In the eyes of lenders, consumers amount to little more than a series of numbers. How high or low those number are affect the outcome of loans we apply for, deposit requirements from utility companies and landlords, limits on our credit cards, and even how much we're required to pay down (or pay in interest) to qualify for a mortgage. A low credit score can be crippling to your long-term financial health-if you don't take the appropriate steps to fix it.
Section #1: Identifying information. Look closely at the following:
Section #2: Credit accounts. After you check over identifying information move on to the section that lists the accounts you have opened and closed. Scan this section closely for the following:
Section #3: Credit inquiries. Inquiries reveal who has asked to review your credit report. There are two types of inquiries: soft and hard. Soft inquiries are made by lenders looking to make preapproved credit offers or your own requests to see your credit history. These do not affect your credit score. Hard inquiries are the ones from lenders that resulted from you applying for credit (unsolicited credit cards, car loans, mortagages, etc.). Look for the following:
Section #4: Collections and public records. The last section of your credit report lists any collection actions and judgments that are a matter of public record-things like bankruptcies, foreclosures, garnishments, lawsuit judgments and tax liens. Here is what to look for:
Disputing Errors Credit bureaus are required by law to investigate any mistakes your bring to their attention and report back to your within 30 days. If you received your report in the mail it should have come with a form for disputing errors, otherwise you can call or visit the credit bureaus website for further instructions. Typically they ask the creditor that reported the information to check their records for errors.
This page contains the following solutions.
Keep in mind that your credit report may be tied to your spouse's. If your spouse has bad credit habits, it could affect your credit as well.
Pay your credit card bill on time to eliminate unwanted interest payments and nasty late fees. This can really add to your bill and possibly give them an excuse to raise your interest rate.
Here are the questions asked by community members. Read on to see the answers provided by the ThriftyFun community.
I was told that I shouldn't bother paying off my debts (other than student loans), because paying it out won't change my credit score at all. It will still be lousy, so I might as well keep my money. True?
By Jenlyn from Tonawanda, NY
Paying off creditors definitely raises your credit score. It lowers your debt to income ratio which is something lenders look at. It take a month or so for payoffs to show up on your credit report. Hope that helps!
That will work if you don't plan on buying a car or house in the next 10+ years. It might also hinder you from getting a job, as credit scores are checked when you apply at many jobs. It could keep you from renting an apartment, buying a condo (they also check your scores), renting a car, etc.
You were given bad advice. You should certainly pay off your debt, because not doing so will hurt you in the long run. However, if you've defaulted on a credit card debt and want to settle the account, be prepared to pay the agreed-upon amount immediately because otherwise you'll get a "ding" on your credit score for initiating action on a past-due account and not closing it.
Begin by concentrating on your credit card debt, which typically has the highest interest rates, and save larger amounts with lower interest rates (such as your student loans or mortgage) for long-term payoff. Search for "snowball method" of paying off debt to learn more about an easy method to begin. My husband had a poor credit report but has improved it drastically through paying off his credit cards and taking the money he spent on credit card payments each month to pay off his car. It does take a while for your credit report to update, but it's worth it.
Over one third of your credit score is based upon whether you pay bills in a timely manner.It's better to make small payments you can afford than to make no payment at all. You owe the debt. Pay your bills. You'll feel better in the long run knowing you are doing the right thing.
You were given some pretty bad advice. Pay your credit cards on time. Don't just pay the minimum either. Paying off your credit card debt is only one way to up your credit score. Once your credit card debt is paid off, DO NOT close the card. Creditors see this as a black mark against you. Also DO NOT close a credit card with debt still to be paid out. Creditors see this as a bad risk. Once your credit cards are paid off, keep only 2 of them. Use one for emergencies and the other should be used for airline tickets and car rentals. The other cards should remain open, but if you cut up the cards you will not do any damage to your credit score.
Make sure you get an itemized copy of your past credit history and examine it every three months. If a debt was paid off in that three months and was not removed from your bad debt history, contact the appropriate people with whom the debt was with and explain to them that you are checking your credit history and would like that item removed since you have already paid this off.
Another thing about credit cards is to stop opening new accounts. Every time your credit history is opened by a new creditor (aka credit card, loan company, etc) 10 points drop from your credit score. I had a client once that would open those credit cards with 0% interest every 3-6 months and she kept transferring her money over. This debt transfer game cast her 80 points within a couple of years.
It pays to stay on top of your debt and get it paid off.
Even if you're way past due on your bills, if you can pay them off, it will definitely raise your score - I know from experience. We went through this when buying our house. The process took a couple of months and with each debt that was paid (even though late), the credit score rose.
I agree with everyone else here. My credit score is improving, and all I'm doing is paying a few dollars more than my minimum credit-card payment every month, on time. (For example, my minimum due this month was $75; I paid $80.)
Even my hubby's credit score has improved to some extent, on this same principle. It also saves us a fortune in late fees!
