Curing a Credit Score: Part 1: What Can Help?

Whether it’s because of unemployment or underemployment, the remnants of the real estate reckoning, major medical costs, mounting credit card debtloads, a recent bankruptcy, or some combination thereof, in recent years average Americans have experienced some hard hits to their credit scores.

But according to a new report by The New York Times, there are simple strategies that all of us can employ to bump up a beleaguered score.  “The simple answer is to focus on the information that is used to generate the all-powerful FICO score — the measure used most frequently by traditional lenders to determine creditworthiness. Its scale runs from 300 points to 850 points; the higher the score, the better your credit standing. “FICO is still the 500-pound gorilla,” said John Ulzheimer, president of consumer education at SmartCredit.com. ‘In 2011, the best way to get credit from the mainstream lenders is to have a good FICO score.’”

So what steps can you take to fix your FICO? Here are a few tips from The Times:

Force Credit Bureaus to Prove Your “Black Marks”

First and foremost, if you were late paying a bill from a company or bank that is no longer in operation, you could be in luck. Ask the credit bureaus to prove the black mark on your record. If the credit reporting bureaus cannot verify the accuracy of those late payments, they are required to remove it. In this tough economy, this scenario can be more common than you think.

Make the Most of the Money You Have
Next, instead of paying off a mortgage, a student loan or other installment debts, focus on cutting back on credit card debt, a commitment to your financial future that will also give your score the biggest lift.

Prepare Your “Doctor’s Note”
As has been well reported, more and more potential employers are pulling credit scores as a way of weeding out what they may perceived as a less responsible applicant in a large candidate pool.

To mitigate a poor score, The Times suggests adding the “equivalent of a doctor’s note to each of your reports explaining your hardship, like a job loss.” While your score itself is not impacted by the note, all three major credit bureaus allow you to add these types of statements online for the benefit of those who could care.

Use Secured Cards When You Can
Getting a traditional unsecured credit card can be tough when you have a checkered credit history. But experts say that having a card with a low balance that’s paid down regularly is the best way to improve your score more quickly than doing nothing. The solution? According to The Times,  “Secured cards, if used strategically, can help nurse your credit back to health more quickly. These cards require you to put a set amount of money in a bank account, say $250 or $500, which is used as collateral. And the amount of available credit should be equivalent to the amount on deposit….But read the fine print before signing up. Consumer advocates said some unscrupulous card issuers have charged the security deposit to the card. And be sure the issuer reports your payment information to the big three credit bureaus, since not all do.”

Consider a Credit Union
The Times suggests talking to a credit union: “These institutions may be more willing to work with members who have checkered histories. Their offerings vary, but they may be more likely to consider alternative credit scores, offer free credit counseling or have products tailored for people with poor credit histories.” From credit-rebuilder loans to lower interest rates and fewer fees, Credit Unions offer unique financial incentives that can pay dividends over time.

In Part Two of this series, we’ll discuss what to avoid when trying to cure your score.