1. PAY PAST DUE ACCOUNTS.
Of course this sounds obvious, but understand that credit scoring software severely penalizes you for having accounts with a past due balance.
2. TRY TO "GET RID" OF YOUR LATE PAYMENTS.
Contact all creditors that have reported late payments on your credit and request a good faith adjustment that actually removes the record of late payments reported on your account. Be persistent, if they refuse to remove the late payments at first, remind them that you have been a good customer that would deeply appreciate their help.
3. REQUEST TO HAVE YOUR CREDIT LIMITS INCREASED.
Contrary to popular belief, having low credit limits on a credit card can actually hurt your credit score. Having low available credit limits affects your "actual debt to available credit ratio". For example, if you owe a total card debt of $10,000 and your total credit available is $20,000, you are only using 50% of your total credit available. But if you have card debt of $10,000 and your total credit available is $15,000, you change your ratio to 66% of your available credit being used. The lower the percentage of debt to available credit the better, as it shows you are able to handle having credit available without running it up to the max.
4. BECOME AN "AUTHORIZED USER".
If you have a short and limited credit history, you can ask someone to add you to their credit card account as a joint account holder or an authorized user. When added, the primary account holder's credit card will appear on your credit report. Credit scoring software will treat the added account as though it is your account and you will benefit from the low balance and the long payment history for that account. It is important to remember that being an authorized user is helpful for your credit score only if (1) the person is carrying debt below 10% of the credit limit on that card and (2) has had good payment history on the card for seven years or longer...and the longer the history, the better. Being an authorized user is potentially detrimental to your credit score if the person giving you the card either maxes out the credit or pays late, since this would report on your credit report too.
5. DO NOT CLOSE YOUR OLD CREDIT CARDS, KEEP THEM ACTIVE.
15% of your credit score is determined by the age of the credit file. Therefore, even if your old credit cards have horrible interest rates, closing those cards will decrease the average length of time you've had credit...as well as increase your "debt to available credit ratio" as discussed in point 3. Use the old card at least once every six months to avoid the account rating to change to "Inactive". Keeping the card active is as simple as pumping gas or purchasing groceries every few months, then paying the balance down. An inactive account is ignored by Fair Isaac's credit scoring software, so you will not get the benefit of the positive payment history and low balance that card may have had in the past.
I have seen scores increasing up to 100 Points by taking these steps. For you loan officers out there, just think by giving some pointers to your clients if there credit is not that great, how may more loans could you get through if the score went up by 100 points?
Thanks for reading.
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