credit & debt

Fast Ways to Improve Your Credit Score

See improvement quickly by following these steps.

What’s the fastest way to boost my credit score?

For most people, the fastest way to improve your credit score is to pay down your credit-card balances.

About one-third of your FICO score (the score most lenders use) is based on your credit-utilization ratio, which is the total of your credit-card balances divided by the total of your credit-card limits. It’s how much you’ve charged that counts -- regardless of whether you pay your balance in full each month. A good target is to use 20% or less of your available credit; a lower percentage is even better.

“One of the common complaints we hear from consumers is they feel their scores are inappropriately low -- in the 600s -- even though they have never been reported late on any credit account,” says Craig Watts, of FICO. “Such people almost always have high balances -- and commensurately high utilization rates -- on several credit cards, and that lowers their scores.”

An example at FICO’s Score Simulator (at www.myfico.com) shows how a hypothetical customer with a FICO score of 707 could raise his score to as high as 777 by reducing his balances on all revolving accounts by 90% to 100% over 24 months. This example takes into account the benefits of keeping accounts open longer, but paying down balances faster could improve your score almost as much. “How fast a lower balance can be reflected in one’s score really depends on the lender,” says Watts. Many lenders send data updates to the credit bureaus once a month. “Depending on where your account payment falls in your lender’s data-reporting cycle, your new balance could show up on your credit report within several days -- or it can take several weeks to appear.”

You can also improve your utilization ratio by increasing your available credit: “If you have never missed a payment and are a good customer, consider asking your creditors to increase your credit limit on the cards you use,” says Maxine Sweet, of credit bureau Experian. “But beware of the temptation to charge more just because you can.”

Closing unused accounts, on the other hand, could hurt your utilization ratio because you will be lowering your available credit. If your card company starts to charge an annual fee -- which many are doing now -- then it may still be worthwhile to close the account and take a temporary hit. Just don’t open or close accounts or make dramatic changes in the way you use credit within three to six months of applying for a mortgage, auto or other loan whose terms are based on your risk, says Sweet.

Correcting any mistakes in your credit report can also improve your score quickly, especially if you report the errors to the credit bureau online. Disputes must be processed within 30 days, but they are usually settled faster. You can get your credit report free from each of the three credit bureaus once every 12 months at AnnualCreditReport.com. And you can get your credit score for $7.95 to $9.95 when you order your free credit report (these are not FICO scores, but they’ll show you where you stand). Or you can get your FICO score and a TransUnion or Equifax credit report for $15.95 each at www.myfico.com.

And don’t forget the best way to maintain a good credit score: Pay your bills on time. Missed payments will become less significant over time, but will count as a negative for the full seven years they remain in your credit history, says Sweet. Experian’s Credit Education site has a lot of helpful information about credit reports and scores.

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