1.
GET RID OF YOUR
COLLECTION ACCOUNTS, CHARGEOFFS AND LIENS.
Did you know that paying a
collection account can actually reduce your score? Here’s why: credit scoring
software reviews credit reports for each account's date of last activity to
determine the impact it will have on the overall credit score. When payment is
made on a collection account, collection agencies update credit bureaus to
reflect the account status as "Paid Collection". When this happens,
the date of last activity becomes more recent. Since the guideline for credit
scoring software is the date of last activity, recent payment on a collection
account damages the credit score more severely. This method of credit scoring
may seem unfair, but it is something that must be worked around when trying to
maximize your score. How is it possible to pay a collection and maximize your
score? The best way to handle this credit scoring dilemma is to contact the
collection agency and explain that you are willing to pay off the collection
account under the condition that all reporting is withdrawn from credit bureaus.
Request a letter from the collector that explicitly states their agreement to
delete the account upon receipt/clearance of your payment. Although not all
collection agencies will delete reporting, removing all references to a
collection account completely will increase the credit score and is certainly
worth the involved effort.
Chargeoffs and liens barely affect
your credit score when older than 24 months. Therefore, paying an older chargeoff
or a lien will neither help nor damage your credit score. Chargeoffs and liens
within the past 24 months severely damage your credit score. Paying the past
due balance, in this case, is very important. In fact, if you have both chargedoff
accounts and collection accounts, but limited funds available, pay the most current
past due balances first, then pay collection agencies that agree to remove all
references to credit bureaus second.
2. GET RID OF YOUR PAST DUE
ACCOUNTS.
Within the delinquent accounts on
your credit report, there is a column called "Past Due". Credit score
software penalizes you for keeping accounts past due, so Past Dues destroy a
credit score. If you see an amount in this column, pay the creditor the past
due amount reported in order to be current.
3. AUTHORIZED USER.
If you have a spouse or parent with
a credit card in good standing, you can ask them to add you as an authorized
user. They don't have to actually give you a card. But by being an authorized
user, their payment history on this card will also report on your credit.
4. GET RID OF YOUR LATE PAYMENTS.
Contact all creditors that report
late payments on your credit and request a good faith adjustment that removes
the late payments reported on your account. Be persistent if they refuse to
remove the late payments at first, and remind them that you have been a good
customer and that you would deeply appreciate their help. Since most creditors
receive calls within a call center, if the representative refuses to make a
courtesy adjustment on your account, call back and try again with someone else.
Persistence and politeness pays off in this scenario. If you are frustrated,
rude, and unclear with your request, you are making it very difficult for them
to help you.
5. CHECK YOUR CREDIT LIMIT(S) AND
EVENLY DISTRIBUTE THE BALANCES YOU ARE CARRYING.
Make sure creditors report your
credit limits to bureaus. When no limit is reported, credit scoring software
scores the account as though your current balance is "maxed out". For
example, if you know that you have a $10,000 limit on your credit card, make
sure that the limit appears on the credit report. Otherwise, your score will be
damaged as severely as if you were carrying a balance of the entire available
credit. Credit scoring software likes to see you carry credit card balances as
close to zero as possible. If it is difficult for you to pay down your
balances, read the following guidelines to maximize your score as much as
possible under the circumstances:
- There are different degrees that scoring software can impact your score when carrying credit card balances.
- Balances over 70% of your total credit limit on any card damages your score the most. The next level is 50% of your balance, then 30% of your balance.
- In order to maximize your score without having to pay down your balances, evenly distribute your credit card balances among all of your credit cards, rather than carry a large balance on one credit card. For example, if you are carrying a $9000 balance on a credit card with a $10000 limit, and you have two other credit cards with a $3000 and $5000 limit, transfer your balances so that you have a $1500 balance on the $3000 limit card, a $2500 balance on the $5000 limit card and a $5000 balance on the $10000 limit card. Evenly distributing your balances will increase your score. Another option is to ask the company if they will increase credit limit on a card. Just don't max out this card. Keep the ratios low.
6. DO NOT CLOSE YOUR CREDIT CARDS.
Closing a credit card can hurt your
credit score, since doing so effects your debt to available credit ratio. For example,
if you owe a total credit card debt of $10,000 and your total credit available
is $20,000, you are using 50% of your total credit. If you close a credit card
with a $5,000 credit limit, you will reduce your credit available to $15,000
and change your ratio to using 66% of your credit. There are caveats to this
rule: if the account was opened within the past two years or if you have over
six credit cards. The magic number of credit card accounts to have in order to
maximize your score is between 3 and 5 (although having more will not
significantly damage your score). For example, if a card was opened within the
past two years and you have over six credit cards, you may close that account.
If you have more than six department store cards, close the newest accounts.
Otherwise, do not close any at all.
7. OPEN BUSINESS CREDIT CARDS.
If you own a business, you should
not be using your personal credit on your business expenses. Obtaining a
business credit card should be one of the first steps in starting a business. Business
credit cards do not report to the personal credit bureaus unless the person
pays the card late. Given that fact, any debt carried on these cards does not
hurt the credit score if it is not reported. You can carry credit card debt on
these cards without hurting your credit score. Just apply for business credit
cards now to start building this segment of your credit. The best credit card
in this case is one that will help you build your business credit.
8. KEEP YOUR OLD CREDIT CARDS
ACTIVE.
15% of your credit score is
determined by the age of the credit file. Fair Isaac's credit scoring software
assumes people who have had credit for a longer time are at less risk of
defaulting on payments. Therefore, even if your old credit cards have horrible
interest rates, closing those cards will decrease the average length of time
you’ve had credit. Use the old card at least once every six months to avoid the
account rating to change to "Inactive". Keeping the card active is as
simple as pumping gas or purchasing groceries every few months, then paying the
balance off. An inactive account is ignored by Fair Isaac's credit scoring
software, so you won’t get the benefit of the positive payment history and low
balance that card may have. The one thing all credit reports with scores over
800 have in common is a credit card that is twenty years old or older. Hold
onto those old cards, trust me! Preparing credit is a slow and time consuming
process. Full knowledge of your credit profile and how it represents you to
creditors and credit bureaus is pivotal to full credit restoration success.
Credit bureaus always advise individuals that they have a right to dispute
their own credit files, but when the rights of the Credit Bureaus slow you
down, you know where to ask for help.
No comments:
Post a Comment