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7/18/07

Tips to Raise Your Credit Score

In my previous post What are the Components of a FICO score?, I discussed the different components of a FICO score and their respective weights in determining your credit score.

This post will provide a few tips that you can use to raise your credit score. First, if you have no idea what your credit score is or what information is in your credit report, I suggest you get both. You can get a free copy of your credit report from all three credit reporting agencies by going to Annual Credit Report. This service is completely free (there is absolutely no catch) and is easy to use.

Your credit score is a different story. I am unaware of any website or company (except Washington Mutual that just started the promotion of giving you access to your credit score for free if you have one of its credit cards) that will give you free access to your credit score. If you really want to know your credit score and do not want to pay for it, there is a free way to obtain the information, although it is a little shady.

If you want to get a free look at your credit score, go car shopping! Better yet, just call a car dealership and tell them you are interested in a car. They will run your credit to see if you qualify for the car you are “interested” in. Once they say you qualify or not, ask the salesperson what you credit score is. They will almost always tell you. When the salesperson wants to move on with the deal, just tell them that you are doing some comparative shopping and price searching and that you will get back to them.

If you are uncomfortable with obtaining your credit score this way, all three of the credit reporting agencies will let you buy the information for around $15.00 for all three scores.

Once you have your credit scores and reports, you can see where you need improvement. There are some general things you can do to start to boost your score. Although you will no longer be able to use the authorized user method to boost your score, you can still, (1) pay bills on time; (2) keep your debt low; and (3) not open lots of accounts at once.

Those are general tips, but there are other things you can do and other information you should know.

(1) If you can prevent it, do not close credit accounts. Many people close credit accounts they hardly use or that they just paid off to avoid the temptation of using the card again. This is a bad move because 15% of your credit score is based upon the length of your credit history. If you find that one of your cards is not in use, start using it for a very specific thing (for example, only buy gasoline/diesel with that one card) and use it for nothing else. By doing this, the card is in use, and the payment will be low. This way, you get to keep your lengthy credit history, and you are building points by making your payments on time.

(2) Closing an account does not mean that you no loner have to pay what is owed. This seems simple enough, but you would be surprised how many people are under the false impression that closing a credit account means that they are no longer liable for the debt. This is a rookie move and should not be made by aspiring entrepreneurs! Do not close the account because you are having trouble paying, instead, stop using the credit card! None of the fees change and none of interest rates decrease by closing the account. Therefore, what is the benefit of closing the account? If you fear that by keeping the account open you will continue to use the card, destroy the card. Later, when you feel you have gotten things back in order, call the credit company and tell them that your card was destroyed (by the washing machine, the dryer, or whatever you can think of), and get a new card. By closing the account, you only hurt your lengthy credit history!

(3) Know that certain debts are weighed differently than others. Revolving debt is weighed more heavily in determining your creditworthiness. Revolving debt is money owed to a creditor who sets your monthly payment based on the current balance. This is different from installment loans, (such as student loans) where the amount owed is fixed (not based on your current balance), usually payable monthly, and almost never changes. Keep those revolving debts low and your score could increase.

(4) If you have bad credit and are having trouble getting a card, try a department store. If you find yourself having trouble getting credit from the “big boys” (Visa, MasterCard, Discover, American Express, etc.) try getting a card from a department store. Their interest rates are terrible, but they are usually much easier to get. This credit will help you start to reestablish yourself as creditworthy and will help improve your score, if you make timely monthly payments and keep the debt low.

(5) If department stores do not work, you can get a secured credit card. Secured credit cards are credit cards with a deposit backing. In other words, your credit limit is set by how much money you give the company. If you deposit three hundred dollars, your credit limit is three hundred dollars. Unlike a debit card though, charges do not come out of that deposit amount. You are sent a bill like a credit card and have to make the payments. Be cautious if you take this route because some of these companies are predatory and charge OUTRAGEOUS fees and interest rates! If you find out that you are paying more to possess the card they you are actually spending by using the card, dump it!


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