How to maximize your credit score (for newbies)

[JNAQ]

1- Pay off outstanding collection accounts only if it is originally dated within the last two years or if the lender/collection agency is updating the report. As wrong as it sounds, check all the dates associated with the item and if they are older than two years, leave them alone. Believe it or not paying an item older than two years will actually have an adverse effect on your credit score.

2- Carefully plan to pay as much debt as possible. The object of the exercise here is to bring down revolving accounts down to 50% of the maximum credit line or even to under 33% if possible. If your co-borrower has a card say with only 5% or so against it, then borrow on that card to up to 30% and use the money to pay down one of your high balance cards or vise versa.

It is important to pay attention to the total credit line and total debt also. Having 3 cards of zero balance with credit limits of $150 to $300 each is no good if you have one $3500 limit card with a $2500 balance.

3- Do not pay off and close a revolving account. Closing a revolving account has an immediate adverse effect on your credit rating.

4- Call your credit card companies and see if they will increase your credit limit. This will bring the ration of outstanding debt to credit limit down.

5- Don’t buy a car! Nothing brings down a credit score more dramatically than a new car loan. A fixed term loan will have a negative effect on your credit score for up to 6 months. The negative effect gets lower with every passing month tuning into a positive effect after 6 months, providing payments have been made in a timely fashion.

6- Get all inaccurate information removed.

Hope this helps!

[isislc]

This is a good list but needs a little tweaking since there are a few details being missed.

1- Pay off outstanding collection accounts only if it is originally dated within the last two years or if the lender/collection agency is updating the report. As wrong as it sounds, check all the dates associated with the item and if they are older than two years, leave them alone. Believe it or not paying an item older than two years will actually have an adverse effect on your credit score.

You should only pay ANY CA accounts if you can negotiate a PFD or the account is likely to result in a judgment down the line. Nowadays you are also required to pay off ALL CAs with some mortgage companies if you are trying to buy a house.

Ignoring any accounts that have a significant balance and older than 2 yrs is not practical because they may result in a judgment that will cost you anywhere up to 80 pts if it hits your CR. A doctor is less likely to sue you for $50 than a CC for $5000.

2- Carefully plan to pay as much debt as possible. The object of the exercise here is to bring down revolving accounts down to 50% of the maximum credit line or even to under 33% if possible. If your co-borrower has a card say with only 5% or so against it, then borrow on that card to up to 30% and use the money to pay down one of your high balance cards or vise versa.

It is important to pay attention to the total credit line and total debt also. Having 3 cards of zero balance with credit limits of $150 to $300 each is no good if you have one $3500 limit card with a $2500 balance.

Fico scores are hurt when balances are above 30% of utilization for individual accounts AND utilization overall. Anything between 1-9% maximizes your Fico scores. Also the suggestion of borrowing from another card to pay off a higher balance card is only turning it into a "borrow from Paul to pay Peter situation". You would be better off with doing 0% BTs and paying off the higher interest card first and at the same time maintaining your utilization below 30%. This also affects #4 since some CC companies will now not even consider granting a CLI if your utilization is at 50% or higher, BoA is one of them.

3- Do not pay off and close a revolving account. Closing a revolving account has an immediate adverse effect on your credit rating.

This is true if you close a high CL and you're using about 30% of what is available to you in other cards. For example, you have 3 cards with CLs of CC1 $300, CC2 $2000, and CC3 $4000 and you are using $400 on CC2. Now although you are only using 20% of CC2s CL, overall you are only using almost 6.5% of what is available to you. Now you close CC3, your overall utilization has now jumped to almost 18%. It doesn't mean that you will get a drop in your score necessarily. You will get a drop if your overall utilization exceeds the 30% but depending on how much credit is available to you at a time, if you have 10 CCs, you may actually get a jump.

Now if you get rid of the smaller balance cards like CC1, you won't really see much of a change in scores at all.

4- Call your credit card companies and see if they will increase your credit limit. This will bring the ration of outstanding debt to credit limit down..

Some CCs will not grant a CLI unless you have had the card for at least 6 months and you're below 50% utilization. Not to mention, some CLIs may require a hard pull inquiry on your CR which, depending on how many inquiries you have and which report you may get a drop in score.

5- Don’t buy a car! Nothing brings down a credit score more dramatically than a new car loan. A fixed term loan will have a negative effect on your credit score for up to 6 months. The negative effect gets lower with every passing month tuning into a positive effect after 6 months, providing payments have been made in a timely fashion..

This one is not necessarily true depending on the types of credit you have available on your CR. When I got my car loan, I had a jump of 20 pts on my CR. Fico likes a mix of credit types and how you manage it. Only works better in raising your scores.

6- Get all inaccurate information removed..

This is definitely on the mark!

[willingtocope]

I'd also add...which score do you need to maximize?

Your FICO "Bank Card" score (closest to the one you can see), does include "utilization"...above 9%, but less than 30% will get you miore bank cards.

Your FICO "Mortgage Score" looks best if you have NO outstanding revolving credit. Open CA TLs are a bummer...they'll need to be paid or deleted.

Your FICO "New Car Score" doesn't care much about utilization...its more interested in how you'd done with previous car loans.