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Yet many people — from your lender to your landlord to your insurer to your employer — define your character by the three-digit score that represents what’s in your credit file. For them, whether or not doing business with you comes down to your position on the following scale:
- 750 and above: You are worth gold and get the best interest rates on loans.
- 710-750: While you’re not really a VIP, it’s no problem to qualify for competitive offers.
- 650-710: Approval is easy, but platinum status is unlikely.
- 580-650: You qualify for credit at substandard rates and similar terms.
- 580 and below: Hold on tight for denial and/or loan-shark rates.
Source: John Ulzheimer, President, Credit.com Educational Services. Based on FICO score range 300-850. A higher score indicates a lower credit risk.
Sure, what’s on the inside usually matters, but when it comes to credit, you really can’t escape the scrutiny.
Nine ways to improve your credit score
If you’re on the cusp of decent credit, pay attention: you can improve your lot in as little as three to six months (or even faster, if you discover that some of the reported errors aren’t really yours). If your score has deeper scars, credit triage is about a 12-month process, although your actions will positively impact your score within 30 to 60 days.
Here are nine tactics to improve your credit score as quickly as possible.
Focus on performance factors
Payment punctuality and credit utilization levels account for 65% of the score comparison. That’s why, even if you don’t change anything else, being on time, cheap Goody Two shoes for a while will do wonders for your reputation. The blow to your score for late payments of 30 or 60 days in the past year will begin to subside after you mail the check and correct your mistake. Recovering from a 90-day late payment (one thing that can hurt your score just as much as bankruptcy) will take longer. But it will eventually go black, especially if your more recent payment habits are pristine.
Keep the balance low
Aim to use 35% or less of your credit limit to avoid the ire of lenders. (Of course, if you want to be on our silly good side, we’d like to see your debt level at 0% after each billing cycle.) Before going through a major loan application process (mortgage, car loan, etc.) debt. In this case, a usage of 10% or less is ideal. To keep balances low, delay major purchases, minimize card usage, and pay off as much debt as possible.
Get more appreciation for your history
Don’t close old accounts, even if you never use them. Canceling available lines of credit hurts your credit utilization ratio (also known as your debt-to-available credit ratio). Instead, give lenders good news to report (rather than stagnation) by using every six-month-old cards to buy something small.
Improve the appearance of your borders
Do lenders report accurate credit limits? If not, ask them. You can also improve your credit ratio by asking your banks to increase your credit limits – with this caveat: don’t do it if you think access to more money will go to your head and take you to the mall. If you’re asking for more rope, er, purchasing power, make sure the request doesn’t require your credit to be revoked; that can lead to a ‘hard investigation’, which can lead to a possible score reduction of five points or more if enough is done within a 12-month period. Also, don’t try to build credit by opening an equity line of credit. A “secured revolving account” has little impact on your overall score.
Attack unattractive debt
Pay off no-money-down financing debts as quickly as possible, possibly with a home equity loan (HELOC). A HELOC penalizes your score less than revolving credit card balances and financing agreements because consumers are more conscientious about payments. Don’t trade debt lightly, though, as the roof over your head is at risk if you don’t pay what you owe on a HELOC.
Dealing with direct debit accounts
In an odd karmic twist, paying off debt sent to collections won’t improve your score much (the biggest hit rather comes from the “debt written off”) designation, with one exception: if the payment lowers your outstanding debt. Try to negotiate (in writing) with the collection agency to have them mark the bill as “paid as agreed” or remove the notation from your credit deposit entirely.
Watch the clock when shopping with rates
The credit scoring system treats clusters of mortgage and auto loan credit applications as a single hard application, as long as you process your loan quote applications within a 45-day period. However (there’s always a “however,” isn’t there?), some lenders still use the old FICO system, which only allows a two-week safe haven, so err on the conservative side when shopping for a loan.
Make sure this isn’t a typo
Don’t assume that a negative entry in your credit file is really your fault. Consumer watchdogs report that as many as 80% of credit reports contain errors — and a quarter of the time, those errors are significant enough to cause a FICO score drop of 50 points or more. Be sure to check your official records from the two major credit reporting agencies (Equifax and TransUnion).
Don’t ruin a good thing
Got good credit? Good news: Keeping it that way won’t take much more effort than what you’ve done to get it there. Just keep paying your bills on time, watch your spending and don’t get too hung up on what clearly works (if you do, your score could actually drop).
Finally, you might wonder why we haven’t mentioned the time-honored tactic of piggybacking on someone else’s already established good credit as an authorized user or co-account holder. That’s because the suits pulled the plug on this strategy after some companies started using it in nefarious ways. In other words, the bad guys ruined it for all of us. But even if you’re on your own, if you follow the rules above, you should be earning your gold star all on your own in no time.
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