RSS7 Simple Tips And 5 Secrets to Increase Your Credit Score
In last weeks article I suggested that your credit score can greatly affect your real estate investment property’s cash flow. Today as a follow-up, we’ll go over 7 simple tips and 5 secrets to help increase your credit score.
7 Simple Tricks:
1. Always, always, pay your bills on time. Late payments and collections can have serious consequences on your credit score. Your payment history is a major factor as it represents 35% of your credit score.
2. Do not apply for credit too frequently. This will decrease your credit score because this is a characteristic of high credit risk groups.
3. Keep your credit-card balances low. If you’re “maxed” out on your credit cards, this will affect your credit score negatively. A good rule of thumb I’ve heard several times is to keep your credit card balances at or below 25% of your credit limits.
4. Fix any mistakes you have with the major credit bureaus right away because it can take time and have significant impacts. This entails getting in touch with the lender to verify that the information is accurate. If the lender can’t confirm or doesn’t respond, then the information is removed from your credit report. Also, if you have paperwork proving that the information on your account is false, send it to the credit bureaus and keep copies of everything.
5. Hang on to your old card because the credit bureaus reward loyalty. 15% of your credit score is based on the length of your credit history, and that includes the age of your oldest account as well as the average age of all your accounts. In other words, lenders want customers who will stay around and not move their accounts to whoever has the lowest current introductory offer.
6.Don’t bother to close accounts that have had missed payments or have had collections. Open or closed, they will be part of your past credit history for some time.
7. Being self employed is not good for your credit rating, fortunately you can plan ahead (as described in the 5 Secrets section). Many lending institutions, especially banks, won’t even look at you if you’re self-employed. If you plan on being self-employed consider a corporation because you can be “employed” by the corporation, however please note that even with a corporation it generally takes at least 2-3 years of consistent income before most lending institutions are ready to talk to you again.
5 Secrets:
1. For credit cards that are “maxed” out or have balances above the 25% rule of thumb, and you have no way of reducing the balance, fortunately there are other means to bring their ratios to more preferred levels. Remember that although the rule of thumb is to have no more than 25% of the maximum balance on credit, it doesn’t state just how much that 25% amount is in real dollars. Therefore another option is to increase your maximum balance. So for example, if you have a $1000 credit card and you owe $500 on it (a 50% ratio), then if you increase the balance to $2000, your ratio is now a preferred 25%! Just remember not to use the card anymore otherwise you will lose that preferred ratio.
2. Every time you do request a loan and the lender pulls your credit report, it generally reduces your score by a few points. It is part of the credit score formula to handle people trying to apply for credit and loans to live beyond their means. As another general rule, keep your loan processes within two-week periods so that all of the credit report lookups are bundled together to appear as one single request (such as trying to achieve the best rate for a mortgage).
3. Avoid using credit card introductory offers if you can. They might help you in the short run financially, or get you out of difficult debt, but as a long term solution they will most likely hurt you. Lenders want to acquire customers that are loyal because there is a cost associated for each loan. They would rather lend money to someone who is very likely to stay than someone who has a very unlikely to stay and move their money over at the next good looking introductory offer.
4. If you have little or no credit score, a quick way to bring up your credit score is to acquire debt. If you don’t pay off any debt, then how can you show that you’re a good borrower? Acquire some debt and pay it off. I’ve seen too many people looking to get their first mortgage denied simply because they’ve never acquired any previous debt before. They’ve paid everything in cash and they’re very proud, which they should be! However, you still need to establish a track record before someone will loan you bigger amounts, such as a mortgage. You need to prove your trustworthiness. Buy a car with a loan, get a credit card, get a personal loan, and basically establish some track record. At a bare minimum, borrow at least a few times before you go looking for larger loans.
5. For those of you looking to be self-employed, it’s crucial that you get all the loans you’ll need for at least 3 years now, probably even longer. Once you become self-employed it will be extremely difficult if not impossible for several years, therefore be prepared. Now I’m not saying use it, all I’m saying is that you get it. Increase the maximum on your credit card, get that line of credit, etc. Prepare for inflation, for future needs, etc. To use the cliché, an ounce of preparation is worth a pound of cure.
Related Article: A Lesser Known Secret Tip to Increase Your Credit Score
Hi,
I have tried to apply for a credit card this week as i turned 18 last saturday but i cannot seem to get one. i have gone online and checked my credit rating and it states that i have a bad credit rating. How do i sort this so that i can get a credit card?
Hi Natasha,
The first thing I would personally do is use one of the services such as Equifax to get a credit report on yourself (there are other services but this is the first one that came to my mind). Check to see if there’s anything on your credit report that might be indicative of why you have bad credit. Did you forget to pay something in full in the past? Was there a late payment? Is there an error on your credit report? Has someone used your identity?
Assuming that your credit report is ok, then I would assume it’s because you have no credit history. That is to say, no one knows if you’re a good borrower or not because you have nothing on record. In that case you might have to start with a secured credit card. This is almost like a bank card but it’s through the Visa/Mastercard network. All transactions will be secured by the money in your bank account, so it’s not really a credit card but it really does help to quickly build up your credit. These are generally offered by your bank.
You can also look for store credit cards. Most of these are more lenient and let you start small. Make sure to pay them and on time. These will help build your history as a good borrower. Yes they might have interest rates, but again, if you pay them off in full and you’re only trying to build your credit history, you shouldn’t have to worry.
The idea is that at 18 you generally have no credit history, so you need to start building it. Start small and build up. Within 2 years you should be able to really boost your credit if you do it right! That’s about what it took me to go from no credit to being able to get almost any loan with no collateral.
Hello,
I am in debt for 9622.00 at this point i tried to setlle with the credit card companies but they do not want to. Should i consolidate eventhough people say it is not good?
Hi Jenny,
I honestly can’t give you any real advice with the little amount of information you’ve provided here… Why don’t they want to let you settle? Do you have other debt? What is your yearly income? Now I DO NOT want you to answer these questions here on a public forum, but what you might need to do is take a step back and analyze your full financial situation. Determine where you are exactly and go from there. There could be a number of reasons why they don’t want to settle, and most often it’s because you’re capable of making the payments. Remember at the end of the day, they want to make money and too don’t want to lose money. So they probably believe that you can make those payments.
