Improving Your Credit Score

With every point of your credit score being more crucial than ever, I thought it would be a good time to share some tips on how to improve your credit scores beyond paying your bills on time.   If you are considering obtaining a mortgage within the next 12 months, you should meet with your Mortgage Professional to help advise you on this process.   Some steps in repairing your credit may actually temporarily lower your scores (such as paying off a collection).   What steps you should take depends on how soon you plan on buying a home or refinancing.

  1. Obtain a copy of your report from  You are allowed one free report from each bureau annually.  This comes out to three free reports.   I recommend pulling one report at a time rotating the three bureaus every four months.   For example, this month, you could access your Experian report to review your credit and in May, pull your report from Transunion.  In September, you could obtain your report from Equifax.   This allows you to keep tabs on your credit for free throughout the year.   NOTE:  The bureaus will charge you a fee to access your credit scores (stinky, IMHO); if you’re really interested in obtaining your scores, I suggest you contact your Mortgage Professional and request a tri-merge report.  The cost should be around $20 and the scoring modules used for lenders is different than what you receive from
  2. Review your credit report for errors and contact the creditors demanding they be corrected.  The contact information should be included with your credit report.   Keep a phone log of any conversations and follow up with a certified letter.  Request a confirmation letter for your records of any corrections the creditor offers to make.  
  3. Pay past due accounts current.  Your credit score is penalized for any accounts carrying a past due balance.    
  4. Keep your balances below 50% and 30% of their credit limit.  Review your credit report to see which accounts are just over 50% or 30% of the available credit line.   For example, if you have a credit card with a $1000 credit limit, and the balance is $550 pay down the account to where it stays below 50% of the line ($500 or less).   NOTE:  If you’re trying to reduce your credit debts, you should use a different strategy than maximizing your credit scores.
  5. Don’t close your old accounts in good standing. The scoring modules favor established credit and not new debt.  Keep your old card with a zero balance and use it once a month to fill your tank with gas and then pay it off each month.   Also, closing your accounts do not make them “go away” from your credit report. 
  6. Avoid obtaining new credit.  That new car will not only dramatically impact what you qualify for, it will also zap your credit scores as a new maxed out debt.   
  7. Before paying off old collections, contact your Mortgage Professional.   Depending on your scenario, you may be better paying off the collection after closing on your new mortgage than before.   The credit scoring modules will factor paying off the collection as new activity and ding your score as if the collection is currently “active”.  I actually had a loan declined last year after a client returned a library book that showed as a collection against my advice.   He just needed to wait until after closing (this was a condo conversion and there was a large time span for closing).
  8. If you’re allowing different LOs to pull your credit while “rate shopping” for your lender, do so during a short window (30 days) of time to avoid being hit for inquiries.  

The good news about your credit score is that it is not permanent.   It’s intended to reflect your current credit behavior.  If your credit is a mess, it will take more time, effort and determination to repair it…but it can be done!  

42 thoughts on “Improving Your Credit Score

  1. Rhonda, you recommend people contact their mortgage lender to get a copy of their tri-merge report. This could actually show up as an inquiry on someone’s credit report and lower their score. For people who are really managing their scores tightly, they should pull the report themselves, or subscribe to a subscription service that allows them regular access to their score.

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  3. laxtosnoco – as I mentioned, different strategies will require different actions. I offer a free annual review of credit for my clients which includes going over their credit report to see where we can make improvements if any are needed. Depending on what other factors they have with their credit. The impact may be less than 5 points.

  4. Rhonda – any good lender should be able to rattle these points off upon request, but I haven’t seen anyone write it down so concisely and clear as you have here.

    And this isn’t just about your future home purchase – consumers should be printing this out or bookmarking it to come back to again and again.

    My parents told me many years ago before I left the house, “your credit history is one of the most important things you take with you – don’t screw it up.” But I’m not certain they knew exactly what it meant to screw up your credit – or even how to repair it if you do. I can’t blame them – many people don’t know. But now we do.

    This is a great post Rhonda.

  5. Hi Rhonda,

    I have a question. When a consumer fills out a form on a mortgage lead generation website and that lead is sold again and again and again and again to different LOs at different lending institutions all across the U.S., does that affect a person’s credit score?

    I would assume that a person would have to give these LOs permission to pull their credit and that by just filling out a form, that permission is not implied.

    What do you think?


  6. Hi Jillayne, in the ideal world, it should be clear to the consumer when their credit report is being ran. I would never enter my social security number into an internet mortgage site (where lenders compete for your biz) in fear of having my credit report ran from various lenders without my knowledge or consent.

    I’m not sure if these mortgage interenet companies have “fine print” or if some just don’t play by the rules.

    I have heard horror stories from consumers where their info went to many lenders who all ran credit over and over again which dramatically dropped the scores. Especially if the internet lenders are not doing this all within a short period of time.

    Be very cautious of internet mortgage companies.

    What do you think, Jillayne?

  7. My credit is in the tank (extended illness and hospitalization, ended up with tax lien, money judgment, and all active open accounts closed and charged off.

