What to do (and NOT to do) When Trying to Fix Your Credit Score

April 22, 2008

Today’s Wall Street Journal had an interesting article with tips on how to improve your credit score as well as things you shouldn’t do. Most of this is common sense except for one which I’ll highlight when we get to it. Their dos and don’ts:

Dos:

Order your credit report and search for errors.

Pay your bills on time. I’m pretty sure this is the reason my wife and I have NEVER had any problems getting credit. Even when we were in college, we ALWAYS paid our bills on time. This should be your number one priority! The article states that payment history accounts for 35% of your credit score.

Be patient. These things take time. Eventually bad things will fall off your credit report in about seven years.

Maintain a healthy mix of credit. According to the article, a blend of revolving credit (like credit cards) and installment loans (like a car loan) will boost your score.

Consider applying for your own credit cards (or becoming a joint account holder). The new credit scores will ignore “authorized users.” In other words, get your own credit.

Don’ts:

Don’t max out your available credit. This seems like a no-brainer to me.

Don’t dawdle when shopping for the best rate on a loan. From the article:

“Consumers shopping for a loan can protect their credit score by moving fast. The FICO system, aiming to distinguish between a search for lots of new credit and comparison shopping for a single loan, ignores all mortgage and auto-loan inquiries made in the 30 days before scoring. If you find a loan within that period, the inquiries won’t drag down your score while you’re rate shopping.”

This one was a surprise to me. It makes sense but I had never really thought about it before.

Don’t open a bunch of credit-card account you don’t need. Opening new accounts can drop your FICO score a couple of points. It’s not clear how long it takes before you get those points back.

Don’t close old credit-card accounts. This one doesn’t make sense to me. It seems like closing old accounts would help your score. However, according to the article, closing old accounts lowers your available credit, which can damage your score.

Finally, one other point I would like to mention is…

Think twice before you hire a credit-repair service. They can cost you several hundred dollars and may not help your situation. Instead, focus on the points above and be patient.

If you’re curious about your score but don’t want to spend the $15 to get it, you can try using the Credit Score Calculator. I have no idea how accurate it is but it will at least give you some idea as to what goes into calculating your score.

Related:

How to Build Credit Without a Credit Card

7 responses to What to do (and NOT to do) When Trying to Fix Your Credit Score

  1. Closing long-standing (old) accounts shortens your average length of account history, thereby lowering your score. Longer histories are good.

  2. I tried the Bankrate.com calculator. It gave me a 50-point range that did cover my actual score. However, a 50-point range is pretty wide and may not be helpful to someone near the cusp of “good” credit shopping for a loan. Moreover, the calculator asked a lot of questions that I would not have known had I not recently pulled a credit report. So it’s a decent but imperfect fix.

  3. Controversial one: if you’re trying to fix your credit score, it might not be a good idea to pay a collection that’s more than a couple years old.

    When payment is made on a collection account, collection agencies update credit bureaus to reflect the account status as “Paid Collection”. When this happens; the date of last activity becomes more recent. Since the guideline for credit scoring software is the date of last activity, recent payment on a collection account damages the credit score more severely.

  4. When doing the CoPF, I got a submission from someone (paid blogger) praising the merits of getting credit through piggybacking. Not only is it unethical and legally touchy…it’s also no longer possible unless you become a full joint account holder. Even worse than paying for other forms of credit counseling.

  5. I can confirm the accuracy of the FICO score calculator. I just got my score yesterday and my actual score was in the middle of the range the calculator gave me. I knew all of the questions without referencing my credit report… I guess it just depends on how much you like looking at all your accounts.

  6. Great article. A couple of tidbits and/or updates. First off, the FICO ’08 model was changed in the later stages of development to include authorized users [a switch from what they stated at first]. You can see more about this at http://www.videocreditscore.com/fico-08-update/

    I helped create the FICO Score Estimator at myFICO years ago. It’s a nice tool, but as users recommend, it’s a nice guide. You still need to see your actual scores.

  7. i am trying to help my mother improve her credit score from 611 to 620. and i don’t know how to do that can you help. she is trying to buy her first house and needs to raise her score pretty quick.

    thanks sherry mcadams 256-955-0278