As for consolidating, it depends on how you do it. If you migrate all your loans into one larger one with lower interest and lower payments, that can be a good thing. Just remember not to go further in debt because you reduced your payments, which is what a lot of people do!!!
If you do use a service to consolidate your loans, then please be careful. Don’t get me wrong, some services are great, but a lot of them have shady practices! You need to read the fine print, it’s up to you to be careful. I therefore generally suggest that you take the helms and try to go to a local bank and see if they can’t help you first with a consolidation loan.
Again, without any more information, it’s very hard for me to give you any really meaningful advice because I only have a very small snippet of the whole picture!
Hi, I’m 23 and I’m just starting to worry about my credit. In the past I have made some mistakes that have ruined my credit and now I’m trying to figure out how to fix them. I’ve made many late payments on some accounts and I was sent to collections once. I just finished paying off the bill that was sent to collections but it still looks like I have pretty poor credit. i know I have an unpaid hospital bill for around $300 and i’m working on paying that off. Would opening a credit card hurt me or help me in any way at this point? Someone told me that if I got a credit card just for rent, say, and paid it off every month on time it could increase my credit score, is this true? If not, is there anything else I can do to help fix it?
Hi Laura,
As you’ve probably noticed from the pie chart above, your credit score is calculated from a number of factors, including your ability to get new credit and your ability to pay your credit. Having outstanding debt that is past due is your biggest issue, get rid of that ASAP. Nobody likes to deal with people who have deliquent debt. Would you?
If you think about it after that, who would you want to lend your money to? Someone who has a history of paying their debt in full and on time right? This is what they were suggesting by you getting a credit card to pay for your rent and paying it off every month. It’s to establish a history of proper payment.
Now there’s nothing that says you can’t do both at the same time, the only thing though is that you’ll probably find it hard to get an unsecured credit card if you have deliquent debt, at least one that doesn’t have astronomical interest rates. This is why most people, when they start their credit building, will use secured credit cards. It helps to build up this history without costing you an arm and a leg in interest payments.
It’s all about building up your score. Focus on where it’s most important (the biggest pieces of the pie chart) and where you’re weakest, and build from there.
Hi,
I am a teacher in the process of purchasing a home. I filed chp 13 3 yrs ago and am now waiting for a discharge any day now, it has been paid in full. I have begun to rebuild my credit, I have several department,gas and bank cards, and my credit scores are 571,563 and 563. I need to boost the scores up to 580 in 30 days or less to qualify with my lender. I plan to pay off my cards as most of them are maxed out. What other tips would suggest for boosting fico scores ASAP? Thks.
Hi Joyce,
Firstly congratulations for getting out of chapter 13, I’m sure that wasn’t easy!
In regards to your question, other than paying off your credit cards I don’t think there’s much you can do over a very short term like 30 days.
You have to remember that the credit scoring system is designed in such a way to try to prevent people from gaming it, especially in the short-term, which is why many aspects of it take time. For example, your payment history is a major part of the score, this is not something that happens overnight.
You also have to look at it from the perspective of the person lending you money, they want guarantees that you’re stable and going to pay them back. If it was possible for you to greatly alter your credit score every month (at least positively), then it wouldn’t be useful to them, and they wouldn’t use it. They want a stable history of good payments. The keywords being “stable history”.
And this is where sub-prime lenders come in. They’re willing to forget some past indiscretions in exchange for higher interest rates. This is how they balance the risk.
In either case, other than what you suggested, I don’t know if it’s possible that you can positively alter your credit score that much within 30 days… If you can, I’d love to hear more about it!!!
Hi,
Thanks for responding to my previous inquiry. A couple of days ago,I obtained a copy of my scores from 3 of three bureaus; they were in the 597 range.
Yet, when my lender obtained my scores about ten days ago, they were 577,563 and 563. He says there is a different scoring system when obtaining a home vs a car or credit card.
How could the scores be so different? (about 25 pts) He uses Landsafe. Thank you for your help.
Also, I purchased the RAISE YOUR CREDIT SCORE item advertised on this page and I was unable to download it despite installing the Adobe reader it required. I would like for you to email me this item, mail it by US mail , or offer a refund if you are affiliated with this product.
Thanks.
Hi Joyce,
Firstly, that’s great news that you were able to increase your credit score by so much in so short a time! Also, to let you know, different credit rating agencies have different scores. For example Equifax will have a different score than Landsafe. They’re usually in the same ballpark (within 25 points is not unreasonable). Also, each lender has their preference of which company they use, so although you may pass with one agency, if your lender doesn’t use them, unfortunately there’s nothing you can do.
In regards to the products advertised on this site, unfortunately I’m not affiliated with them. They are ads provided from Google, and Google decides which ads to put on a specific webpage based on it’s content (and almost every time someone visits the site, the ads are different). I actually have no say as to which particular ads will be displayed, only that I wish to have Google provide me with ads. This advertising program is called Google Adsense. You can find more information about it here. You can also view their quick tour here.
Hi,
Because of divorce, I filed Chapter 7 bankruptcy. It was discharged 6 months ago, how can I rebuild my credit? Also, do my rent payments to my landlord get reported? Thanks.
I filed for Chapter 7 almost 5 years ago, you will be able to slowly rebuild your credit score like I have. My score is now around 670.
You need to wait until you get offers for credit cards in the mail. Those offers will be for low limit, higher rate and fee cards. I got my first revolving credit account through Household Finance after I filed…I believe about a year after.
It will cost you more money to get money, but it will work out in the end. When you get the card use it a little…for gas here and there and make sure you pay it off every month. Never run balances on cards over 30% of the available limit.
I don’t think rent helps, unless possibly you rent from some huge corporation that owns complexes like AMLI or something. It is interesting, renting didn’t help me, but I am willing to bet if I had not paid it would have hurt!
Hi Victoria,
I think Rich worded it very well! It will take some time, and at first it will cost you more money to get money. That’s just part of the process, you have to re-establish yourself as a worthy lender. Just think about it if someone borrowed money from you and went bankrupt? Would you lend them money right back or would you want them to prove themselves first… The same is true with larger lenders.
