Your History of Making Payments On Time is the Biggest Factor in Your Scores.
GETTING NEW ACCOUNTS
- Payment history, as a category, accounts for 50% of your credit scores! The last 2 years matter most! (See Step 2)
- Generally, adding a 2nd account can give you 20-30 points; adding a 3rd account can give you 10-20 points; and adding a 4th can give you about 5-10 points.
- Adding a mix of account types gives your credit profile more variety, further increasing your scores.
SECURED CREDIT CARDS
are an option for people with bad credit. These cards require a small deposit (e.g. $300), which essentially becomes your credit limit. Check out some secured cards at CreditCards.com, or contact your local banks.
Getting added as an “Authorized User” to someone else’s card can also help raise your scores. However, BEWARE! Think twice if the account has past late payments or a high card balance. This could hurt your scores more than help.
DEBIT CARDS and PRE-PAID CARDS
DO NOT help your scores.
CREDIT BUILDER LOAN
Aside from getting a new car loan, a Credit Builder Loan is a great way to establish credit and boost scores in as little as 4-5 months. Check with banks and credit unions. Example: A bank lends you $1000, but places it into a savings account (funds are frozen), which serves as collateral. The payback is usually spread over a 2-3 year term.
KEY POINTS ABOUT NEW ACCOUNTS
Inquiries: A new credit card or loan inquiry will show up immediately on your credit report, dropping your scores 4-10 points.
Credit Cards: A new credit card won’t show up on your credit report until 30 days from when you opened it. When it does, your scores will increase roughly 10-30 points (This is only relevant if you have less than 4 accounts).
Installment Loans: A new loan = more risk, which initially hurts scores; however, your new loan won’t report until 30-45 days from the opened date. Smaller loans ($1000) only hurt scores about 10-15 points. Score recovery time: 4 months. Larger loans ($25,000) pose a greater risk and hurt scores about 20-40 points. Score recovery time: 6-12 months.
Inquiries: While inquiries report for 2 years, they only impact scores for 6 months. You will gain back 1-2 points each month, until the inquiry is 6 months old.
Credit Cards: Most of the score-boost that comes from adding a credit card happens on the first month. Over the next several months, your scores will roughly increase another 5-10 points.
Installment Loans: Smaller loans ($1000) take about 4 months until they start helping scores. Larger loans ($25,000) are a greater risk and can take up to 12 months or longer to recover. Once a loan reaches its recovery point, it will boost scores about 5 points the first month, and 1-4 points each month thereafter.
Not all utility companies report to the 3 Credit Reporting Agencies – so if yours does, then consider the following point: If you live with someone who has a good payment record with the utility company, have them add you to their account. You’ll instantly acquire all of their good payment history. if their payment history is full of late payments, perhaps consider closing the bad account, and start fresh by opening a new account in your name.
GreenBayGreg of Dellaire Realty interviews the president of Credit Matters, Dan Krueger, to discuss the basics of credit repair and credit scoring.