I'm not educated on all the ins and outs of credit scores; all I know is, the less percentage of your available credit you're currently using, the better your credit score. Potential creditors (and potential employers, etc,) see you as a better risk. Who knows? Next time you're ready to buy a car or refinance your house, with a better credit score (720+ is considered good,) you're more likely to be offered a lower "prime" rate.
My husband and I would like to be able to make a budget using credit cards. We have little credit and would like to be able to someday get a loan to buy a home. How can we successfully budget our finances to be able to pay off the credit card every month?
To establish good credit, pay your bills on time. To keep out of debt while using credit cards, pay off the entire amount when the bill comes. It is easy to get into the habit of paying the "minimum" due, but you will soon find that you are accruing finance charges and the "minimum" due starts to grow as your balance increases. The credit card companies are out to make money--their intent is not for you to pay off the balance each month! When we were first married, we bought a washer/dryer combo on a Sears credit card. Money was tight, but we knew we could make the minimum payment each month. We paid month after month--which became year after year. By the time we had paid off the washer/dryer (we bought nothing else with that card), we had paid the original price THREE times! We certainly learned a valuable lesson!!
you can't build credit by charging something and then paying it off the next month, you need to show that you can charge and make payments, always more then the minium payment. And always on time, do not get over the limit fees or late payment fees, because that will bring up your finance charges. If you want to buy a house in the future, you can't buy it and get a loan and pay it off, you need to make payment for a very long time and the bank needs to see that you can handle a balance for a period of time, say 6 months and then pay it off and then charge something else and make payments for a period of time then pay it off. This will show good on your credit report and your credit points will go up. You also can get a small loan from a bank to make time payments to show a credit history..I'm not saying to get into credit debt, but you do need to establish credit history. I hope this information helped.
Hi Jessica,
May I suggest a different approach? I am a big fan of Dave Ramsey. You might try checking out his website at www.daveramsey.com and also finding out which radio station in your area carries his program. He is hugely motivational and anti-debt to create "credit scores". He has a lot of great suggestions and specific ideas on how to get home loans, how much you should borrow vs. your income, how much to put down for the best return (and interest rate) on your money. I have been listening to his program for about two years now and feel both our financial situation and our marriage are stronger for it!
Hello. I had a situation recently where I was offered a credit card and didn't want to take it (this debt thing isn't one of my issues, and I don't want it to be!) but it's good to have some credit cards I was told by a loan broker, so for what it's worth, this is what she said. You open the credit cards far in advance of wanting to buy, and not too many at a time. Meaning, one or two probably. If you accept a credit card, be careful, even if you never use it or cancel it before the first due date, there may be an open and closed account on your credit anyway. Always ask once you've accepted a card, nto activated...accepted. Before you decide to dump a card, make sure you've had it at least six months, and if it's right in the beginning you might want to reconsider if it's already an account, it could impact if it's on the report, depending on how long. American Express (I loved this card because I never was tempted to carry a ballance) they told me, the broker, that American Express is the example of credit that won't help you get a house down the road.And it's the same problem if you charge and pay off each month on another card. They can't see you make payments. With AMX it's even worse, because there's no spending limit, normally. So, the way around it, I was told, is to carry a small balance, even if you pay it off every so often. Maybe just a few months then pay it off. NEVER pay only the minimum, ever. Make certain if you decide to make a payment off the time it's due, that it gets applied in the month you think it will, so you don't have no payment in May for example, becuse you paid May on the first, and someone's computer thought you meant April. Make sure that when you do carry a balance, it's less than HALF of the limit. That seems to be a reapeat theme with a lot of brokers, accountants and so forth, no more than half the limit used on any one card at any one time. Hope that helps, it's been consistant advice from my end.
I hope to buy when I'm a nurse, even something small, but not having enough credit though mine is really good what there is of it, can hurt. It's different with a house, I qualified for a new car, no down payment no income information at all at a preferred rate though my bank, yet, I can't get more than $500 limit on a credit card. I told them, it's weird, you were going to give me thirty plus thousand for a car, no questions asked...but it's different. I don't have much credit card experience, except AMX.
Talk to Fannie Mae (if that's spelled correctly you can find them on the web! :) ) but find an authority to guide you so there are no unhappy shocks later. I do know, that if there isn't something in your credit that you need, it takes months sometimes to fix that. So, starting early (as I am) is a good plan.
Good luck to you! Enjoy the house, paint it any color you want! ;)
Hi Jessica!
I'd strongly encourage you and your husband to checkout www.daveramsey.com. Also, go to your local public library and checkout any of his books, "Total Money Makeover" or "Financial Peace". The guy makes a lot of sense and wants folks to be able to live debt free. He's not out to sell you stuff and you can work his program by reading his books.
As a REALTOR I can tell you that you don't need to rack up credit debt to qualify for a mortgage. Don't live your life bowing to the alter of the FICO Score. Lenders can perform a manual underwritng process for folks who don't have much or any kind of a credit score.
One other tid bit for you, you and your husband need to sit down and create a budget for the month, whereby you assign a spending category to each dollar you two bring into the household. Begin with your basics; food, shelter, clothing, transportation and then continue down the list. If you have some money left over set it aside for an emergency fund. Again, refer to Dave Ramsey's books or web site for help.
