Welcome to the “2-Minute Money Manager,” a short video feature answering money questions submitted by readers and viewers.
Today’s question is about credit scores — specifically, about techniques to improve a credit score as quickly as possible.
This is a question I’ve been addressing, in one form or another, since I started Money Talks News in 1991. Back then, believe it or not, you couldn’t even find out what your credit score was. Lenders could get it, but you weren’t allowed to see it. Today, we’re a score-obsessed nation.
Watch the video above, and you’ll pick up some valuable info. Or, if you prefer, scroll down to read the full transcript and find out what I said. You also can learn how to send in a question of your own below.
For more information, check out “The 4 Simple Keys to My Flawless Credit Score” and “7 Quick Ways to Raise Your Credit Score.” You can also go to the search at the top of this page, put in the word “credit score” and find plenty of information on just about everything relating to this topic.
Got a question of your own to ask? Scroll down past the transcript.
Don’t want to watch? Here’s what I said in the video
Hey, guys, and welcome to your “2-Minute Money Manager.” I’m your host, Stacy Johnson, and this answer is brought to you by MoneyTalksNews.com, serving up the best in personal finance news and advice since 1991.
Today’s question comes to us from James:
“We’re thinking of buying a house and want to get our credit in shape. Unfortunately, while it’s not terrible, it’s not perfect either. What’s the fastest way to make it better?”
Well, James, I’ve got three things for you.
Thing No. 1: The single fastest way to make your credit better
The quickest path to a higher credit score is to check out your credit history and resolve any mistakes you may find there.
To do this, just go to AnnualCreditReport.com. Don’t follow ads to any other site — just AnnualCreditReport.com. There you can get a free copy of your credit report from each of the three major credit reporting agencies.
When you get a copy of your credit report, you’re going to take a look and see if there are any mistakes in it. If there are, you’re going to challenge them, which you can typically do easily online. Then, you’re going to have those mistakes corrected.
You’d be surprised at how many credit histories have mistakes in them. You could have somebody else’s debt in your credit report, late payments that weren’t late — any number of things that could be impacting your credit score.
What if you’ve got problems in there that aren’t mistakes? Well, you can challenge them. For example, a correctly reported late payment: Even though it’s accurate, you can still challenge it. You theoretically shouldn’t, but you can.
When you challenge anything in your credit report, the credit-reporting agency has to go back to the creditor that reported it and ask if it’s accurate. If the creditor doesn’t respond, the credit-reporting agency has to remove it from your credit history. It’s kind of like pleading innocent to a traffic ticket and hoping the cop doesn’t show up in court.
Another thing you can do with legitimate bad marks is ask the creditor who reported them to take remove them. I’ve seen this done, and it can work, although it’s certainly not guaranteed. Still, there’s no law against writing them a letter and asking.
Example: Say you’ve had a credit card with Citibank for 10 years, and you’ve had one late payment. There’s nothing wrong with writing a letter to Citi and saying, “Hey, do me a solid and remove this black mark on my credit history. I’m a good customer, I’ve only made one mistake.” They may not respond favorably, but it’s worth a shot.
Thing No. 2: Lower your utilization ratio
“Utilization ratio” is a $2 word for a 50-cent concept. All it means is to use as little of your available credit as possible.
If you have a credit card with a $10,000 credit limit and you’re carrying a balance of $3,000, you’re utilizing 30 percent of your available credit. Most experts recommend keeping it under 30 percent, but the lower the better.
There are two ways to lower your utilization ratio. One is obvious: Pay down your balance. But you could also ask for a higher credit limit. Example: You have a balance of $1,000 on a credit card with a $5,000 credit limit. Your credit utilization ratio is 20 percent. But if you get the credit limit raised to $10,000, your utilization ratio drops to 10 percent.
Lowering your credit utilization ratio is another way to raise your credit score relatively quickly.
Thing No. 3: Pay semi-monthly
Let’s say that you put $5,000 on your credit card every month, but you pay it off in full every month. That’s great, but if your credit score happens to be pulled when your balance is at $5,000, then your credit report and score will reflect a $5,000 balance. So if you are going to apply for a loan and suspect your score may be computed soon, you could keep your balances low by paying more often than monthly.
These aren’t the only ways to improve your credit score, but they are some of the fastest. To learn more, just go to MoneyTalksNews.com and search for the words, “credit score.” There’s plenty there.
I hope that answers your question, James.
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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.
I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.
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