Dear Liz: I’m 27 and have been working hard for the last few years to bring up my FICO credit score. I’ve paid off all my credit card debt and disputed errors on my credit report. I’d like to purchase a home in the next few years and am trying to get my score over 700 (I am currently at 615). I have three credit cards that I regularly use and pay off. Do you have any suggestions on how I can continue to bring up my credit score? Should I take out a personal loan? Should I apply for another credit card? An auto loan, perhaps? This has been a frustrating experience, so anything that you can offer would be appreciated.
Answer: First, you need to understand that you don’t have one FICO credit score — you have three, one from each of the three major credit bureaus. You can buy two of your three FICOs from MyFico.com, the only source for the FICO scores that lenders use. (You can’t buy your third FICO because credit bureau Experian has stopped selling those scores to consumers, although it continues to sell them to lenders.)
Your mortgage lender will use the middle of your three scores to help determine your interest rate, so it’s important to review all three of your credit reports for errors and other problems. You can get free access to your reports at http://www.annualcreditreport.com.
Ignore the pitches for credit scores you see when you visit that site, since the scores typically offered aren’t FICOs.
If you continue to use your credit cards responsibly — charging no more than 30% of your limits, and preferably 10% or less — your scores should improve over time. You don’t need to carry a balance to improve your numbers.
An installment loan could help you rehabilitate your scores somewhat faster. The problem is that it may be difficult for you to get a loan, and the interest rate is likely to be sky high. If you’re considering an auto loan, make sure you can make a substantial down payment (25% or more) so that you can refinance to a more reasonable rate when your scores improve. Another option is getting a small personal loan from a credit union or bank that reports to all three credit bureaus.
There’s no easy, quick fix for battered credit scores, so be patient. In the meantime, you can work on saving up a substantial down payment so that you can better afford to be a homeowner when the time comes.