There are some easy things you can do immediately to improve your credit rating, 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.
Of course, having bad credit is very detrimental to a credit score, so if this is your situation, begin by starting an effective credit repair program to clean up your credit report. Moreover, there are five additional steps you can take for immediate results: make sure positive information gets reported; remove innaccurate bad credit information; have credit limits raised; request Rapid Rescoring; and reestablish credit.
1) 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.
2) Remove Inaccurate Bad Credit Information
One of the fastest ways to improve a score is to remove any inaccurate bad credit information, including late payments and public records. There are many ways in which inaccurate data can end up on your report, including a mistake by a furnisher or a credit bureau database glitch. Identity theft may even be the culprit if someone has stolen your SSN and obtained new credit in your name. Erroneous bad credit information can come in many forms, such as duplicate accounts, the reporting of obsolete information, and entries that are simply not yours. Detailed information on how to remove inaccurate adverse information is covered in Chapter 9.
3) Have Credit Limits Raised
Contact your creditors and ask them to raise the limits on your accounts as much as possible. Although they'll perform a credit check, such inquiries don't affect a credit score. Account limits can usually be raised every six months, up to a cap determined by the issuing bank.
Most standard cards have a cap of $5,000, while platinum cards are often capped at $25,000. Banks are more likely to raise credit limits for those with good credit, of course, and for those who report an increase in income. Incidentally, they don't verify increases in income for existing customers.
4) Request Rapid Rescoring
In the event that you discover something on a report is erroneous when you're in the process of seeking loan approval, there's a quick remedy, provided you can prove the information is invalid.
To have rapid rescoring performed,
- you have to be a prospective customer of a lender or mortgage broker,
- the lender must be a customer of a reseller (one who partners with a credit reporting agency to provide credit reports), and
- the lender must request the reseller's help on your behalf.
Since very few lenders use resellers, this is difficult. Further, a conflict of interest exists, since the lender actually makes more money if the interest rate is higher due to a client's lower score. If approval will occur in spite of the negative entry, then there's little impetus for the lender to request a rescore. Reputable lenders will always get the best deal for their clients, of course.
Resellers are also often versed on scoring and may be able to come up with a game plan for raising your score. However, the main requirement for rapid rescoring is that the consumer must provide proof (e.g., court documents, payment receipts, or letters from creditors) to the lender that accounts are reported inaccurately. The lender will then forward the documentation to the reseller, which will then make changes directly to the individual's bureau files within a three-day period.
Each change will often run from $25 to $100, for an average of $200 to $300 total per client, and the bureaus have rules that prohibit these fees from being passed on to the borrower. As such, the lender must absorb the cost. Though there's no way for the bureaus to know if their rules are being followed, discovery of any breach can always occur as the result of a consumer's interfacing with a bureau on the issue, and bureaus can either warn any offender or simply close the reseller account at their discretion.
5) Reestablish Credit
You can start down your road to recovery right away by placing as much distance as possible between you and your bad credit. The specific actions you can take toward this end are as follows:
- Always pay your bills on time, without exception.
- Open two (but no more) unsecured credit card accounts. If you can't get unsecured cards, then seek the help of a cosigner. (Unsecured and secured credit cards are viewed the same by FICO, but unsecured cards often have their limits raised automatically, which is good for FICO scoring.)
- Convert secured credit cards to unsecured ones when possible. This usually becomes an option only six months after opening the account, provided there haven't been any late payments.
- You can also get a debit card (also known as a check card), which basically takes any purchase right out of your checking account, making the balance in the account your limit. Although debit cards aren't reported to the bureaus, they can make it easier to function by providing a way to conveniently pay for things, such as online purchases, for example. Further, when attempting to reestablish yourself, it helps to have a checking account to pay bills in a cost-effective fashion. Studies have shown that those who've opted out of the banking system entirely due to bad credit end up paying a lot more in transaction fees (e.g., the added cost of money orders, payday lenders, check cashing stores, etc.) than those that remain in the banking system. If banks will not permit you to open an account because you have a bad history with ChexSystems (a checking account credit reporting agency), get back into the banking system as soon as possible using the techniques spelled out in Chapter 10.
- Make sure that you have both a savings and checking account, and use the checking account to pay your bills. Never, ever write a bad check. Get online bill-pay, as this will assist you in making payments on time. Online bill-pay enables users to automate recurring payments and set up e-mail reminders, among other features.
- Get overdraft protection if possible. You can either use a credit card with that bank, or many banks now permit anyone with a debit card to overdraft-draw from a credit card issued from any bank. Overdraft protection is useful for many reasons. Those you write checks to won't ever receive a bad check, and you can avoid ever having to pay insufficient funds fees to both your bank and the receiving party. Further, banks that provide overdraft protection to their issued cards will often report them as a line of credit, which is another tradeline entry generated on your credit reports. And finally, those who have insufficient funds are often reported to ChexSystems, and this can be avoided when overdraft protection is in place. Just be advised that any request for overdraft protection directly from the bank is a request for a line of credit and will generate a credit inquiry. (Of course, if the bank permits the use of an existing credit card for overdraft protection, then no inquiry is generated.)
- Open a certificate of deposit (CD), which is a good way to establish good relations with a bank. The minimum CD is usually $1,000 with a six-month term, which means that you can't take the money out before the term is up or you'll pay a penalty. Immediately or within a short period after opening a CD, you can borrow against it through the bank you opened it with; that is, obtain an installment loan using the CD as security. The bank will report this to the bureaus as a secured installment loan. Make the payments on time without fail.
- Stay put! If you can avoid it, don't change jobs. This affects your ability to get credit, particularly if you have bad credit already.
Tip: For many different reasons, those with a checkered credit past-even those with a lot of money-often drop out of the credit reporting system altogether, opting instead to use cash to pay for everything. Even if you have a bad credit history, this is the last thing you want to do; it just makes things worse. It's something people inevitably regret, since credit approval involves not only good credit but also recent credit. Keep two or three accounts open and in good standing, preferably a mix of revolving and installment accounts (e.g., one or two credit cards and one auto loan).
Although reestablishiing credit may seem like it will take some time to positively impact a score, it happens much faster than one would expect, why it's important not to overlook this one.
3. FTC Official Staff Commentary § 611 item 3