Time heals wounds … and anything negative in your credit history. That’s the common wisdom among credit experts. But contrary to that adage, you can take action to cause a quick surge in your credit ratings, adding as much as 100 points to a low FICO score.
It’s so easy that you can do it without using a legitimate but pricey credit-repair business. Here’s how:
- Contact a business that has just run your credit report, which will have your FICO score on it. Tell them you want to take action to improve your credit and ask for a copy of your report. Most businesses will be more than happy to do this. If they’re not, you probably want to patronize a more customer-oriented company. Once a year, you can also get free copies of your credit reports through AnnualCreditReport.com.
As I’ve cautioned in previous columns, ignore everything the credit reporting agencies sell except the one-time FICO score from Equifax, which is an excellent deal. The credit scores sold by Experian and TransUnion are not FICO scores, which means they provide no value to you since the vast majority of creditors use FICO scores.
- Examine your credit reports for any negative information that is not correct. If you find an error, use the information in my column, How to Correct Mistakes on Your Credit Report, to correct errors. Removing incorrect negative data from a credit report can immediately increase scores — sometimes by more than 100 points, especially when someone else’s poor payment habits shows up on your credit history.
- Your chances of turning your credit around quickly increase substantially if you carry balances on credit cards; you have a recent history of making payments on time; and you can reduce your balances with cash. First, check your available credit limit for each account with a balance. Compute what percentage of your credit limit you are using. If you have maxed out accounts or your balance is more than 40 percent to 50 percent of your available credit limit, your credit score has already been reduced.
A maxed out credit card can cost you 100 FICO points. To see an immediate improvement in your credit scores, reduce the balances to less than 10 percent of available credit, or at least, pay them down to less than 30 percent of credit limits. Keep in mind, that it’s better to reduce every account to less than 30 percent than to have one at 10 percent and one at 50 percent or more.
After your creditors report balance changes to the credit bureaus (usually during the next month’s billing cycle), your credit scores will rise. Since every credit history includes unique information, it’s impossible to predict just what magnitude of spike you will see.
- Check to make sure your credit report includes all transactions that reflect positively on your credit. Sometimes, for example, your mortgage or other accounts are not reported to the credit bureaus and don’t appear on your reports. The more positive payment histories your credit reports reflect, the higher your scores will be. Mortgages are particularly important because they increase credit scores for several reasons. If you’re missing a positive account, call your creditor and ask to have it reported.