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4 credit-building steps to land you in the 700 club

Allie Johnson

December 16, 2015

While there's no one magic number that signifies good credit, a score of 700 can seem like a holy grail for those who are rebuilding credit. With the right strategy, this good credit rating can be within your grasp.

Achieving a FICO score of 700 is a much more realistic goal for many consumers than getting to the coveted 800 score, says Rob Pitts, director of Consumer Credit Counseling Service of West Georgia/East Alabama. And while it varies by lender, a credit score of 700 and above is generally a threshold at which a consumer moves from the land of fair credit toward good. “It's where some lenders start to say this is an acceptable risk,” Pitts says.

However, some consumers have a tough time getting from the 600s to 700, says Debbie Oliver, a credit consultant and certified FICO professional in Phoenix. In fact, Oliver rebuilt her own credit in the past — which is what got her interested in helping other consumers. She says that for quite a while her own score wouldn't budge from 680 to 700. “I was taking all the right steps, but it just takes time for credit to heal,” Oliver says.

Improving your credit does indeed take time. But if  if you're striving to join the 700 club, here are four steps that might speed things along:

1. Pay down your balances. Did you put an expensive car repair on plastic, finance a big remodel with cards or go crazy buying pricey Christmas presents on credit? If you're carrying a high balance on one or more credit cards, that alone can be enough to hold down your score, Oliver says.

A lot of times, all you have to do is pay down your balances and your score will go right up.”
— Debbie Oliver,
a credit consultant in Phoenix

In fact, the amounts owed category makes up nearly one-third (30 percent) of your FICO score, according to myFICO.com “A lot of times, all you have to do is pay down your balances and your score will go right up,” Oliver says.

Even if you pay your credit card bill in full each month, your credit-use ratio might be lowering your score without you realizing it, says Howard Dvorkin, a CPA and chairman of Debt.com.

For example, if you have one card with a credit limit of $1,000 and you charge $900 worth of groceries and household goods on it every month, it looks as if you're utilizing 90 percent of your available credit, depending on when the card issuer reports to the credit bureaus, Dvorkin says. “That's a problem,” he says, adding that you never want to be using more than one-third of your total available credit.

Having plenty of available credit free shows you can manage your debt well and that you'd have the resources to handle an emergency, Pitts says.

While working to pay your credit card bill in full each month, you can also call your card issuer to request an increase in your credit limit, so your current debt will take up a lower percentage of your available credit, Oliver says. Your request may or may not be granted, but it's worth a quick call to find out.

2. Pay your bills on time. Your payment history counts for 35 perfect of your FICO score, so it's more important than any other factor. Often, consumers stuck with a credit score in the 600s have one or more late payments on their record, Pitts says. “Even one delinquent payment can dock 20 or 30 points from your score,” he says.

If you have only  one late payment to a particular creditor, you can call and ask for a “goodwill removal,” Oliver says. Explain that you've been a good customer for years and you made one mistake, and then ask your issuer to remove the late payment from your record. “The worst they can say is no, and it's definitely worth a phone call,” she says.

In any case, you can vow to never pay late again, Pitts says. The good news is that with late payments and other negative marks, the amount of time that has passed matters, according to myFICO.com. So, what you're doing currently matters more than what you did, say, four or five years ago. If you are now paying all of your bills on time, you should see an uptick in your score fairly quickly, Pitts says. “The effect is almost immediate,” he says.

Even one delinquent payment can dock 20 or 30 points from your score.”
— Rob Pitts,
director of Consumer Credit Counseling Service of West Georgia/East Alabama

It's also crucial to work on building a solid emergency fund so a crisis doesn't crop up and prevent you from paying bills on time, Pitts says. “That cushion will save you if your furnace stops working or your car's transmission goes out,” he says.

3. Hold back on applying for new credit. It can become a vicious cycle: You want to increase your score — for example, by getting a great 0 percent interest balance transfer deal so you can pay down your credit card balance. So, you apply for credit and get turned down. Then you decide to apply to another card issuer, and so on. This is a bad strategy, Oliver says. “You want to be really careful when applying for new credit,” she says.

Every time you apply for new credit, it knocks points off your score, Dvorkin says. And these dings, triggered by a hard inquiry when a lender pulls your credit history to assess your creditworthiness, stay on your credit reports for two years, he says.

If you're shopping for a car or home loan, typically, multiple inquiries made within a certain time period are count as one, according to myFICO.com. So, if you shop for an auto loan or mortgage, do your shopping within a 30-day period, FICO recommends.

4. Build credit responsibly. If you have credit cards, it's a good idea to charge something small every month, and pay it off in full to show you can use credit responsibly, Oliver says.

If you're starting from scratch, getting a secured card and possibly a secured credit builder loan from a small bank or credit union is a great way to build your track record and create a good mix of credit, she says.

Your mix of credit counts for only 10 percent of your score, but it can help to have both credit cards and installment loans in your mix.

If results don't come as easily as you expected, keep working at building your score, Pitts says. The difference between a score in the high 600s and the low 700s can land you better deals on credit and substantially lower interest rates, he says. For example, joining the 700 (and up) club could cut your costs by thousands of dollars over the life of a mortgage.

“It can save you an amazing amount of money,” Pitts says. “It's worth the effort.”

SEE ALSO: 4 steps to improve your credit score