As for rents, they generally don’t help you unless you can pay it with a credit card, etc. A normal landlord will not report a payment has been made to the credit report bureau. However, if you do default on your rent, a landlord can eventually call a collection agency on you, and they will definitely report you. So it’s always in your best interest to always make sure you pay your balances due!
Hello,
I made a few mistakes while in college and now I have horrible credit. My credit score is 600. However, it’s all paid off, I have no debt. No credit card company will approve me so I can’t build up my credit. How is it possible for my to improve my credit score?
Hi Lauren,
The only way to start when no one wants to even give you a credit card is to get a “secured credit card”. This is basically the same as a bank card except that the transactions are processed through the visa/mastercard network, hence building up your credit.
A “secured credit card” is a credit card which is generally linked directly to a bank account, and you can only use as much as is available within your bank account. So as I mentioned, it’s essentially a bank card through the visa/mastercard network.
You’ll have to do this for a while, but you’ll find that you’ll eventually start to get credit card offers. Also, to speed up the process, you can generally get store credit cards before you can get credit cards from the major credit card companies (Visa, Mastercard, etc.).
Hi,
I’m looking to improve my credit score to purchase a home/Condo. My credit is poor(583) I have three credit cards that have been paid off in the past couple of months should I have the accounts removed from my credit report? The problem is they are the oldest cards on my report. Can you remove a card from your report after you finish paying it off or wait for six years. Besides time how can I raise my score?
Thanks,
Hi Mike,
In regards to having the accounts “removed” from your credit report, unfortunately this is not something you can do. This is done by the credit bureaus. Otherwise as you can imagine, everyone would remove all their bad debt from their credit reports.
Additionally, you generally don’t want to remove a credit card from your report if you can (assuming its in good standing). The more reliable you are the better. However, if the credit card has missed payments or defaults, then unfortunately there’s nothing you can do other than wait.
As for improving your credit rating, the best you can do is as suggested in the list above. And as you suggested, time really does help.
You really have to look at it from the lenders perspective. They only want to lend to reliable people who will pay them back, otherwise they’ll charge you more to borrow money (higher interest rates, etc. because a higher percentage of people will not pay). Would you lend your money to someone who has a history of consistently paying and on time or to someone who has a bad credit history? The same can be said for them.
Hopefully it won’t take you too long to increase your credit rating. I can’t say for sure, but if you become a “good” borrower (pay in full and on time), then it might come a lot quicker than 6 years…
This is simply a GREAT resource for anyone looking for a loan, credit card, payday advance, credit report, and more. Great reference source…
Hi Steph, thanks for the great resource. I’ve a question, what’s the highest credit score can one get?
Thanks.
Hi Sam,
Thanks!
And for your question, I believe the highest score is 850. I’ve seen people talk about 900, but I don’t believe ever seeing that.
Awesome article, thanks for putting it up! I have a question: after missing a couple of payments on two different cards (by no more than 30 days), I saw my score go from 760 to less than 600! Granted, I’m maxed on a couple of cards and can only afford the minimum.
Besides making on-time payments, what else can I do to increase my score again? And can I realistically expect them to go back up within 6 months to a year?
Hi Leo,
You’re welcome. In regards to your question, other than paying on time, probably the other biggest thing you can do in the short term based on your comments is reduce the balance on your loans/credit cards to below 25% (remember this can also be done by increasing the maximum amounts, just be careful not to spend this extra credit).
As for how long it will take, I don’t know, it depends on how much you missed your payments by, what amount, etc. I would say a more realistic timeline is two years. It’s probably doable in one, but I would lean more towards at least two years.
Hi, I have a credit card with a limit of 300 dollars, Its my 1st credit card i’ve had, I almost have it maxed out at a 280 dollar balance. I know thats way over the 25% limit, but if I pay 3 times the minimum payment each month on time (which i can easily afford) would that do any good to my credit? or should i reduce the balance to 25% of my limit, and pay the minimum each month?
Hi Ivan,
I know it’s suggested that you keep a 25% balance, but I wouldn’t worry so much about your credit score if all you have is one credit card with a limit of $300 because it’s a small amount. At some point it the balances become less important than paying on time. In your case since the balance is so low, I would worry much more about paying on time than anything else.
Great! Thanks so much for the info!
You’re welcome.
Hi Steph.
Great resource! Thanks for the article.
Here’s my situation… I was sent to collections back in 2001 for a small debt ($70) for a utilities bill I never paid. This actually came to my attention only several years later (2005) since nobody had contacted me about the collection. I decided not to initiate the contact myself and let it “expire”.
The account now says “Closed” on my CR and the last update was in mid 2006. They actually noted KD (Key Derogatory) on that account for the last 3-4 reported months.
My question is this… when does the counting begin for the 7 years that need to pass for a negative entry to expire? In my case, is it 7 years after the account was opened (2008) or after the account was closed (2013)?
Also, since the account is closed, would paying that $70 help my credit scorte?
Thank you for your help!
Hi Mike,
Firstly, paying your unpaid bill can’t hurt. That would be the very first thing I would do.
The bad news is that because it wasn’t paid in the first place, paying it will not fully resolve your issue. It will still be considered late. However late is better than never paid!
In terms of what really constitutes the last 7 years, that’s a very good question. And to be honest, I’m not entirely sure myself. But if I had to guess, I would say the last 7 years would be from the day the account was closed rather than opened. You have to remember that people who use this service are trying to see if you’re credit worthy, so it’s to their advantage to report the most possible recent information as possible.
Hi Steph,
I came across this website its a good source of information on credit scores etc. I have a question for you i am having one credit card of 500$ which is my first card(since 1&half years 12.30% APR)& i am having other card of 6000$(1 month & 11.50% APR) which is my most recent card,1 store card of $500 since my credit is improving i started getting offers now with lower rates do you think i can go with one more credit card which is tempting me as it is more cash back rewards..and lower APR(8.9%). I have never missed any kindaa payments in my credit history of 1 and half years…and i do have one car loan as well of debt 1900$. Can i go ahead with the new credit card which is giving me good offer..Thanks for your help in advance….
Hi Trush,
This is a very personal choice and it depends on what you want to accomplish. One thing you might want to consider is calling your current credit card company and asking for a rebate. That often produces interesting results.
