Credit Scores…..What Can I Do?

[ 0 ] May 13, 2015 |

We’ve already looked at how our score is determined.  If you missed that post, go here to read it. Now let’s look at what we can do to make it better…..or worse.

Gloom and Doom    Frustrated

One of the worst things that you can do is not pay your credit card or loan payments on time, or ignore them.  A single missed payment can drop your score 60-70 points, and it can take up to 24 months of on time payments to erase that one missed payment.    

Completely ignoring your bills will not make them go away and will only make matters worse.  Each month a payment is missed it will bring that account closer to being charged off.  This will make any lending institution think that you cannot pay your bills.  A default shows that you have not kept up your end of the loan contract.

Unpaid debt will not just go away on its own, and can spell disaster.  Any unpaid credit card or loan payments can be turned over to a collections agency.   This can be done before or after a loan is charged off.  Any Collections entry will stay on your credit report for seven years.

Missing a mortgage payment is more harmful than missing credit card or loan payments, and it can lead you into foreclosure.  This will make it harder to be approved for future mortgage loans.  It may also cause a landlord to deny you for an apartment.

If matters persist then a judgment can be placed against you.  This shows that the courts had to get involved to make you pay the debts.  In some cases a garnishment of your wages could be ordered to satisfy these unpaid debts.  Any judgment that you have should be taken care of as soon as possible.  Even though it could lengthen the time the judgment is on you report, a paid judgement is better than an unpaid one.

Filing bankruptcy is the single most harmful thing that you can do.  The number of points lost for bankruptcy will depend on your score before filing.  If you previously had a score of 780, then your score will drop 220-240 points.  And if you previously had a score of 680 then your score will drop 130-150 points.  Both of these end with a score of 530-560.

Maxing out your credit cards can also be harmful as available credit is the second largest part of your credit score.  This can lower your score by as much as 100 points.  Closing a credit line, such as a credit card can also hurt you as this reduces the amount of credit that you have available.  And closing an old card with available credit, especially your oldest one, can make your credit history seem shorter than what it really is.

911!

First AidUnfortunately there are no quick fixes.  You don’t actually rebuild your credit score, you rebuild your credit history.  The length of time to rebuild your credit after a negative change depends on the reason for the change.  In most cases, such as a missed payment, an older credit problem will count for less.  The impact of that negative change will fade as time passes and recent good changes show up on your report.  So, poor credit will not haunt you forever.

One of the most important things that you can do is pay your bills on time.  We already say that delinquent payments will negatively impact your score.  Collections and most public records will stay on your credit report for 7 years.  Bankruptcies will also stay on your report for a minimum of 7 years, and some will remain for 10.  Unpaid tax liens will stay on for 15 years.

Keep balances low on your credit cards.  Work towards paying off your debt,  Don’t just keep moving it around to get a better interest rate.  If you are able to pay a little extra each month then concentrate on credit cards.  Focus on the cards that are closest to their limits versus ones that have higher interest rates.  This will help to improve your capacity, and will help raise your score.

Don’t close unused cards as a short term strategy, and don’t open a number of new cards that you don’t need to increase your available credit.  Both of these can actually lower your score.  If managing credit for only a short time, don’t open a lot of accounts too rapidly.  New accounts will lower the average account age and rapid account buildup can look risky.

MONITOR YOUR CREDIT!  Request a free copy of your credit report and review it for errors.  50% of reports contain errors.  Check to make sure there are no late payments listed incorrectly, the amount owed on each account is correct, along with the credit limits.  You are entitled to one of your credit reports a year from each of the three major credit bureaus:  Equifax, Experian, and TransUnion.  You can stagger these and request one every 4 months and rotate them.  You can do so at:  annualcreditreport.com.

Who knew?Question

Co-signing on a loan can be tricky as it can be good or bad for you.  If the payments on the loan are made on time then this will help with your credit score.  However, if the primary borrower misses a payment, defaults, or even files bankruptcy this will have a negative impact on your score.  In these cases you may be the one now responsible for making the payments.

Student loans that are not in repayment yet are not counted in your score.  Once the loan comes due then they will be factored in.  These are just as important as any other installment loan as lenders do review them as well.

Rate shopping will not hurt you if you do it correctly.  Hard inquiries are an indication that a creditor has reviewed your score, and too many of these can hurt you.  However, when Shopping for rates, such as in a car loan, only one hard inquiry will count on your score within a certain time frame.  This is normally 30-45 days.  So make sure you do shop around for the best interest rate.

Hopefully these tips will help you to bring that magic number up.  But remember, it will take time and persistence.  The Credit Union has certified financial counselors that can assist you! Contact us anytime!

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Category: Money Tips

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