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Punctuality

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 points.

  • 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 Statements

  • 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 removed.

  • 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 review.

  • 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 find success.

  • 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 Used

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 percentage.

  • 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.

  • During mortgage 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 duplication.

Establishing Credit History

  • Trying to get rent and utility payments factored into one's credit score as nontraditional credit if the person otherwise has no established credit.

  • 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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