loan.”

DO pay down your credit card debt.

Instead of raising your credit limits, a better strategy is to decrease the amount of debt you owe, which will improve your credit utilization ratio in a more responsible way. While there are no hard numbers on what credit to debt ratio will net you the highest amount in points, McClary estimates the sweet spot to be somewhere between 0% and 40% of a utilized credit line.

John Ulzheimer, president of consumer education for SmartCredit.com, suggests that those who need to boost their scores quickly should focus on paying down their existing credit card debt.

“Installment debt doesn’t have as much of an impact on your score,” he explains. “Paying down credit card debt will give you more bang for your buck.”

However, he adds, getting the score to go up significantly isn’t as simple as paying off what you owe. Credit bureaus often receive information in real time, which means that someone who pays off their monthly credit card bill, but then goes right out and buys a brand new television is still going to show up as having a balance to the tune of the cost of the TV. So, to get a short-term boost, you’ll need to put your credit cards on ice.

“You’ll need to pay the debt down to zero, then stop using the card while you wait to get the loan,” Ulzheimer says.

DON’T close old accounts.

Of course, you may be tempted to take the process of cleaning out your credit closet too far by closing out your accounts entirely, but that’s not a good move either. While it may seem logical to get rid of whatever card got you into credit trouble in the first place, all of our experts agree that closing older accounts will probably lower the age of your credit report and therefore cause your score to drop, especially if you’ve had that account since you were old enough to carry a card.

DON’T open any new accounts…

Conversely, Ulzheimer says, you don’t want to go out and apply for a bunch of new credit cards when you are getting ready to request a big loan. This is because credit inquiries, made every time you apply for a new line of credit, constitute 10% of your credit score and an increased number can cause your score to drop a bit.

Unless you need to rebuild your credit.

According to McClary, the “no new account” strategy comes with one caveat. Those who already have a bad credit score and have satisfied formally delinquent accounts may want to open up a new healthy line of credit while they are waiting for old delinquencies, liens or even bankruptcies, to age off their report.

“You’ll need to demonstrate that you can use credit responsibly,” he says, before adding that it will be a good six to 12 months before the new credit line, assuming it is used correctly, can have a positive impact on your score.

Of course, anyone who chooses to go this route needs to tread carefully since those with lousy credit scores aren’t going to be able to score a prime line of credit.

“Be careful how you use them,” McClary warns, explaining the subprime credit lines carry higher interest rates and fees that can easily get a consumer in trouble.

Predatory credit cards can make a huge dent in your credit score. Find out how you can spot them with these tips from MainStreet!

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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