Credit scores calculated by Fair Isaac (the "FICO" score) affect much of our financial lives, influencing the interest rates we're offered when we buy a car or home and generally reflecting how creditworthy we are. While a perfect credit score might be our ultimate goal, very few achieve it. Fortunately, a merely excellent score can serve us well.
FICO scores range from 300 to 850, with average scores typically in the 600s. Scores in the high 700s are excellent. There are many ways to improve your score. Here are a few that can work in a matter of months (or less), not years.
First off, your score might be based partially on errors, and you might deserve a higher one. Take advantage of the free copy of your credit report that you're entitled to each year from each of the main credit-reporting agencies. Review each report closely for errors and then fix any you find. Each agency's website will tell you their error-resolving process -- which shouldn't cost you anything except time. Errors can include notations that a payment was made late though it was in fact paid on time, or that a debt was handed over to a collection agency when you actually paid it in full on schedule.
Improve a key ratio
About 30% of your credit score derives from your debt-to-credit-limit ratio. The best scores go to people with ratios of 10% or less, but anything below 30% is reasonable. The number (also called a utilization rate) reflects your total debt divided by your total available credit. Thus, ironically, you could boost your score by obtaining a new credit card, which would boost your total credit limit. If you rack up new debts on it, though, your situation can worsen. (Note, too, that closing credit card accounts will lower your total available credit and worsen your ratio.)
Another way to reduce your ratio is simply to pay down your debt. If you owe $20,000 and have a total credit limit of $40,000, your ratio is 50%. Cut that debt in half, and your ratio drops to 25%.
One credit-score-improving strategy is simply to make some requests of your credit card company or creditors. For example, you can ask your credit card company for a higher credit limit. Getting one will improve your utilization ratio. If you have some black marks on your record, such as defaulting on credit in the past, ask any lender involved whether you can pay the debt in full and have it wiped off your record. If you can only pay off part of it, ask whether they might accept a lesser amount. It's not a good sign if your credit report shows that a collection agency was hired to collect from you. You might get the creditor to mark the debt as " paid as agreed " if you pay it off in full, and that can remove the smudge from your record. Creditors rarely do this, but it can't hurt to ask.
If you're a customer with a good record and only one or two late payments, you might get your credit card company to remove the black marks as a "goodwill adjustment," stressing your solid history.
However you go about it, it's worth the time and effort to boost a credit score. It might end up saving you a lot of money.
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