NEW YORK (MainStreet) — You might be surprised at just how much progress you can make in improving your credit in six months or a year.
In fact, with a few nifty tricks, you can boost your credit score some 50 to 100 points in no time flat.
Especially if you're looking at buying a house somewhere in the near future, you're going to want to aggressively pursue raising your credit score for the best rates possible, says John Heath, managing attorney with LexingtonLaw.
Here's how to make that happen.
First Things First: Pull Your Credit Report
To know what you can do for starters, you're going to have to pull your credit report and look it over. That's where any path toward a higher credit score, aggressive or otherwise, is going to begin. What you're looking for is anything that's questionable, anything you don't recognize. "If there's an ID theft issue, contact the appropriate law enforcement agency," says Heath. But if you do see something that you don't recognize, don't assume that you've been a victim. It could be -- and probably is -- something far less insidious, such as an error.
You'll also want to look at how much of your credit you're using on each of your accounts. This is called your "debt utilization" ratio, and it's the most powerful way to improve your credit in the shortest amount of time. "This factor is evaluated in the individual and the aggregate level," says Gerri Detweiler, director of consumer education with Credit.com. What this means is that you want both your credit usage on individual cards and across all cards to be less than one third. For example, if you have a $1,000 credit limit on a particular credit card, don't spend more than $300 without paying the balance off.
Paying Down Debt Works
The best thing you can do is aggressively attack your balances to lower your debt utilization ratio. "Paying down your balances makes a big difference and can be fixed the fastest," says Detweiler. So you might want to send off big checks, but there's another option: a consolidation loan. Detweiler points out that when you get a consolidation loan, not only are you getting one single payment every month, you're also lowering your utilization ratio to zero.
"You have the same amount of debt, but it's an installment loan, rather than a revolving account," she says. Don't be surprised if you see a significant jump in your credit score after getting a consolidation loan. From there, you're basically just keeping up with your monthly payments so that you don't have another black mark on your credit.
Detweiler notes that consolidation loans might not be available for people with credit scores under 620. For those people, she says that a 401(k) loan is an option. "It's not ideal," she says. "But there's no credit check, and it doesn't report to your credit at all." You have to be careful, because a 401(k) loan, not repaid properly, can significantly increase your taxes and come with a 10% penalty. But if you think you can do it, and it's your only option, at least give it a think.
Addressing Errors and Other Black Marks
If you're going to start attacking the black marks on your credit report, there are two main ways to do this. You either owe the money or you don't. If you don't think you do, you need to send a letter asking the company to prove that you do. After all, if someone approached you in the street and said that you owed them $100, you wouldn't just fork over a C-note. "You don't have to quote a federal law," says Detweiler. "You just have to ask them to investigate it."
Heath recommends that you call up collection agencies and try to negotiate a settlementin relation to the collection. "You can let them know you'll pay them off if they can remove the collection from your credit report," Heath says. He says it's also not a bad idea to go back and find late payment notices from your original creditors and see if you can get them removed. "It's always a good idea to call them up and ask if they can do it just because you've been a good customer," he says.
There aren't any shortcuts. But you can seriously make a change in your credit score in a year or less. Start putting your time, energy and money into it and monitor your credit score the whole time.