How to Improve Your Credit Score

You’ve probably heard many times by now how to improve your credit score: pay your bills on time each month and don’t accumulate too much debt. In a nutshell, that is all you have to do. Eventually, as your late payments, charge-offs and other sins of the past fade in to memory, your credit score improves.

If you pay your bills on time and don’t accumulate too much debt, your FICO credit score can change significantly in a few months? How much? If your score is low, it can change dramatically; if your score is already high, there will be little or no change. The following estimates will give you an idea of just how quickly you can lower and raise your FICO credit score. Note that these are just estimates and one shouldn’t assume that his or her credit score would increase by the amounts indicated in the examples below.

Example 1: Suppose you had about $60,000 in non-mortgage debt and were more than 90 days delinquent on two credit cards. Your FICO score might be a low 595 [which is well below the 750 – 850 FICO score that one should have]. Despite the fact that you have been delinquent paying your bills and your credit score is low, you can raise it in a relatively short period. Just sending in at least the minimum required on your delinquent credit cards for three months could raise your FICO credit score 20 points. If you continued to make your payments as agreed for six months, you could raise your FICO credit score.

by as much as 50 points. If you continued to pay at least the minimum due on those credit cards for one year, you could raise your FICO credit
score by as much as 80 points, from 595 to 675. Of course, 675 is still short of the 750 to 850 credit score one should strive to have, but given time you would get there.

Example 2: Suppose you had an account on your credit report indicating that you defaulted on a credit card for $15,000. If you began to pay off that delinquent debt by sending $500 per month for just three months, you could increase your FICO credit score by as much as 70 points [assuming you don’t accumulate any more debt during this period, apply for more credit, etc.]. If you asked the creditor to “re-age” the account and remove any delinquent notations on your credit report, you could raise your FICO credit score by as much as 100 points in six months.

Editor’s Note:

We at Jewelry Outlet always want to remind our customers why it is important for them to obtain and responsibly use credit. One helpful way to improve one’s credit is by adding a trade line and then only using a small portion of the trade line. This is an example of utilization, which is 30% of the credit score calculation. Thus with a top score of 850, the utilization category is 255 points of the total credit score (850 x .30).

If someone had one department store trade line of $500, but had maxed out the trade line by charging $500 of goods and services, then this person would lose almost all of the 255 points (out of 850), having a very high utilization of 100%. Thus assuming all other things on the person’s credit report were good, the highest credit score this person could achieve might only be 595 (850 – 255), as this person might lose all points for having a high utilization.

But if this person obtained another trade line (maybe a jewelry store account) for $5,000, now the person’s utilization would be only 9% ($500/$5,500). Thus this person’s credit score would increase, maybe by as many as 200+ points, possibly bringing the score up to over 800.

The person’s interest rate on an auto loan with a 595 score might be as high as 20%, whereas the interest rate with an 800 credit score might only be 2% to 5%. If someone purchased a $20,000 car, the lower interest rate would save $250 per month, for having good credit and low utilization.

This is the power of low utilization. And this why it is important to obtain a jewelry store trade line with a high limit.

Jewelry Outlet is the number one online jewelry retailer to help you enhance, establish and/or rebuild your credit. We offer easy credit terms for people with bad credit, new credit and no credit. Click here to Apply for Credit

Posted by Christian C Culpepper