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How To Improve Your Credit Score Quickly

December 6th, 2016 5:06 AM by Jackie A. Graves, President

Is your credit score below 760? That’s the score at which you are likely to get the best interest rates on a mortgage. If you’re not interested in buying a home but need to rent a new apartment, it will still be a challenge if your credit score is below 600-650 (higher for more expensive units), regardless of your income. In some cases, even your job may depend on maintaining good credit! While only time and good credit habits will boost your credit score dramatically, if you are close to your desired level, there are some things you can do now to improve your credit score over a period of a few months.

Correct errors on your credit reports


Make sure your credit report doesn’t contain any errors. The Federal Trade Commission found that five percent of consumers had an error on at least one of their three credit reports from major credit bureaus.  According to the Consumer Financial Protection Bureau, common credit reporting errors included things like mixing your accounts with someone with a similar or same name, identity theft, closed accounts reported as still open, and negative items remaining on your account after they should have been dropped. Here are steps you can take now to correct errors:


Request free copies of your complete credit reports from the three major credit bureaus on the federally authorized site Review them carefully, looking for items that aren’t yours, balances that have been paid, items that have been reported multiple times, and other mistakes.


Dispute any mistakes that you find. While this isn’t most people’s idea of a fun afternoon, it is something you can – and often should – do yourself or with the help of a nonprofit consumer credit counseling agency.  The three major credit bureaus accept dispute filings online (links to dispute sites here:  Equifax, TransUnion, Experian). If you are considering a for-profit credit repair firm, watch out for scams. Make sure they explain your rights to you (including your right to do it yourself), don’t ask for the entire fee up front, and don’t promise you a huge jump in your score. Unless you have complex credit problems, your money may be better spent paying down balances and building up an emergency fund so you don’t have to borrow again.


Make strategic payments

Are you making your minimum payments on time? Your payment history (where delinquent payments show up) contributes the most to your credit score. Late payments generally stay on your credit report for seven years.  Make sure you:

Make all your payments on time. For most people, the easiest way to do this is to put all your bills on automatic payment. However, if you’re living paycheck to paycheck, you may need to stagger your bills throughout the month to avoid incurring overdraft fees.


Pay any outstanding bills that haven’t been sent to collection. Are you a month or two behind on a utility or credit card bill? If possible, pay those first.

A payment that is one to two months late doesn’t affect your credit as much as one which is made three months late or later. Once your accounts are current, they will begin contributing positive data to your credit report going forward. The late payment will still show up on your report, but the impact will lessen as time passes.

Pay any outstanding bills sent to collections. This demonstrates that you paid what you owed – better late than never. If the bill has been charged off, make sure you can pay it in full before paying it. Otherwise, the clock starts ticking on the collections process again and the item will stay on your account for another seven years.


Reduce your credit utilization

Credit utilization is how much of your available credit you are utilizing and contributes significantly to your overall score. It’s calculated by taking your total credit balances divided by your total borrowing power. Why is it so important? Lenders want to see that you aren’t using so much of your available borrowing power that it becomes a challenge to pay everything back. Best practice is to keep your credit utilization below 30 percent. To improve your credit utilization quickly:

Don’t close any cards or reduce your credit limit. This would reduce your total borrowing power, thus increasing your credit utilization.


Use some of your cash reserves to pay down balances so that credit utilization is less than 30 percent. The risk? You may have an emergency during the next few months and need to dip into credit again to pay for it. It’s probably worth a try, though.


Take a 401(k) plan loan to pay down balances to reduce utilization to less than 30 percent. A retirement plan loan is not reported to the credit bureaus. The transactions can be processed quickly and you may be able to execute this within a few weeks. As a bonus, you will replace high interest credit card debt with a low interest loan from your own retirement assets.

The biggest disadvantages? Since retirement plan loans generally have to be paid within 5 years and are deducted from your paycheck, it may squeeze your cash flow, so make sure you can afford to pay it back without reducing your retirement plan contributions. Plus, if you leave your employer for any reason before the loan is repaid, the unpaid loan balance can become an early retirement plan distribution, subject to income taxes and penalty.

Don’t close any accounts

Credit age (how long your accounts have been open) has a moderate impact on your credit score. Lenders generally want to see that you have at least three open and available sources of credit, where you are current on your payments. The longer you’ve had your account open in good standing the better. Keeping accounts open maintains your credit age and, as mentioned, helps with credit utilization.

Don’t even think about opening any new accounts

Shopping around for credit cards, mortgages or car loans can hurt your score.  Credit inquiries that matter are those that happened during the past two years. During the period in which you are trying to raise your credit score, don’t apply for any new sources of credit.

Submit letters of explanation

Derogatory marks such as bankruptcy, tax liens, collections, foreclosure, short sales and civil judgments can be very damaging to your credit. They have a very high impact on your credit score. Most stay on your report for seven years. However, a bankruptcy under Chapter 7 stays on your credit report for ten years.

Time passed before the seven year period may reduce, but not eliminate the impact. For very derogatory items, you could consider submitting a very brief letter of explanation (but not an excuse) to explain how a particular negative event occurred (for example, a foreclosure following a long period of unemployment or late payments as a consequence of divorce). Credit experts are split as to whether it’s better to submit an explanation or say nothing.

Keep making progress


If you are within striking distance of a certain credit score needed to accomplish your goals, taking some or all of the steps listed above may help put you over the finish line. Want to read more on this topic? See this post on what does and doesn’t matter to your credit score. I wish you an excellent credit score!

By Cynthia Meyer - To view the original article click here

Posted by Jackie A. Graves, President on December 6th, 2016 5:06 AM


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