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Become a Better Borrower with Your Credit Score

Written by Equifax Experts on February 13, 2012 in Credit  |   38 comments

Do you want to improve your attractiveness to lenders by improving your credit score? There’s good reason to do so—a higher credit score can provide you a greater array of financial options and more favorable credit offers. And there’s always room for improving your creditworthiness…

Do you want to improve your attractiveness to lenders by improving your credit score? There’s good reason to do so—a higher credit score can provide you a greater array of financial options and more favorable credit offers. And there’s always room for improving your creditworthiness by understanding your credit score, even if yours is good to begin with.

Keep in mind, however, that your credit score is based on your history of borrowing and repaying money, so there’s no way to instantly change it. But here are some effective strategies that can help to strengthen your creditworthiness over time.

Top ten strategies for improving your credit score

10. Learn what your current FICO credit score is and what appears on your credit report. You’re allowed one free credit report from each of the three credit reporting bureaus, accessible at AnnualCreditReport.com. When you pull your report, you can also pay a small fee to see your credit score. If you’ve used up your freebies for the year, Score Power can give you immediate access to your Equifax Credit Report, which includes your current FICO credit score.

9. Don’t open new credit cards that you don’t need just to increase your available credit. This approach could backfire and could lower your score.

8. Try to keep your total account balances as low as possible. High outstanding debt may negatively affect your score, as you have a greater chance of missing payments.

7. Check your report for inaccurate information and correct any mistakes. Incorrect information on your credit report is a warning sign for identity theft, which can be very damaging to your credit score. Check out more information for preventing and recovering from identity theft.

6. If your credit is severely damaged, or if you have a very short credit history, there are still ways to improve your creditworthiness over time. Consider opening new accounts responsibly and pay off debt on time.

5. If you fall behind on paying a bill because of illness, unemployment, or family issues, write a short explanation to the credit reporting agencies. They will add it to your credit report. It won’t improve your credit score directly, but creditors may take your personal statement into consideration when evaluating you. Also, call your creditor to explain the circumstances and, if possible, work out a payment schedule you can meet.

4. If you need help managing your credit, contact a reliable nonprofit credit counseling agency. Find an agency in your area through the National Foundation for Credit Counseling.

3. To minimize the number of inquiries on your credit report, don’t apply for multiple credit cards over a short period of time, and don’t apply for a card you’re not likely to get. Apply for new credit accounts only as needed.

2. Make all of your payments on time. If you are forced to miss a payment, be sure to pay it the following month along with the current payment. Past due accounts will be listed on your credit report. If you have missed payments, get current and stay current. As a general rule, the longer you pay your bills on time, the better your score.

And the number one strategy to improve your credit score…?

1. Continue to check your credit report regularly, charting your progress along the way. Everyone’s financial situation is different and all credit reports are different as well. Monitor your credit report for how certain activities affect your credit score. Keep an eye out for false information and identity theft. And watch and see how positive activities like on-time payments and a good mix of credit accounts will raise your credit score over time.

38 comments

  1. Nancy M. says:

    I had a 726 credit score but my score was “dinged” with a judgment as a result of a former tenant dispute where I wound up in court and having to refund a portion of their security deposit. I was notified of this by way of my Equifax alerts when the judgment was put on my credit report a year later, which dropped my score to 676 when the judgment was reported as still outstanding. I quickly sent all three credit bureaus documentation to show that I satisfied the judgment. Is there anything else I can do? I was devasted by this incident.

  2. Nancy M. says:

    Thanks for responding – the judgment was legitimate as I withheld the tenants security deposit due to damage they caused, but the judge ruled that a portion needed to be returned to the tenant which wound up as a judgment against me to pay them the portion that needed to be returned. I never knew that even though the judgment was satisfied per the court instructions, that the judgment would be reported. I would have thought that since the judgment was satisfied, it would never have been reported on my credit report but I guess judgments are reported because they are public records, regardless of whether they are resolved or not.

    • Don says:

      That “ding” should go away in a few years (3?). The only way to get it fixed before then is for the submitter or creator of it to remove it completely – as if it was an error and never should have been submitted. I had a medical billing company ding me in a similar way, but was able to prove to them it was their error – and they did remove the report.

  3. Don says:

    Regarding your #8, keep account balances as low as possible. There is some analysis that I think is missing in all this in terms of separating the good and not-so-good credit risks.

