7 fast fixes for your credit score

By Liz Pulliam Weston

So you've had a few problems getting the bills paid lately, and you're wondering what you can do to repair the damage.

You've got plenty of company. There are more than 30 million people in the United States with credit blemishes severe enough (and credit scores under 620) to make obtaining loans and credit cards with reasonable terms difficult.

Or maybe your credit is OK, but you'd like to make it better. After all, the better your credit, the lower the interest rates you can secure on mortgages, car loans and credit cards.

Know the score

In order to improve your credit score, it's important to know where you stand currently. Despite all the media attention given to free credit reports, you still have to pay to find out your credit score, the three-digit number ranging from 300 to 850 that is the key to your borrowing costs. You can obtain your FICO credit scores, the ones lenders use, from MyFico.com. Or you can get Experian's "consumer education" version here.

Now you're ready to take the seven steps to speedy credit repair:

1) Pay down your credit cards. Paying off your installment loans (mortgage, auto, student, etc.) can help your score, but typically not as dramatically as paying down -- or paying off -- revolving accounts like credit cards.

The credit-scoring formulas like to see a nice, big gap between the amount of credit you're using and your available credit limits. Getting your balances below 30% of the credit limit on each card can really help.

While most debt gurus recommend paying off the highest-rate card first, a better strategy here is to pay down the cards that are closest to their limits.

2) Use your cards lightly. Racking up big balances can hurt your score, regardless of whether you pay your bill in full each month.

What's typically reported to the credit bureaus, and thus calculated into your score, is the balance reported on your last statement. (That doesn't mean paying off your balances each month isn't financially smart -- it is -- just that the credit score doesn't care.)

You typically can increase your score by limiting your charges to 30% or less of a card's limit. If you're having trouble keeping track, consider using a check register to track your spending, logging into your account frequently at the issuer's Web site, or using personal finance software like Microsoft Money or Quicken, which can download your transactions and balances automatically.

3) Check your limits. Your score might be artificially depressed if your lender is showing a lower limit than you've actually got. Most credit-card issuers will quickly update this information if you ask.

If your issuer makes it a policy not to report consumers' limits, however -- as is the usual case with American Express cards and those issued by Capital One -- the bureaus typically use your highest balance as a proxy for your credit limit.

You may see the problem here: If you consistently charge the same amount each month -- say $2,000 to $2,500 -- it may look to the credit-scoring formula like you're regularly maxing out that card.

You could go on a wild spending spree to raise the limit, but a more sober solution would simply be to pay your balance down or off before your statement period closes. Check your last statement to see which day of the month that typically is, then go to the issuer's Web site about a week in advance of closing and pay off what you owe. It won't raise your reported limit, but it will widen the gap between that limit and your closing balance, which should boost your score.

4) Dust off an old card. The older your credit history, the better. But if you stop using your oldest cards, the issuers may stop updating those accounts at the credit bureaus. The accounts will still appear, but they won't be given as much weight in the credit-scoring formula as your active accounts, said Craig Watts, an executive at Fair Isaac & Co., one of the leading credit scorers. That's why Ferguson often recommends to her clients that they use their oldest cards every few months to charge a small amount, paying it off in full when the statement arrives.

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