10 strategies to send your credit score soaring
Make good credit even better
By Dave Peters
At a lecture I gave, I met a woman who complained that her credit scores, once more than 800, had dipped down to the 770 area and asked what she could do to get them back up to the magical 800 mark.
What I told her is that having credit scores more than 800 is only a point of pride. The key is having scores of at least 760, because scores at that level hold up to multiple credit inquiries and additions of new loans.
The average person needs credit scores of at least 740 from all three major credit bureaus.
Auto lenders may require auto scores of 740 and higher if you apply for extremely low-rate financing offers that come along from time to time. Examples include the 0 percent financing and 3.99 percent financing offers that car companies have made in recent months. Credit scores of 740-plus are the highest such programs require. This is what is meant in the ads for these rates, which often state “for highly qualified buyers.”
Mortgage lenders also have different top tiers of credit for the best rate, but they are almost always based on your middle credit score. Lenders’ top-tier ranges usually are 680 to 699, 700 to 719, or 720-plus — and rarely go higher.
Since credit scores can change from moment to moment, you need to be aware of what can cause great scores to drop, beyond the usual suspects — late payments, collection accounts and other bad credit items. Logic does not always work when it comes to credit scores. Sometimes credit behaves according to logic, sometimes it behaves in the opposite manner that logic would suggest.
So, how do you raise excellent scores?
Here are 10 ways you might not know about. (And even if your credit scores are still on the lower end, read on — these strategies can help raise your scores, too.)
- Pay your debts early, not just on time. If you pay your credit cards, installment loans and mortgage loans as much as three weeks early for a few months’ time, your scores will rise.
- Pay more than the minimum amounts. If you can, regularly pay at least $25 per month over the minimum required payment amount.
- Use every credit card you own once every five months, even if it’s only for gas, groceries or clothing. This moves the “date of last activity” up in time, improving your scores. It also will prevent credit card companies from closing your accounts for lack of use. The message “closed by credit grantor” is not good for your credit.
- Pay credit card balances below 73 percent of the credit limit for one score boost. Pay below 48 percent of the limit for another score increase. If you must carry a balance, the ideal balance is 30 percent to 48 percent of the credit limit.
- Never close your oldest credit card. Don’t close credit cards at all if you carry large balances. Always keep at least two major credit cards open with the highest limits you can get, but avoid the temptation to spend. You can keep all major cards open and not harm your scores.
- Adding 25 percent or more to a credit card balance will drop scores. I have found that even charging $5 on a card with no balance dropped the credit scores six to 10 points.
- Auto loans with payment periods of 24 to 48 months are best for scores. Payment periods of more than 48 months harm scores. Auto leases seem to be worse for scores than loans.
- Frequent refinancing of home loans harms scores.
- A home equity line of credit acts just like a big credit card when it comes to credit scores. Keep the balance below 73 percent and below 48 percent of the credit limit. A “closed-end,” or fixed-rate, second mortgage does not harm scores like a home equity line of credit can.
- If you have ever used a finance company, try to get the account removed from your credit even if it was paid perfectly — unless it is your oldest account. This type of account lowers credit scores.
Here’s wishing you 800-plus credit scores.