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It goes without saying that
punctuality will improve your FICO score. Punctuality will not help in the
short term, but over the course of a year, paying bills on time will
increase your score by roughly 30 points, and, more importantly, will
prevent your score from dropping.
Pay bills on time, since
any payments more than 30 days late will affect the credit score. Note
that a bill issued March 15 with a due date of March 31 does not become
30 days late until April 30, but if you have the means, pay earlier
rather than later. A single late payment may result in a drop of over 20
Later payments have
increasingly worse effects on your score, so pay off late bills as soon
as possible (after negotiating to have derogatory remarks removed from
your report). Additionally, "collection" accounts are much worse than
late payments. Accounts usually go into "collection" status after about
six months of non-payment.
Set up as many automated
payments as possible. This will help avoid neglecting to pay a bill in
the future (be sure to maintain enough funds in the bank account making
the payments and ensure that the address for each of your accounts is
correct). Payments by internet are also much quicker than licking a
stamp and dropping an envelope in the mail.
Cleaning Up Derogatory
Negotiate with collectors and businesses to remove any late payments or
collections from a credit report. Often, collectors will happily remove
notices off a credit report in exchange for prompt payment. It is
important for consumers to obtain any agreement in writing, as once
collectors have been paid off it is mostly impossible to have statements
Be aware of the "statute of limitations" on
any debt you are attempting to clear by dispute. The statute of
limitations is a period of time, set by a state's law, within which a
creditor may file a lawsuit to enforce its legal rights. Once the period
of the statute has "run," the creditor can no longer sue on the account. Additionally, if they
know the statute has run, they may be less inclined to even respond to a
dispute. If that occurs, the credit reporting agency must delete it from
your record. Be aware, that in many states making even a small payment
on the account or even, in some cases, promising to make a payment, may
start the statute's time period all over again.
Businesses will usually remove negative
remarks in exchange for more business. This works best when the credit
branch of the business is closely connected to the sales branch, and
when you are a significant customer. Businesses have little interest in
preserving the accuracy of a customer's report for other businesses to
If you have federal
student loans that fell into default, pursue loan "rehabilitation"
policies. Labels of "collection" or "default" will be removed from a
loan's history with regular payments over the course of a year. This
needs to be arranged ahead of time.
Per-campus student loan
programs will often make exceptions and remove negative remarks if you
find the right person to talk to. A good justification for a late
payment ("I never got the bill") never hurts, but remember that most
excuses will not have legal merit (expect responses such as "It was your
responsibility to pay, even if the bill never arrived"). Appealing to
human decency and sense of campus community are vital. If lower ranking
officials refuse to help, letters to higher ranking campus officials may
If the above approaches
do not apply or fail, file disputes of negative marks on a credit
report. Even if the negative marks are accurate, some creditors fail to
respond to disputes in a timely fashion, which removes negative marks.
Rather than pay the postage it takes to respond, some creditors
disregard any communications regarding paid accounts. It is mail fraud
to falsely dispute an item, but as long as you claim to believe an item
was never late, feel free to dispute.
Decreasing Credit Capacity
Decreasing the ratio of
debt to credit capacity consists of two major approaches — increasing
total capacity and decreasing your debt.
Increase limits on credit
cards. The FICO formula weighs the ratio of balances to available
credit, so if credit limits are increased while balances stay the same,
this ratio drops and your score increases. If possible, try to increase
limits without triggering credit checks, as a credit check may drop a
score by a few points.
Use relationships with
banks and other businesses. Banks will often remove late notations for
valued customers. When a consumer is turned down for credit cards
elsewhere, a bank will often provide a low-limit credit card. This card
will increase capacity (decreasing the capacity used ratio), even if
only by a small amount.
Consider secured credit
cards. Secured cards factor into credit scores in fashion identical to
unsecured cards. If a consumer opens a $1000 secured credit account, the
resulting credit report will make it appear that someone has trusted
that consumer enough to extend him or her credit, and increase your
capacity by $1000.
Pay down the sum of
all balances so that you are using the least total capacity. Using
30% of your capacity will trigger a reduction in score. 50% is more
severe, and can cause a drop of over 10 points. 75% is a major red flag.
A revolving balance of 0% has slightly less benefit then a small
Pay down each
individual balance. It may make sense to move balances between cards
so no single balance is at more than 30% of its capacity. The 30% line
may be difficult to reach — try to increase credit limits, or at least
reduce card balances to less than 75% of capacity. This contradicts the
advice many credit companies give when trying to get new customers to
transfer balances, managing line usage below these thresholds will lead
to a higher score than consolidating everything into one credit line and
maxing it out. This will require more bills to be paid each month, so
requires extra work on the part of the consumer.
refinances, you may be able to move some credit card debt to your home
loan, sometimes by withdrawing equity.
Keep an eye on how
student loans are reported. Student loans are notorious for being
reported multiple times, making it look like one's monthly payment
obligations are higher than they actually are. This can both help and
hurt — a credit report will show more obligations, but if these loans
are in good standing, you will show a good repayment history. If a loan
is reported as paid late multiple times, make sure to remove the
Trying to get rent and utility payments factored into one's credit score
as nontraditional credit if the person otherwise has no established
Use relationships with
banks and other businesses. Banks will often extend credit cards to
their customers, even with less-than-perfect credit. Businesses such as
Home Depot often have financing plans available which don't require
squeaky-clean credit. Though they take on some risk with these loans,
the businesses stand to gain immensely if you become a repeat customer.
When buying a car, even if you don't need a loan, take a small fraction
of the car's cost out as a loan. Loans like these are secured by the car
itself, so in the event of failure to repay, the financing company won't
suffer much loss.
Becoming an authorized
signatory on one or more of one's parents' credit cards that they carry
a balance on. If the parents pay it responsibly, the authorized
signatory's credit score will benefit, whether he personally charges
anything to the card or not. This tip is especially useful for young
adults with little or no established credit.
Trying to maintain at
least a minimal amount of credit activity, because it has been shown
that consumers who maintain a minimal amount of credit are less likely
to default on a new account than consumers who don't maintain credit.
Limit Credit Inquiries
Avoid causing inquiries to be posted to one's credit report. Credit
score is affected by recent inquiries made against one's credit report
for the purpose of evaluating an applicant for creditworthiness,
including insurance. The credit score is not affected by obtaining a
copy of one's own credit report, nor by "promotional" inquiries made by
direct marketers such as credit card companies who send out prescreened
direct mail offers, nor by "account review" inquiries made periodically
by your own financial institution to manage the ongoing risk of your
account. Only the action of applying for new credit or insurance creates
a "hard" inquiry on one's credit report that affects the score. This
typically drops a FICO score by roughly 5 points, which remains for as
much as two years.
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