    I’m working again, esrning minimum wage, unable to resolve my sticky derogs on a minimum wage income.

    Passage of time has improved my scores modestly, but I’ve been told I need positives on my report to improve my score, but I’m not willing to sign up for one of those ripoff fee-harvester cards, and don’t know of any other way to get positives.

  8. Minimum Wage:

    Not much alternatives. Your credit is shot, you want to rebuild it faster with positive credit. You need someone to extend you credit AND report it AND you must then make the payments on time.

    Installment loans will do the same thing as credit card loans.

    If you need to buy a car on credit, and don’t mind the high interest, you could go that route.

    Alternatively, shop for the best deal you can find for a “fee-harvester” credit card, and work your way up the credit food chain.

    Either way, accept that higher risks for the lender entails higher cost to the borrower.

    Good luck, and keep trying.

  9. But I don’t think I am currently a higher risk to a lender: I have a job, and (perhaps more importantlyI I have insurance, which means I’m much less likely to lose all of my income as I did last time. Considering my income and debt, I think I live very frugally: I don’t even have a car or a tv. Oh, and I ate a tax liability for a previous employer (I was an employee treated as an independent contractor) on income that the employer never even reported. So I should be banished to a credit ghetto for honestly reporting my income??? (Why should dishonesty be rewarded with better credit than honesty?) The tax lien is now 20 years old, and I had been able to get credit at reasonable terms until I completely lost my income. I’ve read it’s possible to get a good deal when tax debt is old and pretty much uncollectible. (After 10 years, tax debtors are dropped out of the Automated Collection System which gobbles your tax refund.)

    So far I’ve been quite unwilling to sign up for what I perceive to be a ripoff. I’ll check out the link, but I don’t think I really need “credit counseling”, I need more income. Nobody has accused me of overspending. Does anyone seriously believe that “credit counseling” will somehow make me a lower risk or a better user of credit?

  10. Minimum Wage, with a tax lien (no matter how old) and a judgement, you are considered a high risk loan. The tax lien may attach to real estate that you purchase/own and a judgement may as well.

    What ever you do depends on what you’re trying to accomplish. Is your primary goal to:
    -increase your credit score?
    -repair your credit?
    -buy a home?

    “Does anyone seriously believe that “credit counseling

  11. There are limits to how long a tax lien is good for. I don’t know what those limits are (I’d always refer tax matters out). But the fact that you’re getting tax refunds would tend to be an indication that the tax lien is no longer any good.

  12. I suspect as long as it’s still collectible, they’d not want to make the loan.

    Beyond the lien issues (and I suspect a purchase money loan would trump the IRS, but I’m not certain of that), the collection rights of the IRS are extreme. They could disrupt the income flow needed to pay the loan, making it very risky.

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  14. I think I’m trying to increase my credit score. I realize that until my income improves – which is unlikely – my ratios are going to continue to be entirely out of whack for buying a home.

    I have had no credit activity in almost seven years. Pretty soon, the opnly things on my credit report will be the two sticky derogs, and the judgment will go away if not renewed.

    Somehow a single ancient tax lien by itself doesn’t sound like an atrocious credit record. And since the tax lkiability would appropriately attach to my former employer, couldn’t I get out of it?

  15. Minimum Wage, I guess you would need to address an attorney (or the IRS…or even the Consumer Counceling I suggested earlier) about getting out of your tax lien.

    Lenders will require all tax liens and judgments to be paid prior to closing (with documentation of where the funds came from).

    Beyond the tax lien and judgment, establishing 4 lines of good credit (just small accounts will do) where you pay them off each month will help your scores. Lenders prefer that your established credit be at least 12 months old showing a good payment history.

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  17. I recommend checking with your Mortgage Professional before doing anything with collections. Your credit score may very well take a nose dive before it improves. If your transaction is closed (you’re not considering buying, refinancing or in a transaction) then by all means, correct the collections on your credit report. Otherwise, just like my client who returned his library book and paid his $50 collection from Seattle Public Library…his scores tanked below what his program would allow.

  18. I was told to pay off everything I owe in collections. Then my credit score will increase and I will be able to obtain a mortage with low interst rate. I did just that and paid everything owed on report and made sure present credit cards below 50% or paid off. I have letters stating paid in full. Who do I send it to? When can I start to try to get a mortage? My credit score high is 624 low 530 average 580/. Will I get a mortage? I have the income and stable job but past mistakes are hurting me.

  19. Robyn, who told you to do this? Your credit scores may actually drop at first because paying off a collection will reflect “activity” on the collection. Your scores will eventually improve. You should be working with your Mortgage Professional to help you with this. Send copies certified mail to the credit bureaus. How much and what you qualify for depends on how much you are planning to use for down payment. Past mistakes may hurt you for a while, but good behavior for a while (12 months) will pay off.

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  21. Rhonda,

    First, my apologies for posting on such an old post, but this post seems to be most relevant going this far back.