    For example, because of some excellent rewards programs on credit cards (2% cash back on one) I use that credit card to pay just about everything I can. It has a high credit limit, about 2 to 3 times the average balance which can be 5,000 to 8,000 a month.

    However, the critical missing element is that I pay off the balance 100% every month, and have done so on all credit cards for the past 20 years and there is no accounting for this “0 carryover” in credit scores.

    This ability and consistency to pay off balances every month has to be an indicator of higher credit worthiness, ability to handle credit, and therefore a higher credit score, than folks who always carry over a balance and pay monthly minimums or a bit more.

    Isn’t it?

    • EFX Finance Blog Editor, JF says:

      @Don – You’re right; having a greater available balance contributes for a better credit score, so keeping account balances low is a positive activity.

      Thanks for your comments, and hope to see you again on the blog soon.

      • Don says:

        You missed my point.

        My account balances at the end of a billing cycle are by design higher than average – which is what your credit scoring formula uses and hence gives me a lower score, and tells me to lower my balances to improve my score.

        What your scoring formula does not use is the fact that there is absolutely zero month to month carry over, as every months bill is paid in full prior to the due date, and zero interest is paid (which the credit card companies don’t like!)

        You don’t even look at this data as far as I can tell in doing credit scoring, and this data should be a strong indicator of a person’s ability to handle and pay off more credit in the future, and hence a higher credit score.

        • Richard Goldstein says:

          My name is Richard and I have have the same issue as you. I just posted a comment like you did about a minute ago and I am waiting a response. If you would like to discus this matter with me my email address is rich33181@gmail.com. Hopefully we can get some answers to our questions instead of getting brushed off by the Equifax Blog. How frustrating.

          • Philip says:

            They key is to pay off the balance before the monthly statement is made. This will show that you did use your card, but that you paid it off with out having a balance to pay at the end of the billing cycle. This is what will in crease your credit score. I found this out by playing around with it. I would use my card to get the cash back rewards. When I got the monthly statement I paid the amount in full. ZERO interest was charged and ZERO fees. However, that balance is shown on my credit report. My score did not move. So I repeated this again the next month and the same thing. no increase. I did make sure that in fact it was reported to all three BUREAUs and it was. So I decided to use the card but pay off with in days and make sure it had a zero balance by the end of the cycle to show zero on the monthly statement. BAM! my credit score has improved 5 or more points every month for the last 5 months by doing this. What does show on my report is HIGH BALANCE / CREDIT LIMIT with my credit limit in there, however under BALANCE AMOUNT it shows Zero! That is the key. That shows that you use your credit but that you pay it off before the billing cycle comes around. That is what shows a responsible borrower. I have not use my visa check cards for over 4 months I just use my credit card for everything to get the rewards and as soon as a transaction posts to my account I pay it! I even over pay because I know I will use it. Try that for the next month. Make sure that two days before the last day of the billing cycle the account is zero balance you will see a credit score increase on the BUREAU that your creditor reports to. I have capital one and they report to all three every month! Not all of them do that. I had to find out the long way by playing around with this. But this is what has made my credit score jump!

      • Bob M. says:

        Any chance home equity will be entered into calculation of credit scores?

        A fair % of consumers own their homes free & clear. They have substantial equity easily ‘monetized.’

        Will Equifax recognize this real equity?

  4. Richard Goldstein says:

    My name is Richard. I have 4 credit cards each with a credit line of 1000.00 for each one. I pay the whole balance off every month on each credit line. My question is that if I pay the whole balance off every month on all accounts it will show that I always have a zero balance and therefore my score does not go up on those credit card accounts I pay off every month. The only time I see my score go up is when I pay my car loan which is a 3 year car loan and I have a rooms to go account that I pay down every month at a set amount of 330.00 for 4 years so I pay no interest. If I pay more then the set amount of 330.00 a month it will mess up my free financing. My question is how do I raise my credit score with the 4 credit card accounts I pay the total amount due every month which I know the credit card companies do not like but I feel it is my right to pay the whole amount or any amount right down to the minimum amount. I do not think it is fair that my credit score does not go up just because I pay the total of what is due on my 4 credit card accounts. It seems to me if you pay off the total amount due you are punished by the banks issuing the credit account just because you pay the entire amount and the banks make no interest on your credit card account you pay off every month. I was also told by one of the banks that owns one of my credit accounts to not pay the total amount off every month if I want my score to go up on that account. I do not see the logic in not paying off the total amount just to raise my credit score. Any input or information on how to raise my score with the 4 credit card accounts I pay off every month would be most appreciated. The one thing I will not do just to raise my score is only partially pay off the balance on my credit card accounts. Are there any other ways of raising my credit score with these 4 credit card accounts that I pay off every month besides only paying a portion of the balance. Why should my credit score be affected in a negative way just because the banks do not want me to pay the full balance every month.

