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Here's how to improve your credit health

The penalty for having poor credit has gotten a whole lot stiffer. In recent years marginal credit scores meant you'd pay higher interest rates on mortgages and other loans. Now you may not get the money.

By Helen Huntley, Times Personal Finance Editor
Published November 18, 2007


The penalty for having poor credit has gotten a whole lot stiffer. In recent years marginal credit scores meant you'd pay higher interest rates on mortgages and other loans. Now you may not get the money.

Lenders have gotten much more conservative. They want down payments. They want proof of income. And perhaps most of all, they want to see a decent credit score. Even if you aren't applying for a new loan, skittish credit card issuers might jack up your rate based on your perceived risk.

"They judge every loan, every missed payment, every time you use your credit card, and whether it increases your risk of default," said Bill Hardekopf of, a credit card information service in Birmingham, Ala. "If your credit score drops or your debt utilization ratio increases, they perceive this as increased risk and could increase your rates."

The good news is that you can improve your credit, although it won't be overnight. Credit scoring formulas give the most weight to recent events, so problems in the past recede in importance as time goes by. Most bad marks drop off your report after seven years (10 years for a bankruptcy), but you don't have to wait that long for your score to show significant improvement.

Here's what you need to do to start boosting your score:

-Pay your bills on time. Always.

-Pay down credit card balances. The lower you can get them, the better.

-Get your priorities in order. Don't apply for any other credit if you contemplate applying for a mortgage in the next six months. Recent inquiries hurt your credit.

-Never apply for a loan just to find out what rate you can get. If you are serious about taking out a mortgage or car loan, confine rate shopping to a two-week period. The scoring formula will lump them together instead of treating them as separate applications.

-Keep old credit card accounts open even if you aren't using them, so long as there are no fees involved. Older accounts improve your credit score, especially if they have high credit limits and low or no balances. If you want to close some cards, close newer ones.

-Borrow in the right places. You should have at least one national bank card. It helps to have other types of credit such as a mortgage, a home equity loan or a car loan or other installment loan from a bank. Loans from finance companies may hurt your score.

It's a good idea to check your credit several months before you think you will be applying for a loan. You can get a free report once a year from each of the three major credit bureaus at or by calling toll-free 1-877-322-8228. Here's what to look for when you get it:

-Mistakes with negative consequences, such as past-due accounts and collections. If you find any, dispute them with the credit bureau.

-Accounts you don't recognize that have current activity. Someone else's credit report could be mixed up with yours or you could have an identity theft problem. Look into it.

-Missing credit limits on credit card accounts. This will make it appear that your debts are larger in relationship to their limits than they are. Call the card issuer and ask for your limit to be reported. If you don't get satisfaction, stop using the card, but don't cancel it.

-Missing positive information. Some creditors don't report to credit bureaus. If you don't see an account listed, call the lender and ask for it to be reported.

What determines your FICO credit score

35 percent: payment history

30 percent: amounts owed

15 percent: length of credit history

10 percent: new credit

10 percent: types of credit in use

Source: Fair Isaac Corp.

[Last modified November 16, 2007, 22:17:52]

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