#1) Don’t pay off collections
Paying off collections or charge offs that you may have on your credit report will NOT increase your credit score, no matter what a bill collector may tell you. I know it seems illogical and that it should help your credit if you pay off old debt but in reality if something has gone into collections it has done the maximum damage it can do.
The only thing that will help is time. If you pay off a collection it will most likely lower your score because in the credit bureaus eyes it registers as recent activity on an old negative account. You’re better off saving that money for a down payment or to pay down balances on other revolving debt you may have.
#2) Keep the ratios on revolving debt in check
This is a hot credit score tip most people are not aware of… Your revolving debt ratios account for a huge part of how your credit score is calculated. What that means is, the percentage of money you charge against your revolving credit cards play a massive part in your credit score going up or down.
As an example, let’s say you have a credit card that has a $1000 max credit limit on it. If you charge up to the 1000 max on that card your scores will drop. But, one of the VERY BEST ways to keeps your scores good or quickly improve your credit scores is to make sure the balance owing on your revolving accounts never exceeds 30% of the high credit limit offered….so in the example of having a revolving account with a 1000 limit, you don’t want to charge more than $300 or 30% on that card to maximize your credit scores. If those ratios are exceeded on your current revolving accounts pay them down to 30% and your score will go up fast.
I want to be clear though that if you want to establish a good credit record you don’t want to charge it to 30% and then pay it off each month…you want to charge it to 30% or a little less and then make the minimum payment required each month so you establish a track record of making timely payments on a revolving account that you use responsibly.
#3) How to re-establish credit after experiencing credit issues/bankruptcy
This is a biggy…if you have had a bankruptcy or collections or any other credit issues it’s important to be able to show a current track record of timely payments AFTER you’ve had the past credit issue.
One of the biggest mistakes I see people make is that when they have had a credit problem they aren’t proactive in rebuilding credit. Home lenders need to see that after a credit problem has happened that you are consistently making timely payments, to prove yourself so to speak. One of the best ways to reestablish credit is to obtain a credit card. Now let me make some very important points here, I am not suggesting you go into debt unnecessarily but I am encouraging you to get 1 or even better two credit cards. If there will be two people on the loan then get the cards in both your names. We must have decent credit for everybody on the loan.
If you have had credit problems in the past then you will likely need to get what’s known as a “secured” credit card. A secured card is one where you make a deposit into an account and the company issuing the card gives you credit based on the amount you deposit. Here’s exactly what to do…. call who you bank with and find if they offer a “secured credit card” if they say yes then ask if they “report my payment history to all 3 credit bureaus” if they say no… go no further as you MUST have a secured card that reports to all three credit bureaus or it will do you no good at all. If they say yes then ask them what the next step is to proceed.
Please don’t expect any sweetheart deals as far as the annual fee or interest rate is concerned. The work you’re doing now will go a long ways to saving you money on the interest rate of your future home loan. What is important is that you get started and get the secured card. If your bank doesn’t offer a secured card or doesn’t report to all three credit bureaus ,I suggest you go to www.FastSecuredCreditCard.com. Aside from your personal bank this is the only company I can stand behind as they do report to all 3 credit bureaus and the feedback I get is positive.
Now here is the next critical step. Once you get the card…under no circumstances should you charge more than 30% of the high credit limit they offer. What I mean by that is if they offer you a 1000 credit limit, 30% of 1000 is 300. This is one tip that will make your score go up quick. If you charge more than 30% it appears to the credit bureaus that you may not be managing your debt in the optimal way. The other key is to go ahead and charge that 30% of the high credit limit offered but don’t pay it off each month…that does you no good. Remember we are trying to establish that you are making consistent timely payments…so charge it to 30% and just simply make the minimum payment each month.
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