How do I raise my credit score?

[Anonymous]

Hi

I have been lurking off and on for about a year on the board.  I am trying to get a mortgage loan and my husband and I have been monitoring our credit scores for a year now and all the moves we make that we think will raise the score just end up leaving us where we started or below where we started.  

Here is a little background...

In October 2013, we had a perfect storm.  I was in a repayment to AMEX with one payment left and our mortgage was sold to a new company.  Then the government stopped paying its employes for a month.  We scrambled, we called our creditors, some were nice enough to work with us, some were not.  AMEX put me in collection, (it was paid off the following month) and our new mortgage company reported the 30 day late.  My score took the biggest hit since the AMEX was in my name.  

We recently refi'd our mortgage to get out from under a HELOC loan that was messing up our available credit ratios thinking that would help bump our scores (the simulator said the refi on the original loan shouldn't affect them) but it ended up dropping our scores by 20 points.  So now I am in the 660's, and was told my mortgage score was 640.  

I only have 2 credit cards with about a 7500 limit on each utilizing about 30%.  We don't have any auto loans as we are trying to keep our DTI ratios low.  

Any advice as to how to get my FICO score into the 700s?  Do I apply for more credit cards? 

[Anonymous]

The most effective thing you can do is pay down those credit cards. Do whatever it takes. Cut out the lattes in the morning. Cancel cable TV. No more consumer spending. It's tough and it takes sacrifice, but that's the best, quickest way to improve your credit-worthiness (both your score and your report as it'll be view by a loan officer).

I realize that approach isn't for everyone. For some, the quality of life right now is more important than more quickly qualifying for a larger mortgage or better terms. And that's a valid choice. But it is a choice.

There are other things you can do to improve your score more slowly, and those'll get you there eventually, too.

[Thomas_Thumb]

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@Anonymous wrote:

Hi

I have been lurking off and on for about a year on the board.  I am trying to get a mortgage loan and my husband and I have been monitoring our credit scores for a year now and all the moves we make that we think will raise the score just end up leaving us where we started or below where we started.  

Here is a little background...

In October 2013, we had a perfect storm.  I was in a repayment to AMEX with one payment left and our mortgage was sold to a new company.  Then the government stopped paying its employes for a month.  We scrambled, we called our creditors, some were nice enough to work with us, some were not.  AMEX put me in collection, (it was paid off the following month) and our new mortgage company reported the 30 day late.  My score took the biggest hit since the AMEX was in my name.  

We recently refi'd our mortgage to get out from under a HELOC loan that was messing up our available credit ratios thinking that would help bump our scores (the simulator said the refi on the original loan shouldn't affect them) but it ended up dropping our scores by 20 points.  So now I am in the 660's, and was told my mortgage score was 640.  

I only have 2 credit cards with about a 7500 limit on each utilizing about 30%.  We don't have any auto loans as we are trying to keep our DTI ratios low.  

Any advice as to how to get my FICO score into the 700s?  Do I apply for more credit cards? 

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First thing to do is settle down and let things stabilize. You have a thin file and any new credit can slam your score - especially since you have a late on file. Once a 30 day late reached 2 years, impact on score should be rather minor. Greatest impact on score would be getting the late removed.

Longer term a 3rd credit card is a good idea as the added CL can help reduce aggregate utilization (assuming you don't allow total CC balances to go up). Having a balance report on one card only each month is best for scoring. A few months down the road you may want to consider asking for a CLI on your existing cards - but check to see if the CLI would trigger a hard inquiry. If yes, then i'd forego the request until much later in the game.

Try to get and then maintain aggregate utilization under 9%. If you have fairly high monthly spend requirements relative to CC limits, you can pre-pay a majority of your charges so reported statement balance(s) is/are low.

[Anonymous]

@Anonymous wrote:

Hi

I have been lurking off and on for about a year on the board.  I am trying to get a mortgage loan and my husband and I have been monitoring our credit scores for a year now and all the moves we make that we think will raise the score just end up leaving us where we started or below where we started.  

Here is a little background...

In October 2013, we had a perfect storm.  I was in a repayment to AMEX with one payment left and our mortgage was sold to a new company.  Then the government stopped paying its employes for a month.  We scrambled, we called our creditors, some were nice enough to work with us, some were not.  AMEX put me in collection, (it was paid off the following month) and our new mortgage company reported the 30 day late.  My score took the biggest hit since the AMEX was in my name.  

We recently refi'd our mortgage to get out from under a HELOC loan that was messing up our available credit ratios thinking that would help bump our scores (the simulator said the refi on the original loan shouldn't affect them) but it ended up dropping our scores by 20 points.  So now I am in the 660's, and was told my mortgage score was 640.  

I only have 2 credit cards with about a 7500 limit on each utilizing about 30%.  We don't have any auto loans as we are trying to keep our DTI ratios low.  

Any advice as to how to get my FICO score into the 700s?  Do I apply for more credit cards? 

---

First thing to do is settle down and let things stabilize. You have a thin file and any new credit can slam your score - especially since you have a late on file. Once a 30 day late reached 2 years, impact on score should be rather minor. Greatest impact on score would be getting the late removed.