As well, be careful of “introductory rates” which can drastically change within a few months. Or hidden fees. As long as you research the credit cards, know what you’re doing, and just make sure you’re not using your credit cards as a way of spending money you don’t have.
Otherwise I wouldn’t be overly concerned either way for your credit score in comparison to what the credit card companies offer you (again assuming you’re not using your credit cards to spend beyond your means).
Hi. I have a credit card, I would like to know if paying your credit card bill weeks ahead of time is a good or bad idea? Or if there is a best time to pay your credit card bill before its due date? Does it matter at all?
Thanks
Hi Ivan,
Paying your credit cards ahead of time is never a bad idea. The question is, as you said, is there any advantage to you to paying ahead? Other than reducing your chances of accidentaly making a late payment, my understanding is that credit cards companies just want to make sure you pay on time.
If you actually look at your credit report, it doesn’t really show if you’re payments are early, it only shows if they’re late and by how much. I also can’t really see any credit card company notifying credit rating companies of early payments. What’s in it for them…
Great! You’re absolutely right! Thanks so much!
Hi Ivan,
It’s great to hear it helped you. And best of luck with the future!
Hi
I appreciate the information you provide. I was wondering.. I have deferred college loans. Some of them report as transfers and others as deferment. Do loan holders look down upon deferred payments or transfers?
Hi Ann,
You’re welcome. And in regards to your question, I honestly don’t know how deferred student loans will affect your credit rating…
If you find out, please let me know (as well as the source of where and how you found out). Although I’ve already paid all my student loans off, I’d be interested to know nonetheless.
I was about to get an apartment with my girl friend but it seems her college who she worked out a payment plan with and is making payments toward keeps putting her key derogatory regardless. Is that legal? It certainly is not ethical. She has worked hard to get all of her credit card debts squared away and is making payments but her score is dropping lower and lower.
Can we dispute this and win?
Hi Eric,
To be honest, without knowing the details of your case I can’t tell you yes or no. You probably want to contact them again and figure out why they are doing this? Perhaps there’s something else going on? Maybe something was missed somewhere in the paperwork. The bigger the entity the more it’s about filing the correct paperwork (dotting all your i’s and crossing all your t’s). It’s possible that a piece of paperwork within their own process was done incorrectly…
If contacting them doesn’t solve it, you might want to contact a local professional (such as a lawyer, etc.) to see what they can do to help you out. At the very least they could tell you the full extend of your options are for your local area.
I have pulled my credit report and would like to clear up some outstanding medical bills, but on the report it doesn’t say who they are, just that they are medical. How can I get this information?
Hi Karen,
The first thing you can do is contact the company who gave you your credit report and get a more detailed secondary report. Most of these companies will offer more information, but it will cost you more than the basic credit reports.
Recently we applied for a mortgage loan, due to sub-prime mortgage mess, we had approval and then overnight the bank went belly-up. Our credit score was 574. We then tried looking for other banks to get approved but every-time our credit was pulled it was decreased by 5point within 2wks time credit went from 574 to 554! We told the banks we have a credit report indicating 574 in 1st wk of July and that we thought that all credit report will be considered as one when your trying to get a mortgage, not so…
So the next step is to payoff all the debt we have in credit report.. We have applied for automatic payment to be deducted from our bank account to all our credit cards. During 2003, my fiance consolidated all his debt and close all his credit card account. Which I believed hurt him than actually help him.
We are planning to take one month and pay off all the bad/charge off debt.My question is, how long after paying the debt, will our credit increase? Will increase our credit score monthly an if so how much? We are hoping that by end of 2008, we at least can have a credit score of 650 to qualify for mortgage.
Thank you
Hi Jeanette,
Yes it’s unfortunate, but every time you someone does a credit check for a mortgage (or almost any other loan) it will cost you about 5 points. This is to avoid people fraudulently using their credit to quickly make a lot of loans which they can’t possibly pay back. The good news on that side is that those little 5 points quickly bounce back.
As for how fast will payments affect your score, that’s hard to say. You have to remember that most of these formulas are kept very secretive to avoid fraud. That being said, if you pay off all your credit card debt it can’t but help. However if you have payments that were in behind, it may take longer. Without having a full financial picture, it’s hard to tell…
Just look at it as though you were the lender. You’d want to make sure the person you lend money to is going to pay you back. If they have recent reports of missed payments, especially if it’s a lot of missed payments, and so on, odds are you wouldn’t be first in line to lend them money. The same is true for banks. But if they’ve payed off all their loans and look like they’re back on track, odds go up (as does your credit rating).
At the end of the day it’s good to think of it from the other person’s lenders perspective. The more appealing you make yourself as a borrower, the higher your credit rating and the more likely you are to get loans and mortgages.
First, very informative information, thank you! Now my question: I am going to refinance my house in almost exactly a year. My wife and I have okay credit (660-690) but would like to raise it to at least 720 before we refinance for obvious reasons. We intend on paying our credit card balances down to almost zero. We are thinking of opening a credit card with Home Depot for some discount and rebate purposes; if we do that do you think that our score will decrease or increase 12 months from now? We plan to pay our bill on time and keep the balance as low as possible. What are your thoughts about this? Let me know if I’m not being clear enough. Thank you in advance for your advice.
Hi Rob,
You’re welcome. It’s good to hear you’ve found it informative.
In regards to your question, I can’t honestly accurately predict because it depends on the specifics of your full credit report and history. There’s just not enough information. In addition to this, anyone who says they can predict to that degree of accuracy with just this information is probably not being fully truthful to you.
For example there can be as much as a 25-50 point discrepancy between different credit rating agencies. In addition to this, it depends on your full history. The algorithm is too complex to determine to within as little as 30 points of accuracy. Especially without the full details which I would never ask you to share here on a public forum.
Nonetheless, if you continue on your current path, keeping all your balances under 25% of their max, avoiding getting too much credit (for example there is also a total cap as a percentage of your income you can borrow), etc., then you should do well.
Although I can’t say for sure that it will or won’t hit 720 or higher, what I can say is that you’re heading in the right direction.
Hi, My credit score was pretty bad last feburary, but I paid everything off onvce I saw how much debt I owed still. It was old medical bills and such. I’ve paid everything off that was on my credit report right away. Now since its been a whie, Im wondering how my score is.Do I now need to send in the recipts that I recieved that shows I paid off the individual accounts? Or will that automatically be reported to the credit bureaus?
