There are a lot of myths out there about the best ways to
improve your credit score, and some people just plain don’t know where to
begin. These days, lenders pretty much
demand a 740 credit score for the best mortgage interest rates. Fannie Mae, the giant mortgage-buying agency,
has lifted its minimum score requirement from 580 to 620. People with top scores are still
getting credit card and balance transfer offers. If their issuers raise their
rates or lower their limits, they can move their business elsewhere. People
with weaker scores, by contrast, are finding their access to credit slowly
strangled. Issuers can push them around, and credit seekers have little
recourse. The good news is that it’s possible to boost your numbers if you have
a handle on your finances and you know how credit scores work. After all, the
median credit score is 720 on the 300-to-850 FICO scale, meaning half the adult
U.S. population has a higher score and half has a lower score.
Here are 9 ways to establish credit if
you don’t currently have any credit history, or boost a low credit score:
1. Order a copy of your credit report. Review
it carefully. Correct any errors.
2. Pay your bills on time.
3. Don’t open a lot of new accounts over a
short time period, especially if you have a short credit history.
4. Shop for credit over a short period of
time. FICO scores distinguish between searching for credit for a specific loan
(rate shopping) and searching for lots of different credit lines.
5. If you have a questionable credit history,
open a few new credit accounts, use them responsibly, and pay them off on time.
6. Don’t open credit accounts you don’t
intend to use.
7. A credit card or installment loan can
raise your score as long as you don’t have too high a balance and you pay it off
in a timely manner.
8. Keep your balance low in relation to your
available credit. If your credit limit is $10,000, keeping your balance below
$4,500 (45%) will improve your score.
9. Pay off credit card debt rather than move
it around to lower rate cards. Moving balances to other credit cards and
closing out the old account can hurt your score because it can change the ratio
of your total credit card balances to your total available credit lines.