Please don't do credit cards! You'll become a slave to the lender. I speak from years of being enslaved. It's not worth it.
About ten years ago, I swore off borrowing from credit cards. But I still wanted to use them for convenience and points. I created an Excel spreadsheet "checkbook register" that includes a second set of columns for my credit card expenditures, payments, and balance owed. In the very last column, my credit card balance owed is subtracted from my bank account balance, and that is my "available balance." I simply don't spend more than my available balance, and that way, the money to pay my credit cards in full is always there. (My credit card payment is entered as a minus under the checking account section and a plus under the credit card section, for a net effect on my available balance of zero.) If you don't use Excel, you can do the same thing using an old-fashioned columnar pad.
One other point: I disagree with Jpcasino17. You most certainly *can* build credit while paying off your cards every month. In fact, that's the only way you should ever use credit cards. The credit scoring system isn't smart enough to keep track of whether you're carrying a balance. In fact, if you use your cards at all, your credit report will read as if you're carrying balances. A credit score is simply a snapshot of your situation on a given day, and the credit card companies report your balance as of your most recent statement. When preparing to obtain a mortgage last year, I was able to bump up my credit score several points by paying off my credit card balances a couple of days before the statement dates, so that the credit card companies reported all zero balances.
Ok, so I got a letter offering to settle an account with an original balance of over 5K for $1,300. Can I do this on all my negative marks? I don't want it to show up on my credit as settled, I want it removed.
Do I need a credit repair company or is it a DIY fix? How do I do this?Credit counseling services have a sliding scale. I would go to one of them for personalized advice.
Be sure to check the BBB on such places! You have to make sure that these companies have your best interest at had.If they are legit and want to give you a settlement that a great idea! WE ARE ALL NUMBERS ON PAPER when it comes to CREDIT!
There are non profit credit counseling services, but I personally, would avoid any service or offer and work with each company and creditor on your own.
Many of those services (even the non-profit ones) cost a lot of money and they are doing things you can do on your own if you put your mind to it.
This is what I did when my now ex-husband, ruined my credit when I was young.
I assessed my income, I figured out exactly how much I could pay each entity (and there were a lot of them). Then I called every single company and asked to speak to supervisor or manager until I got someone who would hear me and help me.
To each person, I explained what happened to me and I laid out my plan for how I was going to solve the problem. During each plea I asked if they could forgo some of the debt, if the answer was no, then I asked if they could cut me a break on the interest. While most said, no to both, some did work with me as long as I worked with them and kept to my word of paying X amount by the X of each month for X number of months.
If I had to miss a payment, I called and asked for help. I tried not to do that more than once per company, so I had to keep very good records of what I was doing when.
It took almost 5 years, but I got everything paid and got my credit back to where I wanted it.
It was not easy.
At one point I had 3 jobs (I was much younger than I am now) and I had to totally change my lifestyle...I had a strict budget and cut every single thing out of it that was not a basic.
I learned to make every penny squeak. It was not fun or easy, but it was very satisfying because I was not letting a really shi**y situation win. I was going to win and I did!
Today I don't even think about my frugal life style and when I got myself back together, I vowed to keep my life as simple as possible.
Sending prayers and blessings!
I'm assuming you are behind in payments if the company is sending you this type of letter so it may not be possible to remove all negative remarks as your report will show several months of late or nonpayment for each company involved.
There is a way to remove most of the bad reports and this explains how to do it. I believe this may be something you can do yourself - if you have the cash to pay the amounts the company states they will settle for.
Read the following statement:
"Do NOT just pay a collection. A paid collection usually doesn't help improve your credit score! Instead, negotiate a "pay for delete" IN WRITING with the collector. Only when you have a written agreement should you pay a collection account, and then work on getting the account deleted."
I will supply this information (most people are not aware of this):
The collector - by law - has to report to the IRS the difference in the original amount and whatever amount you paid and the IRS considers this as 'money made' and you have to report it as income when you file your income tax return. The collection service will send you the same form they supply the IRS and you cannot change it. IRS WILL collect taxes on this money the collector 'forgave' you.
If you wish to check out a credit repair company here is what the government site suggest:
"Before you do business with any debt relief service, check it out with your state Attorney General and local consumer protection agency. They can tell you if any consumer complaints are on file about the firm you're considering doing business with. Ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is."
www.consumer.ftc.gov/
This all depends on the credit card companies and who you owe the debt to. I know when my dad got sick they could not pay off the debt on some of their credit cards and the credit card companies worked with them to settle for a lower price. This still went on their credit history if I recall correctly. You can check with the credit card companies that you owe money to and see what type of an agreement you can work out. I also know that my parents were able to fix their credit report after a few years of making their payments on time and all worked out for them.
This page is about using free credit reports. There are ways to keep track of your credit score and reporting without having to pay for this service.
This page is about understanding your credit score. When you know what your credit score means, it can help you determine how best to conduct your borrowing.