Hi Zsazsa,
You don’t need to send in anything. Everything is automatically done for you by the credit bureaus. If you had to send in items to them, I doubt anyone would send in anything negative
If you want to know how you’re doing, the easiest and quickest way is to get a credit report from one of the major credit bureaus. That will give you a good idea (they vary slightly, but they’re all in the same ballpark).
Great answers, and very kind approach. Those of us with credit problems are used to the opposite, and I say thank you! My score is horrible, about 583. Post divorce, I just didn’t do very well about paying bills for a bit. I have done much better in the last year or so, and my report shows steady payments on all my accounts with two exceptions. These exceptions are from a bank that I (and my ex) had two credit cards with. They became my responsibility in the divorce. After they became very delinquent (all my fault) I did reach a settlement with a collection company, and paid a lump sum. It was supposed to be for both cards. Later, the bank sued me on one. I got a lawyer and denied their claims. They finally abandoned the suit, but now they still try and collect, and still show their version of the accounts on my reports. My income has greatly increased, and I have much optimism about my ability to pay off my debts soon. But, this is going to be a big hurdle for me, if I try and buy a home, etc. Any thoughts at all would be appreciated. Thanks again!
Hi Rich,
Unfortunately in your case you’re stuck between a hard place and a rock. On the one hand you can try to clear up this amount which will take time and affect you financially. Maybe it will prevent you from buying a house. Maybe it will increase your interest rates on all your new loans, including your mortgage. This is unfortunate but it is costing you more than just the amount (the extra interest you have to pay).
As an alternative, you can decide to pay the amount, or reach a settlement again. I know this isn’t fair, but it might be worth it. Without knowing the details and the amounts, I can’t tell for sure. You’ll have to personally do the calculations of how much it’s worth to get rid of that from your financial records. Depending on what you come out with, you may be ahead just paying it, even if it’s unfair…
There may be alternative options, but without more details these are the only options I can come up with. Yes I agree it’s not fair, especially if you agreed to a settlement, but it might be worth just paying it if it costs you more. Only you know for sure.
Is it better to pay the collection agency for a bill or the oringinal creditor? My husband has a bill listed on his credit report once form the original creditor and twice from a collection agency which is a duplicate. I also had a bill that was paid two years ago and I called the collection agency and asked why they keep reporting it when its been paid. I was told they will continue to report it for another two years. I understand that what originally goes in the credit bureau will stay there for seven years even after it is paid, but how is it that a collection agency is allowed to continue to report a bill that has been paid.
Hi Karen,
If your bill has been moved to a collection agency, then you should generally be dealing with them.
A collection agency basically buys bad debt from companies for pennies on the dollars in the hopes of collecting more than they paid.
It’s a win-win scenario because the company gets some money, which is more than none. And the collection agencies are generally able to collect more than what they paid for rights to the debt.
That being said, I’m not sure what you mean by reporting. If you didn’t pay the bill on time, it will show up on your credit report as late. You can’t just erase that by paying it later. If that we true, then you could just postpone paying all your bills until the end of the year, pay them all at once, and your credit rating wouldn’t be affected after the payment date. That’s not good for anyone. So even though you paid the amount, if you paid it late, it will stay on your credit report as a late payment.
It’s possible that I’m not fully understanding what you mean by reporting a bill that hasn’t been paid. If there is a record on your statement of an unpaid bill and you have paid it, then you should be able to change it to a paid in arrears status…
I have several accts listed that are over 7 yrs old that have been paid in full with postive payment record with no late payments. If I request these to be removed will this increase my credit scores or make no difference?
Hi Karen,
I don’t quite understand… Why would you want to remove a history of accounts that are positive? People who lend you money want to see a positive history of on time payments.
The only time you should ever want to erase your history is if it’s negative. A positive history is good.
Without knowing all the details I can only guess, but I would assume that removing positive elements in your history may actually reduce your credit score! The more positive items you have in your history the better.
Hello! Great advice here. I’m still fairly young and have a few questions on my credit. My credit score was a 645 last year but because of medical bills I didn’t pay and I’m over the 25% on my credit cards it’s now a 583. I just got a new job and am looking to purchase a condo. How bad is a 583 credit score in the eyes of a lender? Is there a chance I won’t get pre-qualified or able to get a mortgage at all? I’ve never missed a payment on either of my cards, do they take that into account, or just the score? Thanks so much for any help!
Hi Ashley,
Thank you!
In regards to your question, that’s something I can’t answer. Right now as the mortgage market is tightening, the qualifications are also changing. The best advice I can give you is to apply for pre-approval.
Also you have to realize it’s not just a matter of getting a mortgage or not, it’s at what interest rate. With a score under 600, I suspect that if you are able to get a mortgage, it will be at a much higher interest rate. The interest rate is what might make it unfordable. You have to balance this.
As for never missing a payment on your credit card, yes everything is taken into account. However what usually stands out are missing payments. One missed payment is worse than a years worth of on-time payments. Think of it from the other side. When you’re working, you expect your employer to pay you on time. You too have obligations based on that revenue. People who loan you money are in the same boat. They too have obligations due that need to be paid with the money you owe them.
That being said, the best advice I can offer you is to try. However with a score under 600 it will be very difficult. And if you get a mortgage I fear the interest rate may be very high and unappealing…
Steph,
I have been looking all over the place for advice on something. I have a $3500.00 collection account on my credit. It was for an apartment I lived in 5 years ago with a roomate. She was on the lease and i was only an occupant. I never signed the lease. I have a copy of it. I have worked with the collection agency and they said that they won’t remove it but they will mark it as a disputed item and if i want it removed i will have to go to court. I don’t understand why I would have to take them to court if i never signed the lease. I contacted one credit bureo and disputed the item but they didn’t seem very helpful and told me not to send them the copies of the lease that i have. please help I am trying to purchase my first home and this is the only negitive item on my report.
Hi Erin,
To be honest without the detailed specifics (not just the lease agreement but the local area laws) there’s no way for me to know why the collection agency is contacting you. By what you’ve said it doesn’t make sense, but they must have some legal reason or other… Doesn’t mean it’s right.
