In an age of post-financial meltdown, slashed credit limits, and tight-fisted lenders, having strong credit is more important than ever. According to Experian, America’s largest credit bureau, the national average credit score sits at 693. However, Linda Call, vice president of the Richmond, Virginia-based mortgage brokerage firm, Berkley Mortgage, says that in today’s market, those even slightly below average could be in trouble. “With the economy still recovering, 650 is the new minimum score for getting a loan, but people really need at least a 700 to get something with decent rates,” Call says. “It’s very challenging right now for anyone with a low credit score.”
Here are six ways to give your credit score an extra boost.
#1 – Do a balancing act
In a tough economic climate, keeping your credit card balances under the limit isn’t enough. According to Scott Scredon, director of public relations for the Consumer Credit Counseling Service of Greater Atlanta, GA, simply maintaining a balance that’s close to your limit could weigh down your credit score. “If you carry a balance on your credit card, you need to make sure the difference between your credit limit and your current balance is 50 percent or less, so if your limit is $1,000, you need to keep your balance at $500 or less,” says Scredon. “Not using all of your credit is a signal to card companies that you’re managing your credit properly.” Scredon adds that keeping an even lower balance – 30 percent or less – may boost your score even more.
#2 – Don’t be late
If you see trouble on the financial horizon, nip it in the bud, says Scredon. “Making a late payment could affect your interest rate, not just on the credit card you’re paying late, but on all your credit cards,” he explains. “If you know you’re going to have trouble making payments, get in touch with your lender or credit card issuer and try to work something out. We are hearing more and more from our counselors that lenders and credit card companies are willing to look at alternatives for you.” Since even one late payment could lower your credit score – and stay on your credit report for six years – preventing disaster before it happens can protect your credit.
#3 – Diversify, diversify
“People don’t realize that 10 percent of your credit score is determined by what types of credit you use,” says Gail Cunningham, marketing director for the National Foundation for Credit Counseling. “That’s determined not only by how you manage revolving debt like Visa, MasterCard, and department store credit cards, but also how you handle fixed payments like your mortgage payments and car payments over time.” Instead of putting long-term purchases on credit cards, Cunningham recommends taking out short-term, one to two-year loans in order to build a diversified credit portfolio. In addition to receiving lower interest rates and more flexible payment terms, consumers who use loans over cards also build positive credit and may gain better credit terms in the future.
#4 – Prioritize your debt
Those who are already in the plastic pit can begin digging themselves out by creating a debt attack plan. Start by making a list of all of your credit debts, then pick out which is harming you the most. “If you have a card where you owe more than 30 percent of your credit limit, ‘power pay’ that one down first to keep your credit score intact,” recommends Cunningham. “After that, I tell people to tackle your smallest bill first while making minimum payments on everything else, and once you’ve paid it and have that sense of accomplishment, move on to the next one.” By focusing your financial resources on eliminating one problem debt at a time helps improve your chances of sticking with your debt attack plan.
#5 – Stay positive
Consumers in dire credit straits may be able to boost their score simply by showing credit bureaus what they’re doing right. “If the consumer has positive histories in things like rent and utilities, adding those histories can greatly help the credit score,” says Mark Guimond, executive director of the American Association of Debt Management Organizations. “There are companies designed to get positive information on your credit score and that can have a significant impact,” he says. Organizations like PRBC in Annapolis, Maryland can help consumers add day care, insurance, rent, and cable credit histories to their score and set up online bill pay services to make sure those debts keep getting paid on time.
#6 – Research the bargains
Credit inquiries can be a major obstacle that prevents consumers from getting the lowest interest rate on a new loan. While inquiries on your credit report can lower your score as much as five points, according to Lendingtree.com, consumers have a 30-day window before choosing their loan when all mortgage and auto loan inquiries only count once. An easy way to avoid racking up inquiries on your account, says Guimond, is to comparison shop as much as possible before filling out a formal application. “Don’t just apply to ten different lenders, talk to lenders, talk to customer service people, get as much information as possible,” he says. “It pays to do the research.”
Checking your credit score and report on a regular basis allows you to track your progress, verify your card balances are decreasing, and offer momentum to stay the course.