We all know the basics of a good credit score, right? Pay your bills on time, don't max out your credit cards, and don't let too many lenders review your credit.
However, there a few lesser-known "tricks" that can boost a credit score. For example, did you know it might be a good idea to take a loan for your new car even if you can afford to pay cash? Here are the details on this and three other ways to squeeze a little extra out of your credit score.
1. Keep those old cards open and ask for higher limits
Many consumers get "starter" credit cards when they turn 18. These cards generally have relatively low spending limits and high interest rates and other fees, and they're designed to help you establish good credit.
If you do well with your starter cards, you should start getting offers for serious, high-limit credit cards. Once you have these, it may seem silly to keep your old accounts open. However, it may be in your best interest to keep those cards open and ask your creditors for higher limits.
The FICO score is the credit score most lenders use, and myfico.com states that 15% of your credit score comes from the length of your credit history. Two important factors in this category are the age of your oldest account and the average age of all accounts. Keeping your starter cards active, even if you don't use them, will help your score more and more as time goes on.
2. Sometimes you should borrow, even if you don't need to
Another 10% of your score is made up of your credit mix, or the various types of accounts you have open.
So even if you have a few credit cards with spotless records, your score can actually be hurt if those are the only accounts you have open.
Lenders want to see that you have a mix of revolving accounts (such as credit cards) and installment accounts (such as mortgages and car loans). If you're about to pay cash for a car or other large purchase, consider financing the purchase and paying it back over a few months just to get some variety on your credit report. With today's low interest rates, stretching out a purchase over a few months won't cost you much in interest, and it may be well worth it to boost your credit score.
3. Become an "authorized user"
This is kind of a "cheater's" way to a higher credit score. Basically, you have someone (say, a parent) who uses a high-limit credit card responsibly add you to the account as an "authorized user."
This purpose isn't to increase your access to credit. In fact, the account holder doesn't need to give you a card or even let you know the account number. But every month that account status will update to your credit report.
This helps you in a few ways. First, if the account has been open for a long time, it can help with that 15% of your score that comes from the age of your credit history. Second, the largest chunk (35%) of your credit score comes from your history of paying bills on time. And finally, having a large credit limit relative to your outstanding debt can help your score tremendously, as 30% of your score comes from credit use.
Just be sure to have the account holder confirm with the credit card company that your authorized-user status and activity will be reported to the major credit bureaus.
4. Negotiate with your creditors
This applies if you're doing some "damage control" with negative items on your credit. If you don't have any charge-offs, collections, or judgments, good for you! However, if you do, you may be surprised how much room you have to negotiate a better resolution.
Let's say you have a collection on your report in the amount of $1,000. There are three possible outcomes when you take care of it. First, you could respond to a settlement offer by the collection agency, proposing to settle your account for less than the balance owed. The problem here is that your credit report could indicate that the account was "settled."
Better yet, try to get a "paid in full" designation on your credit report, even if you're settling for less than the original amount. Make sure you get it in writing, but many collectors are willing to do this.
The best possible outcome is to have the collection removed from your credit report entirely, as if it never happened. You may need to pay the entire balance in full to make this happen, but it's definitely a possibility. Again, get any promises from the collection agency in writing.
Time heals all wounds
Perhaps the best thing about credit scores is the effect of time. Negative information matters less to your score as time goes on and eventually drops off completely. Positive information, on the other hand, helps more as the months and years pass.
The best thing way to boost a credit score (along with using these tricks) is to know what makes up that credit score and take advantage of that knowledge each month. If you do that, your score will take care of itself.
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