I have a feeling that you will have to seek legal advice. It may or may not go to court, but a lawyer will be able to figure out exactly what’s happening and give you several options to deal with this.
I’m truly sorry to hear about your situation and I hope you can get it rectified sooner than later.
I am trying to rebuild my credit, and for starters I wanted to know, what would be better, using one line of credit (i.e. credit card only) or multiple lines of credit such as loans ,a few credit cards etc…money isn’t a worry for me at this point, i wouldn’t mind paying some heavy interest if it brings my score up..
thing is I have been named in a will, and will be receiving 5 figures of cash from the estate, but I can’t even get a credit card?!?@? must I take the money out of the estate and stick it in my bank, or is there something i can do to show them the money, so it can help my credit. Otherwise Im about to invest it with a company that will manage the money for me…
Hi James,
Like anything, what lenders are looking for is a history of good debt repayment. This doesn’t mean you need to pay a high interest to get a good credit score. It means you need to establish a history, and this takes time.
Because you can’t get a straight credit card, you may need to look at a secured credit card. It’s the same as a credit card, but it’s backed by the money in your bank account. In essence, it’s almost like you prepay your credit versus the other way around. It’s more like and ATM card than a credit card, but it works really well.
It’s not ideal, and it takes time. But you need to establish a history. These things just take time. You can only expedite them so much…
[...] Related Article: 7 Simple Tips And 5 Secrets to Increase Your Credit Score [...]
I have decided to purchase a home with some money i have saved up through the years and have a credit score of 735. However, i have a maxed out credit card. I called the bank and had them increase the credit limit, which they did for a substantial amount, but now i am being told that that wasnt a smart thing to do. My gross monthly income is $2800, and my credit card now has a credit limit of $12K. before it was maxed out at $4k. The mortgage broker is going to start processing the loan within the month and the closing date is set for June 1st. Did i just do myself under by having that limit increased?
Hi Benjamin,
I don’t think you did yourself under. In actuality it’s better to have a lower balance as a percentage of the limit on a credit card, well below the max which yours is. And with your credit score of 735, I can’t imagine you not getting a mortgage… If anything I believe you’ve helped yourself.
After recovering from a divorce a year ago, I have made a conscious effort to work on my credit score. I have a credit score currently of 612. I also currently have two credit card accounts (both I’ve had for a year). I have just paid off both in full. Beyond that, my only debt is a car loan which I am paying on time as agreed. I’m figuring since it has not been more than 30 days, that I have yet to see the positive effect of my full payments. As for my past, I have already cleaned off most of the bad stuff from my past history. I still have one charge off for a car loan, and two credit cards that were paid off and closed, and the rest will take another 2 years to fall off reporting. I do realize that all the negative history has had the same effect on my score. My score has been hovering back and fourth between 598 and 612 for the past 6 months. One thing I wasn’t aware that would’ve actually helped me is to keep my balances down to 25% of the cards limit (I was always at around 75%, but always paid as agreed). I would probably have a higher score today had I kept my balances low. I started from a 547 and went up to 623 last year, now I’m at 612. My goal is to get my score up to 670 or higher in about 45 days. Given all the information I have provided, how can I do this?
Hi Shawn,
First, congratulations on increasing your credit score! It’s always a great thing to see.
As for increasing your credit score by that amount in 45 days, I don’t know that it’s possible… A lot of your score is determined from your history, which takes time.
As well, you have to remember that credit scoring agency’s are trying to prevent people from gaming the system, otherwise you can imagine the chaos. The credit meltdown we’re experiencing today would be much worse!
But getting back to your case, I think that trying to increase your credit score by 60 points over 45 days is a very aggressive goal, especially since you’ve been playing catchup. I don’t know if that’s even possible. I suspect your history is having the biggest impact on your score, which means that you have to continue what you’re doing and wait.
Remember that people who loan you money want a positive history. Think about it from your perspective. Imagine that someone who’s been borrowing from you doesn’t have the best track record, but over the last year they’ve been cleaning up. Is that enough for you to lend them money or do you want to wait a little more to see if they’ll continue paying on time? You probably want to hold off a bit to make sure it’s not just a short-term effort to get more money from you before they lapse. That’s all their doing. And this is why it’s harder to increase your score very quickly over the short term beyond what you’ve done.
Hi,
Does asking for a credit line increase affect your credit in a negative way? Thanks
Hi Sara,
Asking for a line of credit will generally decrease your credit score by a few points as the financial institution is going to perform a credit check against you. A few points is nothing to worry about, unless you ask a dozen institutions, in which a few points becomes close to 30-40 points.
A few points are removed for each credit check to prevent someone from trying to manipulate the system by trying to get a large number of loans at once.
Steph,
I need some advice…should I pay off my student loans and continue renting for another year or take that money and put it towards a down payment on a house and continue to make monthly payments on my student loans? I am in the process of being pre-qualified for a house…My credit score is around 660 and am getting a decent rate. I’d appreciate your input. Thanks.
Hi Victoria,
I’d love to offer some advice, but without the full details I’m afraid that in your case it wouldn’t be valuable. It really depends on your situation, especially your cashflow, how much of a down you can make, and where you think the real estate market is going…
For example, if you use it for a down payment on a house and continue to make payments on your loan, that means your cash flow needs to cover two payments rather than one. This is a financially weaker position to be in, unless you have a really strong cash flow.
As well, if you think the market is dropping, then it might be to your advantage to wait. As well, depending on the size of your down payment, you could potentially put yourself in a negative equity position on your mortgage.
This is why I’m afraid I can’t give you any real concrete advice without the details. Not that I’m asking, yours is a particularly more detailed decision that needs to be made.
I read this part about the Lesser Known Secret Tip.
“…. It basically goes that for a creditor to list you as delinquent on your credit report they must be able to provide you with the original paperwork….If it’s lost, then by stipulation of the Fair Credit Reporting Act your defaulted obligation cannot be listed on your credit report.”
How do I do this? Would it be a dispute with the credit bureau or with the collection agency? Who would I file the dispute with? Thank you, in advance for your help.
