How to score points in the credit game

Credit rating can seem like a frustrating game – downfalls can be sudden and quick, and escalations are a slow task.

In reality, “all rating models and lenders aim to do the same thing, which is to minimize risk and things like missing payments, high balances,” says Jeff Richardson, senior vice president of marketing and communications for VantageScore, one of the two leading credit scoring companies.

The traditional advice to pay on time and keep balances low will eventually result in decent credit. But you can speed it up.

CHECK YOUR CREDIT

To get started, take a look at your credit reports using AnnualCreditReport.com. Check that the information is correct, especially for addresses you don’t recognize, as this may suggest fraudulent accounts or same-name confusion. Also, make sure the account numbers and activity match your expectations. You can dispute errors and the change in score after a successful dispute could be significant.

AVOID COST MISTAKES

Next, avoid doing things that go against building your credit. These include:

— Paying late — the impact is significant and lasting.

— Closing credit cards — this may reduce your overall credit limit and the length of your credit history.

– Applying for a lot of credit at once – credit checks can eat into your score.

– Letting card balances stay above 30% of the limit – credit usage, or how much of your limit you use, has a major impact on scores.

While paying off balances is a good idea, it’s not always realistic.

BE STRATEGIC

If you’re running down your credit card balances, be strategic. The number of cards with balances influences credit scores, says credit expert John Ulzheimer. The “snowball method” of debt repayment focuses on eliminating your smaller balances first.

Likewise, if you only have one credit card, Ulzheimer says adding a card or two could be helpful. Assuming your spending stays about the same, the new card credit limits will reduce your overall credit usage. And if your card is lost or stolen, you still have access to credit.

You can move credit card debt to a personal loan or even a 401(k) loan, which essentially removes it from credit utilization calculations. But if you haven’t addressed the circumstances that led to the high balances, a new loan could be one more step into debt.

ADD POSITIVE INFORMATION

Credit slippages can hurt, but adding positive information to your credit reports can help reverse the damage. There are at least five ways to get on the credit radar or fix a damaged score.

AUTHORIZED USER: If you have a friend or relative with a long credit history, high score, and relatively high credit limits, ask them if they’re willing to add you as an authorized user. Authorized user status helps add good data to your credit history, such as on-time payments, credit age, and low credit usage. Authorized user status is strongest for people who don’t have a credit history or have a light credit history. Its impact is felt as soon as it is reported to the credit bureaus.

IN-STORE CREDIT CARD: Retail credit cards generally offer more flexibility in approving applications, says Max Axler, deputy director of credit at Synchrony, a consumer credit company that issues credit cards in various sectors. He says Synchrony uses VantageScore 4.0 as part of its decision-making and may also consider other factors, such as banking activity, customer history and cell phone payments. Store credit cards tend to carry high interest rates, so try to pay in full each month or complete a 0% promotional plan long before it ends.

SECURE CREDIT CARDS: As the name suggests, secured credit cards are secured by a deposit with the issuing bank. Your credit limit is usually equal to your deposit. As with any other credit card, it’s best to keep your credit utilization well below 30%.

CREDIT-BUILDER LOANS: These disrupt traditional loans. Instead of getting a lump sum at the start and then paying it back, you make payments and get the lump sum at the end of the loan term.

CO-SIGNED CREDIT: Some lenders will approve you for a loan if someone with stronger credit co-signs the loan. This can help with credit even if the primary borrower was never expected to pay (as in the case of parents buying a car for their child). However, both signatories are fully responsible for the loan, and the loan may limit the borrowing power of the co-signer. If the primary borrower does not pay or pays late, the co-signer’s credit is at stake.

————————————————————————————

This article was provided to The Associated Press by personal finance website NerdWallet. Bev O’Shea is a writer at NerdWallet. Email: boshea@nerdwallet.com. Twitter: @BeverlyOShea.

RELATED LINKS:

NerdWallet: How to Boost Credit Fast https://bit.ly/nerdwallet-raise-credit-score-fast

AnnualCreditReport.com: Free credit report site https://www.annualcreditreport.com/index.action

Comments are closed.