Improve Credit Scores

WAYS TO IMPROVE CREDIT SCORES RIGHT NOW

There are some easy things you can do immediately to improve your score, not least of which is to begin to pay your bills on time, now and forevermore. You'd be surprised how rapidly things improve once you do this one thing.

Moreover, there are five additional steps you can take: (1) make sure positive information gets reported, (2) reestablish years of good credit where none existed before, (3) remove adverse information that you know to be false, (4) have credit limits raised, and (5) remove inaccurate adverse information.

Make Sure Positive Information Gets Reported

Got a college loan with a perfect payment history that isn't on one of the bureau reports? Perhaps you have an old credit card or installment loan that didn't make it on the reports. Items that are in good standing often go unreported, and it's up to you to make sure they get on your report. Since many lenders use credit scoring, the good stuff can boost your score, and you should make every effort to ensure that it is factored in.

If you have evidence of such accounts, contact the bureaus by mail and request that they add this information to your report. If you don't have evidence, simply contact the creditors, and they'll usually be more than happy to provide you with a letter (get a copy for yourself and have them send a copy directly to the bureaus). To be certain that the positive account gets reported, you should send a copy of the creditor's letter to each of the bureaus along with your letter. In addition, ask the creditor to begin reporting the account to the bureaus.

Bureaus aren't required by the FCRA to add positive information, but they usually will. Although there's no civil remedy under the FCRA if the bureau fails to do so, there may be a remedy using state UDAPs. Credit reporting agencies may also charge a fee to add positive information at the request of a consumer.³

Obtain Credit from Those Who Report

Did you know that many creditors don't report your accounts to the credit bureaus? In fact, credit unions are notorious for this. Few report to all bureaus, and most only report to one. If you're looking to obtain new credit, ask the lender which bureaus they report to before you apply and only apply to those that report to all three. This is especially important if you have filed bankruptcy and are attempting to build new credit or are new to the credit reporting system and need more positive entries.

Target Scoring Anomalies

Certain banks (e.g., Capital One) are notorious for failing to provide a credit limit when they furnish account information to the bureaus. This failure can potentially hurt a score, according to Watts:

All three credit bureaus organize consumer data differently, so there is no one-size-fits-all solution for FICO scores to the relatively minor problem of a tradeline missing a credit limit. Generally speaking when this situation comes up, the FICO score algorithm looks first to see if the credit report does list the high balance for that tradeline. When high balance is present, the algorithm substitutes it for the missing credit limit when calculating the tradeline's credit utilization rate. It's not a perfect solution, but we've found that it results in a more predictive score than simply ignoring the tradeline altogether. If the tradeline has neither credit limit nor high balance, then our algorithm will ignore the tradeline for certain calculations used in producing the FICO score.

There are many problems with FICO's approach. First, if someone hasn't reached his or her credit limit (or it hasn't been reported as such because the balance was paid off before the information was furnished to the bureaus), then the calculation is erroneous. Second, notice the last sentence: "If the tradeline has neither credit limit nor high balance, then our algorithm will ignore the tradeline for certain calculations." For certain calculations? That means that although FICO attempts to make adjustments for no high balance or credit limit present, it puts downward pressure on a score to some extent regardless. As such, any creditor who fails to report a true credit limit is causing a reduction in the customer's FICO score.

One way to counter this is to notify the bureaus as to what the limit is and have it added to the tradeline by simply requesting it in writing in accordance with Chapter 10.

Figure 6 shows where Capital One didn't report the limit to Equifax. When I contacted Capital One and asked it to report the limits, it refused. I asked for that refusal in writing, and Capital One provided it (Figure 7).

Although you can ask the bureaus to add the limit, they may not elect to do so. Of course any request should be accompanied by the bankcard statement that shows the credit limit. Any dispute should be crafted to include the statement "Do not delete the tradeline," since bureaus will often nuke the whole thing if they choose-which can hurt a score. If they do delete the tradeline, there may be a legal claim against them for doing so, since anything they remove at their discretion that's positive must balanced by negative removals.⁴

Watts claimed that the lack of a credit limit hurts a score very little. He said the scoring model will look to see if there's a credit limit, and, if not, then it will take the highest balance reported and use that as the cap. This can be very bad for someone with accounts that haven't come anywhere near the credit limit. Watts also says that if there's no reported high balance and no credit limit, the account is ignored for the "amounts owed" factor. Rather than trust the scoring model, have the credit limits added using credit bureau disputes.

Figure 6.

Figures 3 & 4.

Figure 7.

The Capital One accounts shown here are my own. I disputed the credit limit entries with the Big Three, with poor results. Experian responded to the disputed accounts as "updated" yet didn't change a thing. Trans Union responded with "new information below," a term it uses for updated/changed, yet also failed to list the limits. Equifax responded with, "The creditor has verified that the high credit/limit is being reported correctly."

Back when I was a young lieutenant in the army, an old commander used to have a saying when someone failed to do his job: "If you're not part of the solution, then you must be something else." The only reason Capital One could possibly have for reporting accounts in this way is self-serving and callous: intentionally hurting the FICO scores of its paying customers. Yet when I contacted a local FCRA attorney about the problem, he claimed that it's so minor an infraction that it's not worth pursuing. Although he may be correct, such a case would be a nice add-on when pursuing a credit reporting agency for other breaches. Furthermore, a good attorney with knowledge of scoring should be able to get a federal judge to order Capital One to stop this practice. There's not much money in this Samaritan type of work, however.

If you find yourself in this situation, do as I have done and dispute the item with the credit reporting agencies. If that doesn't work, then contact your congressman, the FTC, and the state attorney general in your state and in Virginia (the state in which Capital One does business).

It can be assumed that American Express and Discover cards without a limit (some of their cards have limits while others do not) are also bad for a credit report, as they don't report credit limits either.

I suggest you check your reports carefully to ensure that credit limits (and any original loan amounts from installment loans) are reported. Again, it's all the seemingly little things that add up!

3. FTC Official Staff Commentary § 611 item 3.
4. Anything that would skew a consumer's file negatively may be considered a violation of Unfair and Deceptive Acts and Practices (UDAP). There may also be FCRA breaches, depending on the situation surrounding the removal.