Hi Christy,
This tip from my other post is one that I was made aware of by the Business Week article I linked to. Unfortunately, or maybe fortunately, it’s one that I’ve never had the opportunity to use and therefore can’t really help you in those details…
If you do find out, would you mind letting me know. It would be great to be able to post a follow-up article with the details of how to do this for everyone else. Especially from someone who’s had first hand experience! Please don’t be shy to contact me afterwards.
Hi there
I have a debit card from my bank, and am always used to pay everything for the las 4 years ,never cash, but in the cashier always asked if it is DEBIT or CREDIT ,and am alwasy respond CREDIT,that help to my credit score?same people saying “The card is not really help”
thansk.
Hi Juan,
I’m sorry Juan, but are you using your debit or credit card? Using a debit card doesn’t really help, it’s a straight out transaction.
Using a credit card on the other hand does help. It shows that you can manage credit. Of course you always have to be careful not to overuse it and get yourself caught up in debt.
Here’s the first surprise: “Debit or credit?” is actually an unfair, misleading question. There is no such thing as a debit card that’s used as a credit card. When you hand over a debit card, you are engaging in a debit transaction no matter how you answer. When clerks ask this question, they are really asking you to pick one of two ways they can process your debit – a PIN (personal identification number) based transaction or as a signature-based transaction. One costs the merchant a little more and one takes a little longer to hit your checking account, but fundamentally a debit transaction is a debit transaction.
Hi Shawn,
You hit the question dead on! There are secured credit cards but that’s not the same as a debit card. Using a debit card does not help your credit rating, which many people confuse. You have to be careful for that.
Thanks so much for the information!!!
Thanks but i don’t want to take full credit for the answer. I attempted to copy and paste the URL where I got the information, but it seems like this forum understandably does not allow for posting links. So I just pasted the paragraph from that page. I too was very interested in that answer. Glad to be of assistance.
And since I’m speaking, I would like to share my own success story and some information on my steadily improving credit scores. I started from 545 on the Equifax last year in 2007 around this time. Since then I have established 3 new credit lines with the sole purpose of improving my credit score.
I paid off or settled at least $2,500 in debt, leaving only a car note which I’m paying on time monthly. I have not been late on anything. I only use 4% to 10% of my credit limits on any of the three cards I currently have which I’ll mention later. I also got a lot of bad stuff off of my credit by simply challenging it. And the bad stuff that is left (one line item) - I just got a call from that company yesterday, in response to a Goodwill letter I had recently sent. That balance had been zero for some time now and so it is likely they will remove the late pay from reports.
At this moment my credit scores are EQ:645 TU:685 ES:676. I just got my third card from WAMU with a credit limit of $2,000. I only wanted this card to boost my credit score since my other cards had low limits of $300(BOA once secured, now new credit line extended) and $500(HSBC oops they just increased to $650), which all those creditors had initially refused to raise. With my balances being low and sometimes being completely paid off monthly on these cards with modest limits, this has continued to have a good effect on my history obviously. Even still with today’s gas prices and the economy, I’m finding myself pulling out a card more often than I would like. But I refuse to go deep into debt, as my balances never go over $100 on each of these cards.
EQ:645 TU:685 ES:676 does not reflect the possible effects of my good will letter, and does not affect the new credit utilization versus credit limit ratio. Remember I went from a total credit card limit of $800 to $2950 and I now only owe a total $168.00 on all three cards. I say all this to say that once everything is reflected in my three reports, I’m hoping to reach in the 700’s on all my reports. That has been my entire goal for the past 13 months. This is strictly to position myself for a home purchase at the best interest rate I could get. Considering the market and my new 700 plus scores, I’m expecting to have some serious negotiating room for a home loan. Once I achieve my desired credit scores, I’m going to rip up at least two of my cards and use the lowest interest rate. All accounts will remain open
I came from a divorce two years ago where I had hit rock bottom along with my scores, with debt collectors calling me daily. But today I speak to you hopefully from a inspirational position. By the end of this year I’ll be re-married and in a new home. I would definitely encourage you all to use some if not all the practices I did for overcoming debt. Pay down your credit card debt, Keep low balances, dispute what you can within reason certain line items on your report, try a good will letter if the balance is zero, pay on time every time, use a service that allows you to track any changes in your credit scores, use the credit cards to build good credit history, not live off of - and when you’re finished leave those accounts open with zero balances. Credit card companies are using you and your debt, so it’s only fitting that you use them. And check out two documentaries also with the following names: “Maxed Out” and “In Debt We Trust”.
I’ll be back here to post the new scores and share info again. Take care and God Bless!
Hi Shawn,
In regard to your comment “But today I speak to you hopefully from a inspirational position.”, that’s an understatement if I ever saw one!!! It’s not hopefully, you ‘re story IS, and I do repeat with capitals, IS inspirational!
You’ve definitely proven what’s possible. How to go from virtually no credit to good credit in a small amount of time! I can only wish you the best of luck. And thank you for sharing your story. It’s very inspirational!
And for those of you who don’t understand why Shawn is pushing so hard to increase his credit score, I’ve written a couple of related articles about this in the past:
How Your Fico Score Can Greatly Affect Your Cash flow
How interest rates can drastically affect real estate prices
Shawn is doing this for very good reasons! He’s positioning himself to be in a very strong financial position. Increasing his FICO score as he’s doing is going to decrease his monthly payments by hundreds of dollars each month! As much as $500+/month. And it will allow him to lock it in at a lower interest rate for a very long time.
Again Shawn, thank you for sharing your very inspirational story.
I am trying to apply to an apartment and have already been denied to one because of my credit. Is there a way around this other than finding an apartment who doesn’t check credit? Thank you for your help!
I know it may sound funny, but I am about $7 dollar over the limit on my credit card ($700 limit). If I pay that off, say $100 on my next payment and start to pay my credit card on time, will help my credit score right away??? Or does it take time?
Hi Ben,
In regards to getting around a credit check, that all depends on your landlords. Some people perform credit checks, others don’t. As an alternative, some landlords will allow tenants to move in if they pre-pay their rents (although this is much rarer because it can still take a long time to evict a bad tenant). Others might even be willing to increase the rent to cover the additional risks. In other words you might need to be willing to negotiate your rent in a creative way.
As for improving your credit, these things take time. Otherwise many people would be gaming the system. For example, many lending checks will assume that your credit card is maxed out, because you could potentially max out your credit cards 5 minutes after you leave the building.
