In an age of slashed credit limits, tighter credit-card restrictions, and anxious lenders, having strong credit is more important than ever. The average credit score is 692, according to credit-scoring agency Experian, but in today's market, those even slightly below average could be in trouble. "With the economy so down, 620 is the minimum for getting a loan, but people really need credit score around 700, preferably 720, to get something with decent rates," says Linda Call, vice president of Berkeley Mortgage in Richmond, Virginia. "It's very scary right now for anyone with a low credit score." Here are eight ways to give your credit score an extra boost.
1. Keep the Balances Balanced
In a tough economic climate, keeping your credit balance under the limit -- but close to the limit -- could hurt your score, says Scott Scredon of the Consumer Credit Counseling Service of Greater Atlanta. "If you carry a balance on your credit card, you need to make sure the difference between your credit limit and your balance is 50 percent or less," he says. "So if your limit is $1,000, you need to keep your balance at $500 or less. Not using all of your credit is a signal to card companies that you're managing your credit properly."
And keeping an even lower balance -- 30 percent or less -- will boost your score even more, Scredon says. Should your balance go over the 50 percent mark on one card, Scredon recommends focusing any available financial resources on cutting the balance down, even if it means sacrificing a few daily luxuries until the credit's in check.
2. Eliminate the Mistakes
One of the fastest ways to lift your score is to make sure it's actually yours. An estimated 8.3 million Americans are victims of identity theft each year, according to a 2005 study by the Federal Trade Commission. Of those victims, 1.8 million have had new credit cards, loans, or financial accounts opened in their name without their knowledge.
An easy way to prevent paying off debts you didn't incur is to keep tabs on your credit score.
3. Diversify Your Credit
"People don't realize that 10 percent of your credit score is determined by what types of credit you use," says Gail Cunningham, marketing director of the National Foundation for Credit Counseling. "That's determined not only by how you manage revolving debt like Visa, MasterCard, and store credit cards, but also how you handle fixed payments, like your car payments or your mortgage payments, over time."
Instead of putting longterm purchases on cards, Cunningham recommends taking out short-term one- to two-year loans, to build a diversified credit portfolio. In addition to receiving lower interest rates and more flexible payment terms, consumers who use loans over cards also build positive credit and gain better credit terms in the future.
4. In With the Old, Out With the New
Another 15 percent of your credit score is determined by how long you've been managing credit. If you can manage your cards wisely, paying on time and keeping balances lower than your limits, you can improve your credit score by getting plastic early. It's up to you to figure out when the time is right.
"It's to your advantage to get a credit card as early as possible and start building credit early," says Call, "but you have to do that when you're ready. People who start building credit in their early 20s will have a significant advantage when it comes time to apply for a home mortgage." Though college students are statistically poor at managing plastic -- the average college student graduates with nearly $2,200 in credit card debt, according to Nellie Mae -- learning the basics of credit at a young age can benefit in the long run.
5. Add Some Positives
Consumers in dire credit straits may be able to boost their scores simply by showing credit scoring services what they're doing right. "If the consumer has positive histories in things like rent and utilities, adding those histories can greatly help the credit score," says Mark Guimond, executive director of the American Association of Debt Management Organizations.
"There are companies designed to get positive information on your credit score and that can have a significant impact," he says. Organizations like PRBC in Annapolis, Maryland, can help consumers add day care, insurance, rent, and cable credit histories to their score, and set up online bill pay services to make sure those debts keep getting paid on time.
6. Flex Your Negotiation Muscle
If you see trouble on the horizon, nip it in the bud. "Making a late payment could affect your interest rate -- not just on the card you're paying late on, but on all your credit cards," says Scredon. "If you know you're going to have trouble making payments, get in touch with your lender and have a discussion about it. We are hearing more and more from our counselors that lenders are willing to look at whether you can put together a different payment plan." Since even one late payment could lower your credit score, preventing disaster before it happens can protect your credit for years to come.
7. Prioritize the Debt
Those who are already in the plastic trap can begin digging out by creating a debt attack plan. Start by making a list of all of your credit debts. Then pick out which is harming you the most.
"If you have a card where you owe more than 30 percent of your credit limit, pay that one down first, to keep your credit score intact," recommends Cunningham. "After that, I tell people to pay off their largest debts first, unless it's just too daunting. If so, tackle your smallest bill first while making minimum payments on everything else, and once you've paid it and have that sense of accomplishment, move on to the next one."
By focusing your financial resources on eliminating one problem debt at a time, Cunningham says consumers can keep long term out-of-control debt from hurting their credit score.
8. Research the Bargains
Credit inquiries prevent consumers from comparing loan rates and terms. While inquiries on your credit report can lower your score -- as much as five points, according to Lendingtree.com -- consumers have a 30-day window before choosing their loan, when all mortgage and auto-loan inquiries only count once.
An easy way to avoid racking up inquiries on your account, says Guimond, is to comparison-shop before filling out an application. "Don't just apply to ten different lenders -- talk to lenders, talk to customer-service people, get as much information as possible," he says. "It pays to do the research."
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