Liz Pulliam Weston: Quick ways to raise your credit scores

The Basics

9 fast fixes for your credit scores

If your credit scores are below 760, you may not be getting the best rates for loans or insurance -- so burnishing your scores can save you money.

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 to your credit.

You've got plenty of company. There are more than 43 million people in the United States with credit blemishes severe enough (and FICO 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 less you pay in interest and, typically, for insurance.

To improve your credit scores, it's important to know where you stand now. You can get free credit reports once a year (see "How to get a credit report for free"), but you typically have to pay to see your FICO scores. (You can get other credit scores for free at sites like Credit Karma, but these aren't typically the scores lenders use.)

You can buy two of your three FICO scores for $19.95 each at myFICO. (One of the three credit bureaus, Experian, no longer sells FICO scores to consumers, although it still sells them to lenders.)

If your scores are above 760, you're probably already getting the best rates. If they're anywhere below that mark, though, they could stand some improvement.

So here are the nine steps you can take to speedy credit repair:

1. Get a credit card if you don't have one

Don't fall for the myth that you have to carry a balance to have good scores. You don't, and you shouldn't. But having and using a credit card or two can really build your scores.

If you can't qualify for a regular credit card, consider a secured credit card, where the issuing bank gives you a credit line equal to the deposit you make. Look for a card that reports to all three credit bureaus. Three to consider are Public Savings Bank Classic Secured Visa, Orchard Bank Classic MasterCard and Citi Secured MasterCard, according to the credit experts I interviewed for "10 credit cards that won't rip you off."

2. Add an installment loan to the mix

You'll get the fastest improvement in your scores if you show you're responsible with both major kinds of credit: revolving (credit cards) and installment (personal loans, auto, mortgages and student loans).

If you don't already have an installment loan on your credit reports, consider adding a small personal loan that you can pay back over time. Again, you'll want the loan to be reported to all three bureaus, and you'll probably get the best deal from a community bank or credit union.

3. 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; getting balances below 10% is even better.

Though 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.

4. 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.

You often can increase your scores by limiting your charges to 30% or less of a card's limit; 10% is even better. If you're having trouble keeping track, you can set up e-mail or text alerts with your credit card companies to let you know when you're approaching a limit you've set. If you regularly use more than half your limit on a card, consider using other cards to ease the load or try making a payment before the statement closing date to reduce the balance that's reported to the bureaus. Just make sure to make a second payment between the closing date and the due date, so you don't get reported as late.

5. 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 sometimes the case with "no preset spending limit" cards -- the bureaus may 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.

If you have an American Express charge card -- the kind that must be paid in full every month, rather than the kind on which you carry a balance -- you probably don't have to worry, because charge cards typically aren't included in the credit utilization portion of the FICO formula.

If, however, the card is categorized on your credit reports not as a charge card but as a revolving credit card, and either a credit limit or high balance is reported to the bureaus, your balances on the card could be a problem.

You could go on a wild spending spree to raise the high balance reported to the credit bureaus, but a more sober solution would simply be to pay your balance down or off before your statement period closes.

Continued: Dust off an old card

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5Comments
12/24/2010 5:48 PM
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keep in mind that inquiries and the new account (revolving or installment)  will hit ur score. its up to start adding good payments into your payment history on the credit report on that new account, all 2gether to on time payments on pre-existing acc will take it (cred scores) back to what it was or even better.

12/18/2010 1:24 PM
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I actually think this article is a joke.  First they say to spend a minimal amount on a few cards (in the past), then they said have just one card with a higher balance, then have one card with a lower balance.  So many things that ARE screwing up everyone's credit line.  Not more than 1 1/2 years ago I applied for a credit card, did what the "reporters" said, higher balance on one card, and my credit DROPPED by 42 pts.!  So much for "financial experts".  If I would have known they were playing manipulation games, and head games, I NEVER would have gotten just one credit card! Not to mention after they said that, they turned around 6 months later saying to get more than one, or my score will not go up except a few points every year or two.  So I got another 4!!! All with 600 or less for a maximum balance.  Well, it failed drastically, now my credit score is BELOW 400!!!  These people make me sick! Especially when they try to word things in ways that you THINK will work out, but screws you to the ground and ruin your credit score after working at it all your life!  NEVER was late on payments in the past, only 1 every FEW years, and paid the following month, now I can not even get a SMALL personal loan from ym own bank that I have had a credit card with for the last 15 years!  So much for being a "preferred customer".  LIARS!
12/18/2010 12:33 PM
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You failed to mention just skipping out on the loan's. Screw the bank's. I pay cash for everything becuse I won't give any bank my buisness. Credit is for sucker's
12/06/2010 4:42 PM
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I really like this article. I myself am trying to re-build my credit and there were a few of these tips that I didn't think mattered! I think ill definitely have an easier time bringing that score up now!
12/06/2010 2:49 PM
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Wachovia has a secured credit card, with a balance that starts @ $300

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