Or what if I went to the bank a week before I wanted to get a mortgage, payed off all my credit cards (maybe with the help of friends), etc., and then got the mortgage. The week after I got my mortgage I could just re-max out my credit cards to pay back my friends. In this case the company/bank lending you the mortgage money is at a much higher risk.
Therefore the credit report bureaus intentionally delay the effects of payments. It’s for these very reasons. People want a history of on-time payments.
Another way to think about it, what if someone was borrowing the money from you? You’d probably want a consistent history of on-time payments. You’d probably want to wait and see if they can pay the next payment before borrowing to them. Sometimes it really helps to think about from the lender’s perspective…
I understand it doesn’t make it easier for you, which is unfortunate, but that’s the way the system works.
I am a college student, only 20 years old. My current credit score is in the 670s. I have a couple of student loans, 1 car loan, and a credit card ($3,000) with my husband. We have never paid anything late and have always paid more than the minimum payments. We expect to be buying a house in approximately 2 years. I know I have only been able to establish credit for a short while, but if I keep this up, would it be reasonable to think I could be in the upper 700s in 2 years from now?
Hi,
Due to circumstances revolving around an ex husband, we filed bankruptcy before our divorce 3 years ago. Since then, I paid off my car, obtained a credit card which I use 4-5 times per month and pay off in full before each statement date and have saved a significant amount which I put into short term CD’s whenever I find a good interest rate. My credit score for one reporting agency (the other 2 tend to be lower) is now 733. I’m continually trying to improve my credit score as my boyfriend and I will soon be obtaining a loan to build a house and was considering applying for a gas rebate credit card. Will that hurt or help my credit? And are there other things you could suggest for me to further improve my score?
Thank you so much for your help,
Nikki
Hi Sammy,
It’s impossible to accurately predict the future, but I have to say I would be amazed if you’re credit score wasn’t in the 700’s within 2 years assuming the same behavior.
That being said, climbing up the credit score scale gets exponentially harder!!! Going from 500 to 600 is not extremely difficult, but going from 700 to 750 is much much harder.
After a certain point, especially in your case, you’re history becomes important because you have very little history. I suspect that adding two years will make a bigger difference then for most people.
As for getting in the high 700’s, its definitely possible. I know it’s not exactly the answer you were looking for, but the best I can say is that it’s possible. Just getting to the 700’s will give you a big advantage when it comes to getting a mortgage!
Hi Nikki,
Without knowing the details of the gas card, I can’t say with any certainty, but I suspect that it shouldn’t. That’s of course assuming you use it wisely and consistently pay it off in full.
As for improving your score, you’re doing everything right. Keep up the good work. Getting a score in the 700’s within 3 years of a bankruptcy is very commendable, so my hats off to you! I believe that now it’s mainly continuing to show your good intentions and building yourself a reputable history paying on time.
I have gotten a lot of revolving credit to pay this credit card off with another one. The cards that I haven’t used in years still show up on my report. Would it look bad if I go through and cancel all but the few I do use?
Thanks!
Hi Barb,
I can’t really answer that one without knowing much more details on your history and your financial goals.
However that being said, remember that most lenders just want to see a consistent and on-time payment history. The better your credit history reflects this, the better your credit score will be.
As well, most companies will assume that any credit cards you have can be maxed out tomorow, so if you apply for a loan they will assume they’re maxed out right now, even if there’s no current balance. This is to protect them.
So in essence, these are somewhat conflicting goals. One is to show a good credit history by having the ability to manage debt, the other is to have no debt. Which is why it’s hard to answer your specific question without much more detailed information about your goals and past.
Therefore the best advice I can give you is decide where you want to go, and work your way there.
Hello, I’m in a bit of dilemma here, I have an experian credit score of 589, a Equifax credit score of 558, and a transunion score of 528. Terrible credit I know. I made the mistake 3 years ago of obtaining 11 credit cards, 7 of which where store credit cards, and 4 were mastercards/visa’s. I know I know I went credit card happy, I’ve heard it everywhere I know I made a huge mistake I was 18 and I was excited to get all these credit approvals and go out and spend money I didn’t have. I paid 9 of those credit cards off and closed the accounts, all I have left is just 2, 7 of which were store cards, and 2 where visa’s. One credit card I have left is from 11/06 and it’s a $1000 limit, I got it down to $400. The next one is a $750 limit, I only got that down to $600, I know way over the %25 limit. I am working on paying them off, but staying within the %25 mark. I know the 9 accounts that I closed hurts my credit, but I didn’t want to have 9 revolving open accounts, it will hurt me either way. By the way, I made all 11 credit cards on time, possibly 5-6 times I was late, I know that also hurts it but by how much?
Just wondering when the approximate time my credit score will go up if I get the two credit cards under a %25 mark? Even though I have closed 9 accounts on record which hurts my score now?
Hi Michele,
There’s nothing I’d love more than to be able to tell you when, but unfortunately I can’t. There’s just not enough information in your comment… And your credit score depends on more than just credit card balances.
But have no fear, you are on the RIGHT TRACK!!! You will get there. Congratulations for correcting your path, most people never get that far! You owe yourself a pat on the back for all your hard work to get back on track. Congratulations! You didn’t wait until it was too late to resolve your situation.
Getting back to your score, I suspect that it’s slowly crawling back up each month. It will never jump up quickly, that’s just not how it works. But with time, it will slowly climb. Keep up the good work!
I try once to get a lease car ,but no good result,now
I fixed my credit report ,and I would like to get
a new car, my question is ,if i try again and the result still No, this 2nd try will be down my credit score?
Hi Juan,
The way it works is that every time you do a credit check, you lose a few points. This is to prevent someone from abusing the system and trying to get a ton of loans at the same time.
And as a rule of thumb, a few points will generally not make the difference between getting and not getting a loan/lease.
hi,
I just got a credit card and i really want to improve my credit score with it, do i have to pay off all my balance at once every time that i use the card or should i always leave a remain balance at the card?, what is the best way to do it?
Hi Loretta,
There is some debate as to whether or keeping a balance is a good thing. My personally view is that you have to remember creditors want to history of paying your loans, and paying them on time.