The most important thing to remember when taking steps towards credit repair, credit rebuilding or credit maintenance is that your credit score is a snap shot of your credit file at a particular point in time. Don't be discouraged if the journey seems impossible at first. As a Realtor I have sold homes to many clients who at first started out with a credit score too low to be pre-qualified for a mortgage loan. With a few months of dedication and persistence these clients were able to get the points needed to boost their credit scores within a 6 month time frame. If you are reading this, you are on the right track to credit worthiness and stability in your financing future. Save this post to your computer as these tricks and tips can be used, applied and repeated to keep your scores soaring high.
1. Collections/Liens/Charge Offs- Be careful when deciding to take action on past due accounts, collections, liens and charge-offs. Paying on an account later than 24 months old will not boost your credit score. In fact, paying on an old account may initially make your score go down since it will appear to make the account look more recent, by adding recent activity, which will weigh more heavily on your score.
- Tackle these negatively reporting accounts by 1st disputing any debt that you believe to be incorrect. The company will have 30 days to validate the debt or they will have to remove it from your report.
- Start paying on negative accounts within 24 months 1st... You can set up a payment plan to just pay $10 per month on the old account and they will have to start reporting the account as positive.
- When possible payoff all negative collection items & past due accounts that remain on your file. Before you pay it off, get a letter in writing from the company stating that once paid, they will delete the item from your report altogether.
- For liens, it may be best to pay a small fee to a law firm or other credit repair entity to have these types of items quickly removed.
- Finally, consult with your lender before deciding what to pay off. They will be able to tell you which items will make the biggest impact in raising your score
2. Pay existing accounts on time or at least within 30 days. Payment history makes up 35% of your Fico score
- Companies should not report negatively on any item until it is at least 30 days past due.
- Items 60-90 days past due will have a bigger negative impact on your score, so catch these up 1st.
3. Ask the creditor to remove negatively reported payments once you have caught them up.
- Once you catch up your negatively reporting accounts, you can reach out to the creditor by phone or letter and ask them to remove the times where your payment was reported negatively since the item is now being reported as current or Pays as agreed.
4. Improve your debt to credit ratio-The amounts you owe to creditors make up 30% of your Fico score... 'debt to credit ratio=how much you owe vs. how much credit you have available'.
- A good way to improve your debt to credit ratio is to only utilize 30% of your total credit limit.
- This means that if your credit limit is $1000, you would only use $300 and pay that off monthly while always leaving $700 available. View the chart below for more examples...
5. Avoid adding new debt until you are able to successfully manage your current debt. Credit cards are good for emergencies and credit building but you should not have to take a loan for everything. Carry cash and set aside an allowance for the things you need and do not go over your budget! You will be able to track how much you are spending and once it is gone you will more than likely stop spending. Keep your oldest cards and those cards with a positive history while closing other accounts. Try to find deals and better interest rate cards so you can transfer balances to the low-interest cards while paying off and closing out more risky termed ones. The devil is in the detail so read over your terms and avoid hidden fees & costs.
Dave Ramsey's Guide to Budgeting... Downloadable/Printable PDF
6. Apply for a secured card. If you can't get a credit card for rebuilding purposes on conventional terms, look for a good secured card to serve as a revolving account on your diversified credit profile. Revolving accounts make up a big portion of your Fico score. Secured cards that report to all 3 major bureaus can easily boost your credit score within a few months.
Experian.com Improve Your Credit Score
Credit.com Tips to Improve Your Credit-Types of Accounts in Your credit History
Creditcardforum.com Best secured cards for rebuilding credit
7. Visualize yourself being debt free. Banks want to lend you money when you don't need it. Take advantage of debt reducing tips and plan for your future retirement. Start a separate savings account just for vacation or special upcoming event where you might want to splurge so that when the time comes you will not have to use credit or money set aside for bills. Always keep your bill money separate from other savings and checking accounts. If you fail to plan, you have planned to fail.
100 Great Tips for Saving Money
8. Always be improving! It does not matter when you start as long as you start. Take action and secure your financial future by planning to improve your finances. Work over time when ever your employer allows. Invest in a skill where you can earn money as an entrepreneur. With all the recovery going on in Real Estate, we are gearing up for great market conditions in 2014 and for the next 5 years or so, why not get a license to sell homes? You can work by referral assisting your friends, family and sphere of influence with all their Real Estate needs. If you want something you have never had, you have to do something you have never done.
9. Keep repeating what you've learned. There may be times when circumstances beyond our control come up and we have to spend money we did not have to spend. Life happens to everyone, but do not be discouraged! The only way to fail is to quit.
10. Invest. As you reduce your debt and increase your savings, take the same amount of money that would have normally went to paying off debt and put it in your savings account. Learn to live on less and take advantage of being thrifty. This new way of thinking will help you be prepared with money already set aside to make your 1st home purchase, invest in stocks or bonds or start up a business.
How to Invest 6 Key Points
Get your free annual score for all 3 CRAs!
US Money 4 Ways to Boost Your Credit Score in 2014
FDIC.gov 3 Major Credit Bureaus Web, Phone and P.O. Box
Free Online Credit Smart Course with Freddie Maac
Good info. Thanks for posting this.
ReplyDelete