How to improve your credit score quickly
Updated: Wednesday, November 18, 2009 9:57 PM EST
LOUISVILLE, KY (WAVE) - Unfortunately, more and more people are turning to credit cards to pay monthly bills as gas and food prices rise; that can be dangerous if payments are late or missed because it hurts your credit. With a low score, any loan you apply for will have a high interest rate, making it very difficult to get out of debt. WAVE 3 Troubleshooter Charla Young investigates what's draining your credit score and how you can boost that number in just weeks.
Trish Osborn is the president of American Founders Bank. If you want to borrow money from her bank, she's got to find out how big a credit risk you are.
"We are in the business of lending money," Osborn said, "but we want to make sure we get paid back our debts."
To do that, she looks at one important number: your credit score. "If you are below the lending institution's threshold, they can deny you credit," Osborn said.
Credit scores range from 300 to 850. A good score is 670 and higher. A bad score is anything below 600. More than one-third of your score is based on payment history. Another third is how much you currently owe. Length of credit history makes up 15 percent. New credit makes up another 10 percent.
Karen Scheuerman's company, A+ Credit, helps people with credit problems. Scheuerman said her company helps people "analyze their credit and tell them what they can do to improve their credit."
To do that, she has to see your credit report. You can get one free, once a year. All you have to do is visit: www.annualcreditreport.com and you can access reports from Equifax, TransUnion and Experian. All three numbers are important, although the lender looks at the middle number when approving or denying a loan.
The best thing you can do to get to the top of a banker's list is pay your bills on time. Late payments can really hurt you. Credit cards with high balances near your limit can also hurt your score, so pay it down or transfer it to other available cards. That could boost your score another 75 points.
Lenders look at the balance-to-credit limit ratios, which should not be more than 30 percent. Don't request more money or more credit, and that could save you another 18 points.
And find the mistakes on your report. A report by the Federal Trade Commission issued four years ago, showed that 79 percent of credit reports have errors on them. That could cost you up to 100 points on your total score, and that could mean higher interest rates.
According to Chad McCullough with A+ Credit, "if your credit score is not where it needs to be, you're going to pay through the nose."
A history of bankruptcies, tax liens or repossessions can cost you another 150 points. After seven years you can, and should, request
that negative credit information be removed from your history.
The bottom line: always pay attention to the details to raise your overall score because Scherman says the first thing lenders "look at is your credit score, and if it is below standard, they don't want to talk to you."
Once you get a copy of your credit report, you need to examine it closely. Remember: no two credit reports are ever the same and what works for one consumer may not work for the other. But the rules are the same for everyone.
Scherman says "the majority have the ability to restore their credit and improve their scores."
When you're checking your report, look for inaccuracies, and check to be sure you have not been the victim of identity theft.
Obvious mistakes on your report can be removed quickly, which can boost your score in just weeks. One consumer let us use his credit report for an example. He did not want to be identified, so we'll call him "John."
We had McCullough review John's report. "You can see there's a 543 on one score to begin with, and there's also a 496 to Equifax and 571 to Experian."
Keep in mind, creditors look at all three numbers, and then go with the middle number.
Our experts attacked the negative items on John's report first. There were a number of accounts with delinquencies, which can drain your account.
So the first thing John did was get all of his accounts paid up, eliminating all past due balances. Within 30 days, just by paying all of the minimum amounts due on all accounts, John boosted his score by 40 points.
John also found some mistakes on his credit report such as negative information listed twice. By disputing the information with the credit bureaus, his credit score jumped another 30 points.
Another quick fix for John: he paid down some credit cards and transferred his big balances to other cards. Experts say it's usually not a good idea to have more than three cards, but none of your cards should carry substantial balances.
"We're talking balance to loan ratios - what the limit of the card is versus what the balance is should never be more than 30 percent," McCullough said.
Adhering to that formula yielded another 50-point boost on John's report.
Inquiries can also hurt your score temporarily. John recently tried to open five new credit accounts, and each time he did that, his credit score dropped 18 points. So the minute he stopped asking for money from lenders, his score increased again - just enough to get approved for a mortgage loan. It increased 123 points, a dramatic boost which was accomplished in less than 30 days.
If you're still having problems boosting your score after using these tips, the Troubleshooter Department recommends seeking out the services of consumer credit counselors. Just make sure the company is reputable, registered with the state, and is in good standing with the Better Business Bureau.