Don't Assume Credit Is Doomed: Steps to Boost Your Credit Score

Last Updated Jun 7, 2010 2:26 PM EDT

I often get questions from readers and sometimes I'll answer them here. If you have questions you'd like to ask, please email me by clicking on the "Contact Ray Martin" link on this page.

Hi Ray, I am a fan of yours I think you do an amazing job in your line of work. My question is if a person has weak credit and is planning on making his/her credit stronger, how could they do so? Should they apply for a credit card? (unsecured or secured) Or, should they wait to apply for more credit until they finish with their existing debt? The reason why I'm asking is because I went back to school but I work full-time. So I figure when I'm done with school, I will have nothing but my student loan left over to pay off. Do you have any advice? Oh and I would like to purchase a home in about a year.
Rene from CT
Hi Rene, Thanks for the kind comment and your great question. There are several things folks can do to improve or boost your credit score. The secret to a great credit score is to have a long history of making all payments on time at all times.

But what if you have a few late payments or other negative information on your credit report? Don't assume your credit score is doomed. There are steps you can take that can boost your credit score. Some of these steps can increase your score by 20 points or more in a single month. And best of all is that you don't need to hire some credit repair shop to do it.

Pay Recent Past-Dues: the first thing to do is to pay the past due payments on the accounts that recently fell a month or two behind. That's because the more recent the late payment, the more it will lower your score.

Request Good Faith Adjustment: After bringing past due accounts current, contact the creditors who report late payments on your credit report and ask them to make a good faith adjustment to remove the late payment information from your credit report files. No all creditors will do this but if you ask politely and remind them that you will continue to be a good customer, you may find a few that will work with you.

Pay Collections that Agree to Vanish: Pay off accounts where the collection agencies agree to remove all references to the accounts from the credit bureau files. Make this a requirement of your offer to pay off the account.

Spread Debt Evenly: Evenly spread your balances over your cards with the lowest interest rates and the highest credit limits. The objective is to have not more than 50 percent of the credit limit used on any one card. That's because having one credit account nearly maxed out can severely reduce your credit score. You can also request the creditors to increase your credit limits on your accounts which may help as well.

Report Credit Limits: Some of your credit accounts may not report the credit limit to the credit bureaus. This reduces your score because when that information is missing, the score counts the account as being maxed out. Ask the creditor to provide this information to the credit bureaus. If they refuse, transfer the account balance to another account that reports credit limits and ask to increase the credit limit.

Keep the Right Credit: Major bank credit cards, held for a long time, with good payment histories help boost your credit score. Also, don't close down your cards that have the longest history and the highest credit limits available because these help boost your score. Instead, close down those department store charge cards. Revolving department store cards have the lowest credit limits and when used will have a higher debt to limit ratio, which detracts from your score.

Limit New Credit Accounts: Many people open new department store credit accounts during holiday shopping seasons, lured by offers for an additional 10 percent off. Just be aware that opening these new credit accounts hurts your credit score two ways: it raises your debt usage and lowers your average credit account age. After you use the card to get the discounts, promptly pay these off and close them.

Chat boards and web sites are filled with tricks and gimmicks to improve your credit score. Most of these are simply just that: tricks and gimmicks.

One such is the practice called "piggybacking", which is where another person is paid a fee to agree to add you as an approved user on one of their credit accounts, preferably an account with a great history and lots of available credit. This allows their credit account and history to be added to your credit report which increases your score. In some cases the increase can be dramatic. This amounts to buying another person's good reputation and posing that it is your own. It is being dishonest to the creditors who in good faith offer you credit based on what they believe to be your credit history. While I am sympathetic to the folks who feel they have no other option but to resort to this, in my judgment this is simply wrong.
  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.

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