Can you fix bad credit?

Improve credit scores: 5 keys to success, part II

Now that you’ve learned a bit about improved credit scores and how much they help your borrowing power, here are 5 more keys to success. Part I of this two-part improving credit scores series emphasizes never paying a debt late. Sometimes, though, delinquent bills crop up. Rather than moping around, thinking about damaged credit scores, take a quick step to fixing the problem. Get the late bill current immediately. The longer you are behind on any debt, the more damage you are doing to your credit score.

Credit Bureaus

Credit bureaus report late payments in terms of 30 days, 60 days and 90 days. Obviously, being past 30 days late is a huge problem for a lender. So, assume for a moment that your bill is already 30 days late. It will appear on a credit report as 1X30, meaning it was 30 days late one time.

What you don’t want to happen is letting it get to 60 or 90 days late. This is devastating to your credit score. Also, if you have missed a deadline on a payment, but it hasn’t reached 30 days yet, do everything in your power to pay it prior to that 30-day-late mark. If you are 29 days late, the credit bureau won’t report it as a late payment.

Always pay more than the minimum balance on all credit cards.

Paying the minimum is a two-fold problem. First, to credit bureaus, it appears that you are struggling to meet your bills.

Second, because of the way credit card companies compound interest, it makes it nearly impossible to pay off even small balances in less than 25 years, when paying the minimum. So, the credit bureau will see this as a debt that may never go away. Consequently, your ability to improve credit scores will be severely damaged, as long as you’re paying the minimum.

Keep mortgage loan-to-value low. If you put very little money down on your home, you have little value in the property, so it appears more as a debt than an asset on a credit report, which hinders your power to improve credit scores. Try to add enough money each month to equal a whole extra payment at the end of each year. This will rapidly decrease your mortgage and make you look good, in terms of managing your debt, because the balance-to-limit will be low on a large debt.

Try not to create too much new revolving debt. Anything that is a revolving tradeline (something you have to pay monthly) hurts your ability to improve credit scores, because the more debt you have each month, the more it appears you will have difficulty paying. Even if you make one million dollars each year, a ton of revolving debt looks bad on a credit report and will damage your credit score. So, the next time Sears or Kaufmans is offering you a new credit card, just say, No.

Stay away from credit repair services; they do not help improve credit scores. If you are in credit repair, this shows up on a credit report and will kill your credit score, usually by 100 or more points. In fact, surprisingly, a bankruptcy on a credit report is easier to recover from than credit repair. If you file bankruptcy, your score will drop to 500 or lower. However, you'll have a clean slate, in terms of your debt, assuming you file chapter 7. (Credit repair does not eliminate debt.) Your ability to improve credit scores will skyrocket. This is not to encourage bankruptcy, because it will remain on your report for ten years. You can, though, use the tips here to get your score back to the A credit level inside of two years, after your bankruptcy is discharged

Useful External Resources:

FTC - Credit Repair