    • Ryan says:

      A good trick is to get a credit card where if you make a big purchase its finances it at 0% interest for a few months as long as you make monthly payments that way you can keep the balance and not get charged interest.
      You could also try leaving a small amount still on the credit card at the end of the month, figure out your interest and see how much you could leave on your card to pay lets say $1 in interest every month, yes its an extra $12 dollars at the end of the month, but you could save that much a year by having great credit.

  5. EFX Finance Blog editor, JF says:

    A credit score is a point-in-time assessment. You could make a payment and pull your score before your creditor reports the payment/new information and your credit file is updated. In this situation, your score would be driven off of the balance before you pay off your card, thus potentially reflecting a lower score.

    Credit scores are calculated based on a number of different factors and can vary for each consumer based on their financial situation. Because your credit report is updated every day, your bureau score is recalculated continuously. It could change every day as credit grantors, public records, and collection agencies report data. So your credit score from a month ago is probably not the same score today.

    Check out some other blogs for more information about how credit scores are calculated:
    http://blog.equifax.com/credit/credit-report-update-how-is-information-updated-on-my-credit-report/

  6. Don says:

    The point-in-time credit score assessment is understood. As your credit card balance increases with charges, and then is decreased with a payment, a different amount of credit balance vs approved credit line will be seen on different days during every month. And I understand that those with credit balances close to their limits, vs those with balances much lower than their limits, would have a poorer credit score.

    Between the time a credit card closes each month, and the due date of the payment, typically the card balance continues to grow with usage. When the payment is made on the due date, the then current balance is reduced by that payment amount (adjusted for interest paid if any). So people such as Richard (above) and me who pay in full each month will likely never show a zero balance owed at any one particular time.

    What’s missing completely from the credit score equation is the long term history of carry over balances from month to month as an indicator of credit worthiness. Look at two classes of credit card users: a) those who pay only the minimum each month when due because they simply do not have the money to pay the full balance and so carry over balances to the next month and pay interest on it; and b) those who do have the income to pay the balance in full each month and have zero carry over and zero interest paid. I’ll bet that if you could compare group a) vs group b) against their history of credit problems, missed or late payments, etc. you would find group b) to be a much more credit worthy group, and therefore should carry a higher credit score based on zero carry over balances – and simply being better money managers.

    Show us some research on this point, please.

    Or would the credit card companies frown on this, and use their influence on you to not do this as it might encourage others to make payments in full every month too, thus driving down their interest income while still paying us the 1% to 2% rewards cash back on all purchases?

    • Srdjan Gavrilovic says:

      Don,

      I am in your boat and have thought the exact same thing over the years. The only advice I can provide:
      a) if you need to increase your score prior to a major purchase (car or home), pay in full your balance prior to the statement ending date. Credit card companies report your last statement balance, so you can still spend the card for everything to ensure you get rewards, but give up the “float” between statement ending and payment due date to increase your score prior to a major purchase.
      b) keep opening cards (one per year or one every other year) until your combined limits get so high, that even with your full monthly spend, your % of revolving usage gets to be under 10% of available credit.
      You start getting “bonus points” when your % of usage is under 30 I believe, while you will get even more for keeping it under 10.

      I love the idea of credit card companies reporting who pays them in full each month, and credit scoring then rewarding those consumers with higher scores. I just don’t know if we will ever see this.

  7. April says:

    Does anyone know if you’ll take a hit to your credit score (a pretty good one I may add) for consolidating your credit card debt to eliminate making several payments every month?

  8. Pingback: Ready your FICO Score for Success | Fifty Plus Housing

  9. Carrie says:

    I am paying down debt (credit cards) and want to close the accounts, but I was told it is not good to close accounts all at the same time even if paid in full because it could have a negative effect on your credit score. Please advise if this is true or if it is ok to close these accounts to eliminate the debt off your credit and increase your credit score.

  10. Devontenno says:

    Why did my credit score drop almost 30 points in two weeks? With no alerts.

  11. woody says:

    I need to raise my score about 30 point what’s the best way to do this?

