One of the fastest ways to boost a score is to lower your debt utilization ratio-the difference between the amount of revolving credit that’s available to you and the amount that you’re using.
One simple way to improve your ratio is to redistribute your debt. If you have a big balance on one card, for example, you could transfer at least some of the debt to other cards. It’s typically better for your scores to have small balances on a number of cards than a big balance on a single card.
You also could investigate getting a personal installment loan with your local credit union or bank, and use the money to pay down your cards. Applying for the loan may ding your scores a bit, but that’s likely to be more than off¬set by the improvement to your scores from reducing the balances on your credit cards. (Credit scoring formulas are much more sensitive to the bal¬ances on revolving debt, such as credit cards, than to the balances on installment loans.)
A riskier strategy might be to take out a 401(k) loan. These loans don’t show up on your credit report, but you do face a big hazard: Ifyou lose your job, you typically have to pay the money back quickly or you’ll incur taxes and penalties on the balance. If you decide to take a 401 (k) loan, make sure you’ll be able to repay the loan quickly to minimize the risk.
Whatever you do, don’t cash out a 401(k) or withdraw money from an IRA to payoff credit card debt. A few points’ difference on your credit score is not worth the short-and long-term costs you’ll pay for a premature withdrawal.
Although moving debt around can lift your scores, the best strategy for your numbers and your finances long-term is to payoff revolving debt either out of your current income, using cash that’s sitting in a savings account, or selling stocks or other investments, so long as they aren’t in a retirement account.
