Simple ways to raise your credit score
Consumers often are unaware of their credit scores, but giving it some attention could save you thousands on a mortgage.
from the July 2, 2007 edition
Page 3 of 3
3. Don't push credit limits
Credit bureaus look favorably on people who use less than 30 percent of their available credit. Example: If a credit card has a $10,000 credit limit, the user shouldn't carry a balance higher than $3,000, even if he or she pays it off in full as soon as the bill arrives.
With this approach, "you're proving you can handle debt," says Stephanie Bittner, a credit and housing counselor with CCCS in Cherry Hill, N.J.
If this poses a challenge, several moves can help. For instance, call up a card issuer and request a higher limit, then stay below 30 percent of that. Or transfer balances that are pushing one card's limits to another card where the balance is low. Better yet, pay all balances down, or pay them off completely, and then use credit sparingly.
Even the person who already pays off balances each month may be able to boost his or her score. Ms. Weston's tip: Monitor bill amounts online or by phone and pay off pending monthly charges a few days before the billing cycle closes. Then what's reported to the credit bureau is just the pittance on the actual billing statement. Credit scores are likely to climb as a result.
4. Keep accounts open – and in good standing
Since untapped credit looks good, credit score optimizers don't shutter their seldom-used accounts. But they don't race around applying for cards at myriad retailers, either, because that smacks of an artificial attempt to elevate a credit score. Instead they keep existing accounts open, preferably with small or zero balances.
"If you're afraid you'll be tempted to use a card … just go ahead and cut it up," says Dennis Carpenter, a certified financial planner in Grapevine, Texas. "But don't close the account because [keeping it open] will definitely keep your score in good shape."
Ironically, going without credit cards altogether is not a good idea, since cards have become essential tools for building good credit, according to Michael Eisenberg, a West Los Angeles certified public accountant.
"In this day and age, it's mandatory," he says.
5. Pay all bills – even library fines – promptly
Thirty-five percent of a score is based on payment history, which may include everything from credit lines to parking tickets and library fines. To let any bill become 30 days overdue is to court demerits on a credit score.
When paying off overdue bills, consumers must be wary of debt-settlement firms, according to Darryl Dahlheimer, program manager for Lutheran Social Service Financial Counseling, a nonprofit advisory agency with 10 locations in Minnesota. For a fee, he says, they'll negotiate a lower payment to a collections agency, but the consumer's credit report will bear a painful seven-year scar that reads, "Settled for less than full balance."
"It's cataclysmic to a FICO score to have a locked-in, unpaid collection debt" on a credit report, Mr. Dahlheimer says.
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