3 tips to raise your credit score -- fast
What's the fastest way to pump up a credit score? I asked the company that invented credit scoring for their three best ideas.
You're planning to buy a house in a few months and want to do everything possible to raise your credit score before you apply for a mortgage. What are the three most important things you can do today for a higher credit score tomorrow?
That's the question I asked Fair Isaac, the company that created the most popular credit score, the FICO score. And if you're wondering if working toward a higher score is worth the hassle, here's a cut-and-paste from the FICO home page:
A 100-point difference in your FICO score could mean over $40,000 extra in interest payments over the life of a 30-year mortgage on a $300,000 home loan.
Watch the following news story, then meet me on the other side for more.
Now, let's expand on that video with more detail on the suggestions I got from Fair Isaac spokesman Craig Watts.
Watts started our conversation with a caveat: There is nothing you can do to change your score overnight. At best, plan on two months, maybe three, to see an actual increase. That's why you want to start the polishing process far in advance of any borrowing you intend to do.
Here were his three best tips:
Knowing this opens the door to several potential strategies:
- You could lower your utilization ratio by paying down your credit cards. That's the ideal scenario.
- If money is tight, then you could at least shuffle your balances between cards. For example, if you have one maxed-out card and two with small balances, move part of the big balance to each of the other two cards so all three show less than a 30% utilization ratio.
- Lower your utilization ratio by raising your credit limits. In other words, if you owe $1,000 on a card with a $1,000 credit limit, raising that credit limit to $3,000 will bring your utilization ratio back down to 30%. A simple call to the bank might be all you need.
And here are two things not to do. Don't open a new account. That definitely will lower your credit score, at least short-term. And don't close any accounts, since that would negatively impact your utilization ratio.
These are the fast ways to improve your credit score -- at least if you consider "fast" to be 60 to 90 days. The simplest and best way to improve your credit score, however, is the slowest: paying your bills on time and allowing any negatives like late payments to gradually fade away over time. At 35%, payment history is the biggest component in your credit score.
While things like late pays and delinquent accounts should drop off your credit history after seven years -- and the older they are the less impact they have on your score -- there is a way to have them removed earlier. Simply ask the company that put negative information on your report to remove it. The process isn't hassle-free, but worth considering, especially if you're planning to borrow for a mortgage or other monster loan a few months from now.
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Editor Bev O'Shea lives and works in the foothills of the Appalachians. A former copy editor for The Atlanta Journal-Constitution and the Orlando Sentinel, she joined MSN Money in 2007. She's a fan of sunsets, college football and free shipping, among other things.
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A writer for MSN Money since January 2007, Donna Freedman won regional and national prizes during an 18-year newspaper career and earned a college degree in midlife without taking out student loans. She also writes about smart money tactics for magazines and on her own site, Surviving and Thriving.
Mitch Lipka has been warning people about scams and shining light on questionable business practices for more than 20 years. Mitch, the consumer columnist for The Boston Globe, has also been a reporter and editor at The Philadelphia Inquirer, Consumer Reports, South Florida Sun-Sentinel and AOL. He won the 2010 New York Press Club award for best consumer reporting online and was honored in 2011 for his reporting on child product safety.
Marilyn Lewis is an award-winning writer with a passion for getting readers clear, straight information that helps them stay out of financial trouble. A former reporter for The San Jose Mercury News, she works from her home in Port Townsend, Wash. Contact her at MarilynLewis@Outlook.com.
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