Updated: 10/24/2011 3:41 PM ET|
5 ways to repair your credit scores
Paying off your card balance every month is fine, but there are other steps you can take to get a higher credit rating.
When it comes to cultivating a credit score, you've probably got the good-citizen routine down cold: You pay on time, try to wipe out the entire balance every month and never close too many accounts at once.
Beyond the basics, though, many consumers are still in the dark about what makes their credit scores go up and down.
"We have had so many people over the years who don't understand what goes into a credit score," says Dave Jones, the president of the Association of Independent Consumer Credit Counseling Agencies. "They just live with the old wives' tales."
Consumers understand that the credit utilization ratio -- the total amount of revolving credit someone uses in a month, compared with the amount of available credit the person has -- is a major factor in calculating a score.
But did you know that it's often calculated from the total on the statement date, not the due date? So even if you pay balances in full every month, a card issuer may report a balance. And that can hurt your credit scores.
Here are five ways you can use that bit of knowledge, along with some other expert know-how, to boost your credit ratings:
Pay bills before the statement date
Typically, the balance as of your last statement date is the balance that will be reported to the credit bureaus, says Barry Paperno, a consumer operations manager with myFICO.com, the consumer division of Fair Isaac, the company that created the FICO score. So if you pay most of the bill before the statement date, you can lower your utilization rate. And that can equal higher credit scores.
"How much you owe is 30% of your score, and the utilization ratio is a large part of that," says Paperno.
If you charge a balance every month but pay it off and can't understand why your scores aren't higher, it could be that your utilization ratio is what's depressing your scores, he says.
This might not work with every card. Some lenders don't use the balance on your statement date when they report to the credit bureaus. Instead, they select another day and report the card balance on that date instead.
Paperno's advice: Call your lender to ask when the balance gets reported.
Make multiple payments
Another way to lower the balance on your statement date is to make periodic payments throughout the month.
If you use a credit card throughout the week for everyday expenses and pay it off every Friday, you'll cut the amount of credit you're using at any one time. Check with your card issuer to learn how it handles multiple monthly payments.
"Basically, the lower the balance on your credit report, the better," Paperno says.
What you need to know: Your card company could place a limit on the number of times you can pay in a month, he says. All card companies will take two or three payments per month, but if you are paying weekly or more often, you should make sure the company is set up to handle such frequent payments.
Ask for a 'goodwill' deletion
If you have only one or two bad marks on your credit records, you may be able to get them expunged, says John Ulzheimer, the president of consumer education for SmartCredit.com, based in Costa Mesa, Calif.
Say you've paid late but have an otherwise spotless credit history. You can ask your lender for a "goodwill deletion," he says. "It doesn't mean it is wrong or was reported incorrectly. Essentially, what you're doing is asking the creditor to cut you some slack."
The good news: "You'll be surprised how many times they will," Ulzheimer says.
The bad news: "If you're habitually late, it won't work," he says. This is strictly for folks who err rarely.
As for whom to ask, start with customer service. But you may have to go up the ladder. And make your request as soon after the error as you can. "The sooner, the better," Ulzheimer says.
It can make a difference in a credit score. "If you have two or three bad things on (your) credit report and you get one or two removed through goodwill deletion, you will be surprised how quickly your score will go up," Ulzheimer says.
Pay for removal
If you have an account that's gone into collection, sometimes collectors will agree to remove the debt from your credit reports if you agree to pay if off.
"You'd be surprised how many collection agencies will stop credit reporting in exchange for payment," Ulzheimer says.
But before you agree to or pay anything, you want the arrangement in writing. Get a letter on company letterhead that spells out the collection agency will remove the debt from all three major credit reporting bureaus.
The process is sometimes called "pay for deletion," Ulzheimer says. And "while credit bureaus frown on those arrangements, it's not their data that's being reported."
Protect yourself in a short sale
After a short sale, the mortgage lender often will report to the credit bureaus that the home loan was settled for less than the full amount. In addition, it can also note the amount of the deficit as "balance owed" on the credit reports, even though the obligation has been finalized and no additional money is owed.
In other words, if you have a $300,000 mortgage and sell your house for $250,000, the bank could report a balanced owed of $50,000.
While the short sale will damage your credit scores dramatically (as much as a foreclosure, according to examples released by FICO), you can mitigate the damage slightly by arranging with the lender not to report a balance owed.
The best time to negotiate this with the lender is before or during the short-sale process, Ulzheimer says. While you can attempt it after the fact, that's not as practical.
"After it's been paid, the lender starts to lose interest in speaking with a former customer," he says.
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We read all the time where people don't use credit responsibly and end up defaulting or filing bankruptcy to clear their screw ups. I have always tried to pay my bills on time but that is not good in the long run either. When someone tells me I have a low credit score because I don't use credit enough I chuckle. I use credit for the tings i can't save for before I need it. I don't borrow for clothes and vacations just my needs. Like my home or a car. My local banker knows me and use to loan me all the cash I needed on short term notes when I ask. He knows i am good for it. Now he can't do it because the board has to approve any loans over a few thousand. So I don't even use short term notes anymore.
If you live within your means the banking industry doesn't want anything to do with you.
I sometimes wonder where MSN gets thier financial information. In this particular article it advised for one to make multiple payments to your credit card company over the course of the month. As I have posted here before and will post again, DO NOT DO THIS. Not only this happend to me, but many others that I know of. I thought I was being smart to make multiple payment since I use my card for everything becuase I work overseas. I was tired of my credit score being low because I had high balances at the end of the month. It did not matter, nor does is still, that I pay my bill in full every month. So I started paying my bill twice a month. Well the second month I did this there was a hold put on my credit card. I was told by the credit card company that there are laws that force credit card companies to hold the accounts of people who do this because it is a way of laundering money. I fought and fought with them over this. They put a 30 day hold for two months in a row. They would not give any further information other than what I told you. I have relatives and friends that have had the same thing happen, even with different credit card companies. I made request in writing and was told that any month that I make a double payment I am at risk for a hold being put on my account.
They will be happy to credit the money to the account, but you will not be able to use your card. I looked into this as I thought it was BS. There are requlations that a bank CAN enforce for many large payments being made in a month.
@Dean Anderson, Dean, your best bet would be to get a "secured" credit card. Open a savings account at a credit union and then ask for a credit card secured by the account. That way there is no risk to you or to the financial institution. Then pay a bill (cell phone or utility) every month with the credit card and pay it off each month. This will help your credit score and give you a more "rounded" credit portfolio.
Credit may as well be a joke, but we all need it some time in our lives. here's a trick you can use if you want a higher score..... just like the lie's they tell by adding fees and charges, you can do the same. create paper income, when you fill out for credit, on the app. they look at your income, than look at what you pay out. if you don't make anough you can't get more credit or your score stays low, so add more income, the more your income increse the higher your score increse. business of credit is just that a family own business, not gov. so it won't hurt to lie a little, do unto those as they do unto you!
Get reed of credit scores pay your bills if you don't have the cash don't get it . THE US HAS A 400 CREDIT SCORES and they can create jobs and get homes and cars !WE HAVE A BAD SCORES WE CANT EVEN GET A JOB BECAUSE OF ARE SCORE .WE NEED TO STOP CREDIT REPORTS .IF YOUR A KILLER MURDER OR SEX OFFENDER YOUR OK
Take your FICO scores and stick 'em where the sun don't shine.
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