Patience, persistence are keys to raising your credit score

By Erica Sandberg

Opening Credits

Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com. Ask a question. 'Opening Credits' stories

Dear Opening Credits,
I have been working on resolving my credit and paying my bills on time for about four years now. I have paid off all of my collections, and all other bills have not been late for about four years now. My problem is that I have credit scores of 610, 590, 600. I don't understand why my scores are so low. How do I get these to go up faster? I know time, time, time, but my husband and I are 27 years old with a 3-month-old child and would like to stop paying a mortgage-sized payment for rent and rather pay a mortgage-sized payment for our own house. Please help. We have the capital, just not the credit! -- Patricia

Dear Patricia,
I'd love to be able to tell you precisely why your scores are still on the low side, but I'll have to stick with generalities. After all, FICO -- the firm that pioneered credit scores -- tells us what influences the rise and fall of credit scores, but it doesn't publish the exact details of its scoring model.

Assuming there are no errors on the report, something you did or are doing is having a negative impact. What is it? Let's investigate!

First, keep in mind that the three-digit FICO score is derived from information on your credit reports. If the reports are inaccurate, any score calculated from them will be inaccurate, too. And here's a bit of good news: While buying your score costs money, you have under federal law the right to inspect your credit reports from each of the three major credit bureaus at least once a year for free. 

Carefully read your credit reports. If you find errors, follow the credit bureau's procedure for correcting them.

If accurate information is going in but you don't like the number coming out, we can still get to the bottom of your deflated scores -- and find ways to hike them so you and your growing family can qualify for the mortgage you want.

Let's look at each of the FICO score categories individually and in order of importance and then apply them to your situation:

Payment history. At 35 percent of your score, this section is the weightiest. While you satisfied your collection accounts, you don't specify how many you had, what the balances were, when the delinquency occurred or the date you eventually repaid them. There is a good chance your scores are still low because of the recency, severity and frequency of those delinquencies. You did what you could to fix past damage, now let time (yes, time) work its magic. As those accounts age, they'll have less impact. In the meantime, keep paying your current accounts on time.

Amounts owed. The debt you owe today affects 30 percent of your score, making this the next most important category. You say you've paid off your collection accounts, but this doesn't necessarily mean that you're debt free. Do you carry a student, personal or vehicle loan? Owe anything to your credit or charge accounts? If you have balances that are high and possibly nearing your credit limit, this could be the section that's keeping your score low. What to do? Concentrate on total repayment.

Length of credit history. At 15 percent of your score, the amount of time you've had and used credit is less critical than the preceding scoring factors, but it's still worth examining. Clearly, you've been in the credit world for at least four years, but if that's it, you may just not have enough history on your side. Having a long, detailed record of your borrowing and repaying prowess will bring those numbers up. You can't make the years fly by faster, but if you've opted out of using credit, start charging again to build that credit history.

Types of credit used. Ten percent of your score is based on the variety of accounts you have. In general, it's best to have a good, solid mix of installment loans, credit cards, charge cards and retail accounts. Why? Use them all well and you prove that you can handle the entire range of credit tools. Review your accounts and consider adding another type to the mix if you notice a gap. Mind that you don't go overboard, however. Just apply for what you need and will really use.

New credit. The final piece of the puzzle also comprises 10 percent of a FICO score and is all about how you pursue new loans and lines of credit. It looks at such activity as the number of accounts you've recently applied for, how many you've opened and how recently you made inquires. Think back, Patricia. Did you complete the paperwork for a lot of new accounts in the recent past? If so, you may have knocked your score down a bit. Slow down and stop applying for a while.

Resolving past problems can be a laborious and tricky affair, so I'm glad you are attacking them with gusto. Just remember to focus on the most important categories, pinpoint where you may have gone wrong and then work your way down the FICO model. Spending four years in credit battle is a long time, but you should be seeing the fruits of your labor -- higher scores -- soon.

See related: How new credit scoring formula impacts you, FICO scores stable despite slashed limits, Credit Card Help: All about credit scores and credit reports, 10 things you must know about credit reports, 11 tips for dealing with debt collection, debt collectors

Erica Sandberg is a nationally renowned personal finance authority. She’s host of several financial web shows, and a frequent guest for media outlets such as Fox, Forbes, Nightly Business Report and NPR. Erica previously was affiliated with Consumer Credit Counseling Service and was KRON-TV’s on-air credit expert. Her book, "Expecting Money: The Essential Financial Plan for New and Growing Families," was published in 2008 by Kaplan Press.

Send your question to Erica.

Published: September 16, 2009

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