Photo (cc) by 401(K) 2012
“Your credit score can change your life.”
Those strong words came from Money Talks News founder Stacy Johnson earlier this year, when he railed against companies that charge you to see your FICO credit score.
“Much like your final grade summarized your command of a course in school, your credit score is the distillation of everything in your credit history,” Stacy wrote in 5 Reasons We Need Free Credit Scores Now. “Yet if you want to see the most commonly used ‘final grade’ – your FICO credit score – you’re expected to pay $19.95. That’s not fair.”
Stacy is still fighting to get your FICO score free. But until then, he has advice for improving it. That three-digit number affects just about everything you do financially. Fortunately, credit scores aren’t set in stone. In the video below, Stacy shares his five best tips for raising your credit score. Check it out and then read on for more ways to give your score a boost…
Now let’s flesh out Stacy’s tips and add more…
1. Find and dispute mistakes on your credit report
First things first: Order a free copy of your credit reports from AnnualCreditReport.com. By law, the Big Three (Experian, Equifax, and TransUnion) have to give you one free copy a year. Order one from each every four months, then dispute any errors – they’re not uncommon. A study by the Policy and Economic Research Council found errors in 19 percent of the credit reports they looked at.
You can dispute errors online through each bureau:
2. Pay down credit card balances
The amount you owe makes up 30 percent of your credit score. In the video, Stacy suggests paying down your credit card balances to no more than 30 percent of your available credit limit. For example, if you have a $1,000 credit limit, don’t carry a balance higher than $300.
3. Raise your credit limit
If you can’t pay down your balances, ask your credit card company to raise your credit limit – and don’t put any more debt on the card. By upping your total available credit, you’ll lower your credit-to-debt ratio and increase your score.
4. Don’t close accounts
The length of credit history makes up 15 percent of your credit score. Closing old accounts will shorten your credit history and hurt your score. If the card has no annual fee, keep it open.
5. Don’t apply for credit before a big purchase
Don’t apply for a new credit card or loan six months to a year before you plan to make a big purchase – like buying a house.
6. Pay on time
If you have past due accounts on your credit report, pay them now and then keep your accounts current – and that includes everything, not just credit cards. Cell phone bills, utility payments, and even rent can appear on your credit report. Don’t be late.
7. Ask for a good will adjustment
If you are running late, ask your creditor for a good will adjustment. This means a creditor removes one or two late payments from your credit report. To get one, you’ll need a good history with the company. Most won’t do it if you’re habitually late. You’ll also need to ask – no creditor will offer to forgive a late payment.
While it won’t always work, here’s a sample letter:
August 19, 2010
123 Maple Street
Anytown, USA 12345
PO Box 12345
Wilmington, DE 12345
Regarding: MasterCard account #1234-4567-8910
As you know, I have been a loyal customer of your company for more than seven years. Over that time period, I have received many offers from other companies for credit cards with lower interest rates or other terms that were more attractive, yet I’ve remained with your company.
I recently obtained a copy of my Equifax credit report and was dismayed to learn that your company has reported that I made two late payments four years ago. I’m writing today to ask you to have this negative information removed from my credit history. Having become conversant with the Fair Credit Reporting Act, I’ve learned that this is easily accomplished.
As you are well aware, my record of paying on time is unblemished with those two exceptions. Since even one negative item in my credit history is one too many, please repay my loyalty and responsibility by helping me have these items removed.
Thank you in advance for your timely response. I look forward to continuing our mutually beneficial relationship for many years to come.
8. Try to remove black marks
Some negative marks (like a foreclosure or tax lien) aren’t going away, but collectors and lenders may remove charge-offs or collection accounts if you negotiate with them. Before you pay anything, write a letter to the creditor and ask to have the account removed or marked as “paid as agreed” in exchange for your payment. After the creditor agrees (in writing) to remove the negative mark, pay the balance.
It’s called pay for delete, and Creditmagic has a sample letter you can use:
Name of Collection Agency
Address of collection agency
Re: Collection Account for Original Creditor Account Number
Dear Sir or Madam,
I am disputing the validity of the debt referred to above. I am not aware of the account number and you have not informed me of the existence of this account.
I am willing to pay this account IN FULL (or a settlement percentage, whichever is feasible) if you agree to immediately delete the account from the credit reporting agencies (namely Equifax, TransUnion and Experian) that you have reported to, and validated this account. My sole purpose is to get this item removed from my file. This letter should not be interpreted as recognition of the debt or acknowledgment of liability for the debt.
