1. Pay down your credit cards. Paying off your installment loans (mortgage, auto, student, etc) can help your scores, but typically not as dramatically as paying down — or paying off — revolving accounts such as credit cards. Lenders like to see a big gap between the amount of credit you’re using and your available credit limits. Getting your balances below 30% of the credit limit on each card can really help. While most debt gurus recommend paying off the highest-rate card first, a better strategy here is to pay down the cards that are closet to their limits.
2. Use your cards lightly. Racking up big balances can hurt your scores, regardless of whether you pay your bills in full each month.
What‘s typically reported to the credit bureaus, and thus calculated into your scores, are the balances reported on your last statement. (That doesn’t mean paying off your balances each month isn’t financially smart — it is — just that your credit scores don’t care.)
You typically can increase your scores by limiting your charges to 30% or less of a card’s limit. If you’re having trouble keeping track, consider using a register to track your spending.
3. Check your limits. Your scores might be artificially depressed if your lender is showing a lower limit than you’ve actually got. Most credit-card issuers will quickly update this information if you ask.
If your issuer makes it a policy not to report consumers’ limits, however — as is the usual case with American Express cards – the bureaus typically use your highest balance as a proxy for your credit limit. You may see the problem here: If you consistently charge he same amount each month — say $2,000 to $2,500 — it may look to the credit scoring formula like you’re regularly maxing out that card.
You could go on a wild spending spree to raise the limit, but a more sober solution would simply be to pay your balance down on or before your statement period closes. Check your last statement to see which day of the month that typically is, then go to the issuer’s Web site about a week in advance of closing and pay off what you owe. It won’t raise your reported limit, but it will widen the gap between that limit and your closing balance, which should boost your scores.
4. Dust off an old card. The older your credit history, the better. But if you stop using your oldest cards, the issuers may stop updating those accounts at the credit bureaus. The accounts will still appear, but they won’t be given as much weight in the credit scoring formula as your active accounts. So, use your oldest cards every few months to charge a small amount, paying it off in full when the statement arrives.
It takes time to Improve Credit Scores
If you have negative information on your credit report, such as late payments, a public record item (e.g., bankruptcy) or too many inquiries, you may want to pay your bills and wait. Time is your ally in improving your credit scores. There is no quick fix for bad credit scores.
(Courtesy of Diane Rifai, Hometrust Mortgage)