Raise Your Credit Score 100 Points in 45 Days
by Edward Jamison

Past Dues Destroy a Credit Score
If you look on your delinquent accounts showing on your credit report you will see a column called “PAST DUE.” If you see an amount in this column I suggest paying the creditor the amount that shows. Credit scoring software penalizes you for having accounts with an amount in the past due column.

Paying a Charge-off or Lien Won’t Help
Paying a charge-off or lien won’t help or hurt unless it occurred within the past 24 months. Charge offs and Liens do severely effect the credit score, but after the charge off or lien is more than two years old paying it will not effect the score dramatically. If you have limited funds available I suggest using it to pay past due balances first, then pay collection agencies that agree to delete if you pay them.

Call All of Your Creditors
Call all of your creditors that show late payments on your report and ask them if they will give you a good faith adjustment and remove the late payments on your account. Be persistent if they refuse and remind them that you have been a good customer and would deeply appreciate their help. If they still refuse then call back and try with someone else. Persistence and Politeness pays off in this scenario. If you are rude they will definitely not be very helpful.

Make Sure Credit Limit Is Being Reported
Make sure that the credit limit is being reported on the bureau report. No limit being reported gets scored as though current balance is maxed out. So if someone has a $5,000 balance on a credit card and the credit limit doesn’t get reported, the scoring software will score the account as having a credit limit of $5000. If you know that you have a $10,000 limit on your credit card, make sure that the limit shows on the credit report, otherwise you will get scored as though you are maxed on that card. The credit scoring software likes to see your credit card balances are as close to zero as possible, but if that is impossible for you to do then follow these guidelines to make sure you are maximizing your score as much as possible under the circumstances.

There are certain levels that the scoring software will penalize you even more if you go beyond them with your credit card balances. Being over 70% of your limit on any card is the worst thing you can do in this section of what makes your score higher and lower. The next threshold amount you want to get under is 50% and then 30%, but as close to zero as possible. Remember that it is also important to know that your score will be higher if you evenly spread your credit card balances among all of your credit cards rather than have the entire balance on one credit card. So if you owe 50% of your credit limit in debt and you have three credit cards with a $3000, $5000 and $10,000 limit, I suggest having a $1500 balance on the first card, $2500 on the second and $5000 on the third rather than carry the entire $9000 on the one card with a $10,000 limit. This will maximize your score to do it this way.

Do Not Close Credit Cards
Do not close credit cards except in certain circumstances. If you have too many department store cards, I would close the newest ones if you have more than six credit cards, otherwise do not close any at all. Closing a credit card can hurt you because it will increase your debt ratio due to you having less credit available after closing the card but still having the same balance owed total. When you owe $10,000 in credit card debt and have limits totaling $20,000 you are at 50% of your total credit, but if you close a $5,000 card you will only have $15,000 total in credit card limits and now owe 66% of your limit. Never close a credit card unless it was opened within the past two years and you have over six credit cards. The magic number of credit cards you want to have to maximize your score is 3 to 5, but having more won’t significantly affect your score.

What to Do If You Have Limited Credit History
If you have a limited credit history you can ask someone to add you on their account as a joint account holder or an authorized user in order to have that person’s credit card show on your report. The credit scoring software will treat it as though it is your account and you will benefit from the low balance and the long history with that creditor. Remember though, this is only a good idea if the person is carrying debt below 10% of the limit and has had the card for seven years or longer. The longer the better. This is never a good idea if the person has a high balance on the card and has had it less than five years. In that case it would bring your score down as discussed pertaining to keeping things separate from your spouse.

Credit Score Is Determined by Age of Credit File
15% of the credit score is determined by the age of the credit file. Fair, Isaac’s credit scoring software assumes people who have had credit for a long time are less risky. That is why it is better to keep old credit cards, even if they have horrible interest rates, because closing those cards will decrease the average length of time you had credit. But make sure to use the card at least once every six months to avoid the account being rated as “Inactive.” When you don’t use a credit card for six months it gets updated on your credit report as being inactive. An inactive account is ignored by credit scoring software and you won’t get the benefit of the positive payment history and low balance that card may have. I suggest using every credit card you have at least once every six months to avoid this. Get gas once every six months on each credit card and wait for the bill to come in and then pay it off. It will assure that the account remains active and is used when determining your score. The one thing all scores over 800 have in common is a credit card that is twenty years or older. Hold onto those old cards; trust me!

Paying a Collection Account Can Actually Reduce Your Credit Score
Here’s why: The credit scoring software looks at the date of last activity on the credit report to determine what effect it will have on the credit score. Collection agencies will update your credit report to say “Paid Collection” whenever you pay a collection. This will in turn make the date of last activity current and the credit scoring software sees it as recent collection activity and lowers your score as a result. This is a flaw in the scoring software that is unfair but it is something you have to work around when trying to maximize your score. The best way to handle this problem is to contact the collection agency and tell them that you are willing to pay but you want a letter from them stating that they will delete the account if you pay it. Some collection agencies will do this, some will not, but getting the account completely deleted will increase your score and is definitely worth the effort.

The Cost of Bad Credit When Financing a Home
The cost of bad credit when financing a home can be substantial since it you may have to pay a higher interest rate. Based on a 30-year fixed rate with a loan principal amount of $150,000, the difference between a FICO score of 720-850 and 500-559 could mean an increase of over 3% in your interest rate. With the lower (worse) FICO score, you could pay nearly $250,000 more in interest over the life of the loan.

Bad Credit Affects Credit Cards, Too
Most of the time you cannot even get an unsecured credit card with bad credit. If you do, the rates are very high and you usually have to pay high annual fees and other charges. The limits are typically low and the credit card issuer often asks for a cash deposit.

Edward Jamison is an attorney with the Jamison Law Group and a member of the National Advisory Councils for GoGetEscrow.com, GoGetLoan.com, GoGetNotary.com and GoGetRealEstate.com.