If you accept the terms of this agreement, the certified amount of $50 will be sent to your collection agency provided there is complete deletion of any reference to the debt from my file on all the credit bureaus that you have reported to, and the debt is validated. As the full amount demanded will be paid back, there should not be any waiting period to delete this item from the reporting bureaus.
Your agency should delete all information regarding the account from my credit files within 10 business days from the receipt of the payment, as mentioned in this agreement. The terms of this agreement will not be discussed with anyone but the original creditor. No third party will be informed if contacted and no acknowledgment of the debt, any kind of payment, or settlement will be discussed if I am contacted by the Reporting Agencies.
Following the acceptance of the agreement, please prepare a letter on your company letter head unambiguously agreeing to the aforementioned terms and conditions and have it signed by your agency’s authorized signatory. This letter will imply a legal contract, enforceable under my state law.
If I do not receive an approval letter within 15 days of your receipt of this letter, I will withdraw this offer.
Please communicate regarding this account to the address mentioned below.
State Zip Code
9. Use an old credit card
Credit card companies often stop reporting your account if you don’t use the card for several months or years. Dust off the card, use it to make a few small purchases, and the creditor will start reporting again. Doing so increases your available credit limit and your credit history length, since the old card is showing active again.
10. Apply for different types of credit
I’m a renter with two paid-on-time credit cards and no other loans. I should have great credit, right? Yes and no. While my credit score is fine, I’ve been denied credit twice because I don’t have a good credit mix. The types of credit you have makes up 10 percent of your score, and lenders like to see that you can handle loans that are both revolving (credit cards, for example) and installment (a mortgage or car loan).
If you only have a credit card, add a small personal loan to the mix – perhaps a signature loan from a credit union. Paid on time, blended credit boosts your score.
11. Shop for credit fast
When you shop for new loans or credit cards, do it quickly. When the credit bureaus see several credit inquiries for an auto loan within 30 days, for example, they assume you’re comparison-shopping and lump all of the inquiries into one. Inquires make up 10 percent of your credit score – the fewer the better.
12. Open a secured card
If you can’t qualify for a traditional credit card, open a secured one. Secured credit cards are backed by money you put into a deposit account, so they’re low risk to the lender and easier to get. You’ll boost your credit score by paying on time each month, and many creditors will allow you to later graduate to an unsecured card. And you’ll get your full deposit back.
Check out our credit cards page for a list of recommended secured credit cards.
13. Don’t consolidate your credit
I once worked with a mortgage adviser who would tell customers to consolidate all of their credit card debt into one credit card and cancel the other accounts. That’s bad advice. By closing cards, you shorten your credit history. And consolidating debt doesn’t remove it. It only shuffles it around.
But there’s an exception to this rule: If you’re paying ridiculously high interest on one credit card, transferring the balance to a lower-interest card will save you money. But keep both accounts open if there’s no annual fee.
14. Rehab your student loans
Defaulted student loans hurt your credit score. If you haven’t been paying your student loan on time, contact the lender. Federal student loans are eligible for payment plans. For example, the Income-Based Repayment Plan lets you pay off your loan in monthly installments based on your income level.
15. Make sure every company reports
When I was trying to boost my credit score, I contacted every company I paid monthly – including my cell phone provider, cable company, and electric company – and asked them to report my payments to the credit bureaus. Most did, and I saw a small boost in my scores within 60 days.
Utility and service providers usually only report nonpayment, but they’ll sometimes report the good stuff too – if you ask for it.
16. Find out when your balance is reported
Credit card companies have a “balance date,” or the date they report your balance to the credit bureaus. Not surprisingly, that date is rarely the same day as the date your payment is due. Thus you can pay your balance off in full every month, but your credit report could still reflect a balance. Contact your creditors, ask them when the balance date is, and pay your bill before it.
17. Don’t co-sign
When you co-sign a loan, you agree to take on the debt if the borrower stops paying. Don’t risk financial damage for someone else’s gain. Check out 3 Reasons You Shouldn’t Co-Sign That Loan – and just say no.
18. Start early and wait
No matter what any credit repair service tells you, it takes time to turn a blemished credit history around. While some commercial lenders use rapid re-scoring programs, you typically won’t start to see improvements for at least a month, often several. If you’re planning on making a big purchase, start working on your credit six months to a year in advance.