    I do have one card that has a balance on every month… I’m remodeling the house I own with no mortgage on it. And I’ve been using this card to buy materials but the limit on the card isn’t high enough to finish off the bigger projects of this remodel so I need to get a home equity line of credit/loan.

    Also why does Equifax say my Transunion score is about 100 points lower then Transunion says it is when I check with them directly.

    • EFX Moderator, KB says:

      That is a common question many people ask. You may want to check your reports to ensure that all of your personal information is accurate and the accounts and balances that show up on your credit report belong to you. Click this link to find out why those two numbers are different. I hope this helps, and good luck remodeling your home.

  12. CONCERNED CREDIT OWNER says:

    I understand that it takes a while for negative things to fall off, even after they have been paid off in full but how long does it really take? I am repairing some things but my score doesn’t seem to be moving at all. I see the same scores that I started with before I began paying off bad debt. I am not being impatient but it has been two months and no change. and for the cynics, I did not accumulate the bad debt due to lack of proper credit usage but rather unemployment, low paying jobs, etc. Now that I am in a better place and can repair the issues, it is taking forever. HELP!!!!

  13. Rob says:

    I filed bankruptcy in 2003. When should that be removed from my credit files?

  14. Cheryl says:

    In my divorce decree, 2009…my ex was awarded our rental property and in “good faith” was supposed to refi and take my name off the loan. Of course, he didn’t and refuses to. It is throwing my debt/income ratio way off and affecting my score.
    I’ve disputed it with the credit agencies, but it didn’t seem to matter.
    I even had the lender send him the re-fi paperwork. He won’t do it.
    Short of taking him to court and filing “comtempt of court charges” is there anything else I can do? He is in another state. Thanks!

    • EFX Moderator, KB says:

      I’m sorry, this sounds very frustrating. You might want to talk to a legal professional on how to handle this situation. Best of luck.

  15. Dee says:

    Hi,my name is Dee, I am trying to buy a home but I have a statement on my credit file that says I dispute the charges. I have been trying for 3 months to get the statement removed with no sucess,can anyone please tell me how I can get this statement removed. I have sent in written request to the creditor and to the 3 credit bureaus and still no luck.

  16. Chris says:

    Hi,
    I am trying to improve my credit, but I have several “Charged Off” accounts. Will it improve my credit by paying these off? After paying them off, will they be removed from the credit report?

    • EFX Moderator, KB says:

      Chris, good question. As a general rule it is always better to pay off debt, even if it is charged off or in collections. Click here for more information on how long late payments stay on your credit report. Best of luck.

  17. ken says:

    After my marriage of 20 years broke up, I was left with an impossibly low score. It was something in the neighborhood of 410. I started tackling some of the smallest debt, and did everything I could to pay them off. Some took less money all together. Others took more on a payment plan. I had gotten my score upto 495, in less than a years time.

    Somebody along the way suggested I get a low balance credit card, and use it. They also suggested that I only pay down half the balance. I was unable to find a traditional credit card company that would offer me any kind of credit. I ended up using a secured card.

    I have a $200.00 limit on the card. I use the card frequently, and use most of the entire available balance. I get paid bi-weekly, and pay off the card each payday. Depending on the billing cycle I often show a balance on the card when they report. As a result of having this credit, and a balance my score dropped immediatly by 55 points. Also some of my old debt has been updating information. As a result my score now after having paid some debt, and 5 months with the new credit card I have a score of 402. I am also continueing to pay off (slowly) some old debt.

    So my question is have I done something wrong that has hurt my score so badley? I have less old debt, and more credit. I thought this was good for me?

  18. James says:

    I recently tried to apply for a mortgage. My scores were below what was required, but the broker told me that opening a credit card account may boost 2 of the 3 scores that they go by. Possibly one to use for gas and pay off at the end of the month every month. It might take a few months, but it should bring it up enough to apply for a mortgage. I was close on the scores, but I read in some of these articles NOT to open credit accounts to build your score, because it could backfire…am I right to assume that he’s wrong? I also wanted to know about the # of inquiries…In 2012, my wife and I were car shopping and we were told by one of the companies that a dealer “shotgunned” our credit to try and get any company to respond. So the number of inquiries on my report is 20 in the last 2 years. Is there anything I can do about that number? According to my report they aren’t scheduled to fall of until 2 years after, but they’re still on there. That # affects the credit score, right?


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