Longer term a 3rd credit card is a good idea as the added CL can help reduce aggregate utilization (assuming you don't allow total CC balances to go up). Having a balance report on one card only each month is best for scoring. A few months down the road you may want to consider asking for a CLI on your existing cards - but check to see if the CLI would trigger a hard inquiry. If yes, then i'd forego the request until much later in the game.

Try to get and then maintain aggregate utilization under 9%. If you have fairly high monthly spend requirements relative to CC limits, you can pre-pay a majority of your charges so reported statement balance(s) is/are low.

[Anonymous]

The most effective thing you can do is pay down those credit cards. Do whatever it takes. Cut out the lattes in the morning. Cancel cable TV. No more consumer spending. It's tough and it takes sacrifice, but that's the best, quickest way to improve your credit-worthiness (both your score and your report as it'll be view by a loan officer).

I realize that approach isn't for everyone. For some, the quality of life right now is more important than more quickly qualifying for a larger mortgage or better terms. And that's a valid choice. But it is a choice.

There are other things you can do to improve your score more slowly, and those'll get you there eventually, too.

I have been paying down the credit cards and the reason they were up to begin with is my husband and I are both driving 10+ year old cars that required large repair items this year, one with a rebuilt transmission.  So not all credit debt is there for poor choices.  It was repair the car or buy a new one, we chose to repair which was the more prudent choice.  I was asking for specific direction on how to bump my score, not judgement on how you assume I spend my money.  I have lived in my current house for 15+ years, we are actually trying to keep the home as a rental investment and buy a new one which is why I want a higher credit score to keep my interest rates down.

Thanks!

[Anonymous]

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@Anonymous wrote:

... So not all credit debt is there for poor choices... I was asking for specific direction on how to bump my score, not judgement on how you assume I spend my money...  

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I'm sorry that the specific examples I offered of ways one might find extra money to pay down credit card balances sounded like judgment. Of course I have no way of knowing your specifics. But I shouldn't have assumed that would be evident.

I guess I did have an inkling when I posted that my advice could be misunderstood as criticism. That's why I was careful to include the affirmation "that's a valid choice" to make it clear that there wasn't any judgment involved (there wasn't).

I really do wish you the best.

[Anonymous]

Hey momof3,

I thought of your situation when I was reading this thread here on myFICO.

You'll notice in the 10th post (which is by the original poster), he shares how getting a loan (lending club, in his case) and bringing his credit card balance from 80% to <3% caused an immediate 80 point gain in his FICO. I realize you're not at 80%, but when I play with the credit simulator on Credit Karma, I find that the projected difference between my score with 30% utilization (where you are) and <1% utilization is 47 points (that would be for me obviously -- yours may be more or it may be less). I take the Credit Karma simulator with a grain of salt, but at least it give some idea of where you might be.

I'd get some other input before trying it, but it's something you might consider.

[Anonymous]

Hey Plip.  Thanks for your recent posts on the forum!

In our OP's case, adding an installment loan and then paying it way down will not help her.  That's a great technique and one I have had no problem suggesting to people.  But it's crucial to use it knowing how and why it works -- and therefore when it will help and when it won't.

Basically it is a technique for people who have no current open installment loans.  That "trick" (add an installment loan and then pay most of it off) causes you to change your profile in two important ways:

(1)  Improving your credit mix category

Previously you had no open installment loans -- now you do.

(2) Improving your total "installment utilization"

This is a factor from the Amounts Owed category.  It is very much like total CC utilization but applies solely to open installment debt.  You take all your open installment loans.  You then look at the total amount you currently owe (all your open loans together) and you divide that by the total amount that the loans were originally for (all your open loans together).  That gives you a %.  If this % is very high (or if you have no open loans at all) then you get no points from this factor.  If the % is very low (e.g. 1-9%) then you get ALL the points from this factor. 

The "trick" works when a person has no installment debt at all.  But if a person (like our OP) already has a big open installment loan (like a mortgage say) then adding a loan and paying most of it off has almost no effect on this %.

But without a doubt, if our OP can succeed in lowering her CC utilization, that will help her a huge amount.  Good suggestion.  It will help her score, it will lower the amount she pays in interest, and it will improve her DTI. 

[StartingOver10]

I agree with Plip, get the installment loan to pay off the cc's unless you can pay them off well before applying for a mortgage without the installment loan.  

There is some risk you take on by going with Lending Club (for example)

• It will have a direct affect on your DTI if the loan is still outstanding when you make a mortgage application and the payment associated with the min due on this installment loan may impact the amount you can borrow for a home
• Lending Club and other loans like it may report as a 'consumer finance' account which is a slight loss of points.  Find out how the installment loan you may take on reports before you apply for one.  

Other than the above, it is a good way to handle excess revolving debt prior to applying for a mortgage.  If you can easily pay off the debt you have, then don't get the installment loan at all. If you do decide to get the installment loan, you should see a big bump in scores provided you don't go back to getting additional revolving debt. The thread Plip linked is a good one.

[Anonymous]

Hey Plip.  My apologies... I think I misread your post.  You were suggesting that the OP get an installment loan and use that to pay off the CC debt.  There's been a number of posts lately about the benefit from adding an installment loan and then paying off the majority of the principal on the loan -- which is the technique I thought you meant.  My fault for not reading your post more closely.

Thanks to StartingOver also.