    I actually have a question: when I shop around for rates, if each mortgage broker/lender pulls my credit report, will my credit score be hurt? Someone once told me that if I do this within a short period of time, say a week, and with a small number of inquiries, my credit score shouldn’t be hurt, but I’m not sure if that’s true.

    Could you please comment on this? Shop around but don’t shop till your credit scores drop :-)? Thanks.

  22. Never mind.

    (blush). I didn’t read your full post. This is covered in your original post:
    8. If you’re allowing different LOs to pull your credit while “rate shopping

  23. Yang, you’re fine…no spam there! 🙂 Even if your scores do not go down, I don’t recommend allowing every LO to run your credit simply because you’re giving a lot of strangers access to your private information. You only need to know what your scores are from one report and, if you’re planning on shopping LOs and are not committed to the one who’s pulling your credit, I think you should offer to pay for the report and be upfront with the LO. Just my 2 cents.

  24. T Brock, if you do not disclose the tax lien on your application, you will be committing fraud. The tax lien will need to be paid off/satisfied before you can get a mortgage. If you’re refinancing and you have enough equity, you may be able to pay it off via the refi.

    Tax liens take precedence over mortgages so lenders don’t want to take that risk in the event of a foreclosure.

  25. I just closed 6 accounts, some years old, dont they become inactive after 6 months of no use anyhow? It lowered my score 13 points, I am not anywhere near my limits on my cards. I have four Visa cards, and all have limits from 2,000 to the highest 7,600. If I just keep paying more than the minimum, like 500 a month on each, how much time will it take to recover from this hit. Thanks~

  26. Tanya, it’s my understanding that inactive accounts are treated as “closed accounts” by the scoring modules…(in my credit scoring world, borrowers would be rewarded for not using available credit, closing accounts, etc.). While 13 points may not sound like a lot to some folks, if your score was 725 and now your below 720, your rate for a new mortgage just went up. BTW I encourage borrowers to not close older accounts when they are considerig buying a home. You can always close accounts after your home mortgage has closed.

    With your Visa’s, if you’re beyond 50% of the available limit (the next scoring level is 30%) you will be dinged with your scores. Review your four balances to see if you are above 30 or 50% and pay that account down first while making minimum payments on the others until you pay the accounts beyond 30/50. Also, there are some accounts who do not report what your credit line is to the credit reporting agencies (like AMEX and I believe Capital One) which makes it appear as though you’ve maxxed your credit line, when in reality, you have not.

    It shouldn’t take long to bounce back 13 points…perhaps a month or so. Good luck.

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  28. I am interested in refinancing my mortgage. My Equifax score is 755 and I am trying to get it higher. My credit card has a zero balance however I overspent my limit by a few dollars once. If I ask for an increase in limit, it would fix that problem. OR would it lower my score base on the newly increase in limit and inquiry. What do u think? Thanks, SU

  29. SU your score of 755 is fine with Equifax. What are your other three scores? It’s your mid score or, if you have two on the mortgage, your co-borrowers mid score that counts. If you have a co-borrower and their mid score is lower than yours, than that’s what will be used.

    If you have a zero balance now, then there’s no need to raise your limit.

  30. But what I’m saying is those factors are more aimed at the decision making process for someone giving out a new credit card. Those factors wouldn’t even be considered by a rational individual making a home mortgage loan to a debtor.

    $44,000 of credit card credit limit and $10,000 owed–only a credit card company would care they are all on the same card. (Why you might ask? They want some idea that the person will actually use the new card, and using four cards as opposed to one is a sign they will.). Only a credit card company would care about the age of the accounts. (Why you might ask? Because they would rather have a long term customer than someone who opens and closes accounts frequently–although there a home lender might have similar concerns.)

    There are a lot of other areas where the credit score system makes no sense in the context of trying to decide whether or not to make a home loan. They really need an alternative scoring system that does make some sense.

    BTW, on the four credit card system, having one card with $10,000 owing when you have three others with $33,000 of credit line isn’t living to the max. It very well might be making a prudent financial decision. Perhaps that card has the lowest rate. Very unlikely that four credit cards would tie for the lowest rate. So the credit scoring system rewards making poor financial decisions.

  31. Kary, I’ve never been a fan of the credit scoring system. Some people luck out with what appears to be higher than deserved scores and others have much lower scores than what’s reflective of their credit behavior.

  32. Rhonda, a question based on one of your comments on Jillayne’s post.

    You said “Two car loans that are one year old will not help your credit at all. Even if you put 50% down on the car, what’s looked at is the original loan balance to the current balance.”

    So if I spent $15,000 on a car and wanted to pay $8000 up front and finance the rest, the best way would be to get a $15,000 loan and send in an $8000 check as soon as I got home, rather than make an $8000 down payment?

  33. CB, I don’t know if that would work to improve your credit score (there are all sorts of goofy things that affect it) but you’d probably want to get a 72 month loan if you did that. I don’t have my amortizing calculator handy, but if you didn’t adjust the term the payments would be twice as large.

    It is an interesting question though, because that would mean that your credit score would improve faster with a 36 month loan than a 72 month loan.

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