7 fast fixes for your credit scores

By Liz Pulliam Weston

So you've had a few problems getting the bills paid lately, and you're wondering what you can do to repair the damage.

You've got plenty of company. There are more than 30 million people in the United States with credit blemishes severe enough (and credit scores under 620) to make obtaining loans and credit cards with reasonable terms difficult.

Or maybe your credit is OK, but you'd like to make it better. After all, the better your credit, the lower the interest rates you can secure car loans and credit cards. And these days, having high credit scores is the one sure path to homeownership.

Know the score

In order to improve your credit scores, it's important to know where you stand currently. The three-digit numbers, which range from 300 to 850, are the key to your borrowing costs. See "How to get a credit report for free" to learn how to get a copy.

Now you're ready to take the seven steps to speedy credit repair:

1) Pay down your credit cards. Paying off your installment loans (mortgage, auto, student, etc.) can help your scores, but typically not as dramatically as paying down -- or paying off -- revolving accounts such as credit cards.

Lenders like to see a big gap between the amount of credit you're using and your available credit limits. Getting your balances below 30% of the credit limit on each card can really help.

While most debt gurus recommend paying off the highest-rate card first, a better strategy here is to pay down the cards that are closest to their limits.

2) Use your cards lightly. Racking up big balances can hurt your scores, regardless of whether you pay your bills in full each month.

What's typically reported to the credit bureaus, and thus calculated into your scores, are the balances reported on your last statements. (That doesn't mean paying off your balances each month isn't financially smart -- it is -- just that the credit scores don't care.)

You typically can increase your scores by limiting your charges to 30% or less of a card's limit. If you're having trouble keeping track, consider using a check register to track your spending, logging into your account frequently at the issuer's Web site, or using personal finance software like Microsoft Money or Quicken, which can download your transactions and balances automatically.

3) Check your limits. Your scores might be artificially depressed if your lender is showing a lower limit than you've actually got. Most credit-card issuers will quickly update this information if you ask.

If your issuer makes it a policy not to report consumers' limits, however -- as is the usual case with American Express cards -- the bureaus typically use your highest balance as a proxy for your credit limit.

You may see the problem here: If you consistently charge the same amount each month -- say $2,000 to $2,500 -- it may look to the credit-scoring formula like you're regularly maxing out that card.

You could go on a wild spending spree to raise the limit, but a more sober solution would simply be to pay your balance down or off before your statement period closes. Check your last statement to see which day of the month that typically is, then go to the issuer's Web site about a week in advance of closing and pay off what you owe. It won't raise your reported limit, but it will widen the gap between that limit and your closing balance, which should boost your scores.

4) Dust off an old card. The older your credit history, the better. But if you stop using your oldest cards, the issuers may stop updating those accounts at the credit bureaus. The accounts will still appear, but they won't be given as much weight in the credit-scoring formula as your active accounts, said Craig Watts, an executive at Fair Isaac, one of the leading credit scorers. That's why Ferguson often recommends to her clients that they use their oldest cards every few months to charge a small amount, paying it off in full when the statement arrives.

Continued: 4 other credit mistakes

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