Credit Card Watch

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Improving credit scores is not an exact science. Not all credit
reports are created equal. Some have collection accounts, others have a bankruptcy filing, some have tax liens, some just have slow payments. Of course there are infinite possible scenarios for what is on your credit report. Making a difference on your history
takes time and you have to do things correctly or you will likely
face more time and more work to have your credit rebound. It will
rebound, but it will take longer. Here are some solutions to
solving some of the negative items on credit accounts.

1. The most important thing to remember is that the credit bureaus
heavily weight your last two years of credit history in
calculating your credit scores. No matter what you have on your
credit report, if you are going to clean things up, start with
items that went bad in the last two years. Accounts that are older
than two years have a negligible impact on your scores. If you
start to work on these older items, the creditors of these
accounts will update your credit report indicating recent
activity. When this happens the credit scoring system picks up on
the recent activity on a negative credit account and it will most
likely result in a lower credit score versus the improvement you
were looking for. If you are looking to improve your scores for a
mortgage or a auto loan, wait until you get the loan before you go
to fix these older accounts. Most of the time the credit lender
you are looking to borrower from does not care too much about
items that are older than 2 years.

2. If you set up a repayment plan and ask for something in return.
By this, I mean, agree to make payments to catch up in exchange
for the creditor to remove previous past due payments if you keep
your promise to have your payments in on time. By all means, if
you make an agreement to make a payment or settle your account,
keep your promise to do so. You will be surprised as to what you
can accomplish with cleaning up your credit report if you keep
your promises.

3. Speaking of repayment plans, avoid them if you can. First of
all, you probably don’t need another monthly payment in your
budget. Second, your creditor is more likely to settle the account
with you for less than you owe them if you will pay them a lump
sum payment. Agree to pay them by a certain date and then do it.
While you are negotiating this with them, ask them for something in return. Ask them to delete the account completely once they
have been paid. They have the power to do this, and there is
nothing in the US Fair Credit and Lending Laws that say credit
accounts have to be on your credit report, or to stay on your
credit report. You could also ask them to indicate on your report
“paid in full” and show a “zero” balance if they will not remove the
account. Specifically ask them to not indicate “settled for less
than full balance”. This will negatively impact your credit score.

4. Do not close out older credit cards. I have seen it happen all
too often, I will pull credit on someone looking for a mortgage and
I will see old credit card accounts on their credit report that show
great history but the words “account closed by consumer request”.

This is a tragedy because this hurts the credit score of this
individual. Credit scoring takes into consideration you older
accounts and gives you positive points for the age of your
accounts.

5. This is another “no brainer” tip: make your payments on time.
If you are past due on a credit account or more than one, get them
caught up as soon as possible. Your credit scores will continue to
be low as long as you are past due on any account within the past
12 months. If you are behind on more than one account, get one
caught up first, then move to another one. Do not try to catch
them all at once, unless you all of a sudden get some money by
winning the lottery or something like that.

6. Make sure you have somewhere between 3-5 credit accounts open,
and make sure they are active. You want to make sure your credit
card accounts have activity on them at least every 6 months if not
more. If you go longer than this, the creditor will probably mark
the account as inactive. This will either keep your scores the
same or perhaps even lower them.

7. Lower your “debt to credit limit” ratio. What this means is
that your credit score is impacted heavily by the amount of debt
you owe against the maximum credit limits on your revolving credit
accounts (credit cards). For example: if you owe $7,500 and your
credit limit is $10,000 then your ratio is 75%. The threshold
number to keep your ratio under is 50%. Obviously you can lower
this ratio if you pay off some of you debt. If you are going to
pay more than your minimum make the extra payments on one card at
a time. Do not spread your extra payments around. The other thing
to consider it to contact your credit card company to see if they
will extend your credit limit. You will have to be in good
standing with them for them to consider doing this. If they do
extend it, this will lower your ratio.

Here is a bonus tip for business owners. If you are self employed and
you have a lot of personal debt as a result of putting your
business debt on your personal credit cards you could consider
opening up a business credit card. These cards are easier to get
than you might think. What’s key about these accounts is they are
not always reported to your credit report. When you get the card
issued to you, you could transfer your personal credit card debt
to your business card. This will improve your debt to credit limit
on your personal credit and your scores will go up.

For additional information on consumer credit go to: GetPreQualified.com.

For
additional information on establishing credit go to: Tips on Establishing Credit

Article written by: Dale Stouffer. Dale has been a mortgage broker since 1996 and has served on the Pennsylvania Association of Mortgage Brokers as an instructor to other mortgage brokers, and as a education and legislative chair at both the local chapter and state levels. Dale owns GetPreQualified.com, which is a consumer credit and financial services education and product portal.

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