Simple Steps To Better Credit

Ordering a copy of your credit report is just the first step in protecting your credit. Analyzing the information contained in your credit report and taking action are the more important steps for you to take. Are you up to that challenge of using your credit report in improving your credit standing and increasing your credit score? If yes, then use this credit report guide that will help you face up to the challenge.

Be a responsible payer. Obviously, the best way to boost your credit is to be a responsible borrower. This means, you should not only strive to pay your debts but to always submit your payments on time. This may seem like a really easy step but putting it into practice can prove to be harder than you think. If you’re really serious about improving your credit score, paying your debts on time should always be your priority.

Don’t get too many credit cards. Owning several credit cards will not do much in improving your credit score. In fact, too many credit cards can even cost your credit score to drop if you keep incurring unpaid balances on these cards. Having just one or two credit cards should be enough to help you build credit. It will also help you put your credit card usage under control.

Pay off your credit card balance in full. If you are in the habit of paying only the minimum due, you’re putting yourself at risk of mounting debts and lowering your credit score at the same time. Carrying over your balances from month to month costs you additional interest payments which you can altogether avoid if you completely pay off your balance by the end of the month. Think about how much you can save and what a big improvement it can make on your credit score.

Choose creditors wisely. Whenever you’re applying for a credit card or a loan, take the time in researching and comparing different lenders. It is so easy to believe what the ads say. All lenders promise to give you the best deals but only few can live up to their promises and it is up to you to find them.

Control your spending. When it comes to avoiding debt problems, everything all comes down your spending habits. How well you manage your earnings and how you control your expenses makes a big difference in building your credit. The key is to use only your credit cards on important expenses and to know your priorities. If you’re not going to borrow more than what you can afford to pay back, you should have no worries about not being able to pay your debts at all.

Be aware of what your credit report says about you. Check your credit report at least once every six months to ensure that there are no false charges or inaccuracies. This will help you maintain your good credit standing. In case there are errors to be corrected, checking your report will enable you to make a dispute right away and have this potentially damaging information removed from your credit report.

Truth about Paying Collection Accounts and Credit Score

There is one thing most bankrupt people have in common-collection accounts.

However, it’s been my experience that most bankrupt people want to do the right thing and pay off the account(s). Sometimes it just takes a little time. And when you do the right thing, you expect the collection agency to do the right thing, too-don’t you?

Well, unfortunately, that’s not always the case.

Paying off a Collection Account Doesn’t Improve Credit Score

Even after you pay off a collection account in full, and your credit reports show that you’ve paid the collection in full and have a $0 balance, it won’t help your FICO credit scores.

Here’s why…

Any appearance of a collection account on your personal credit reports lowers your credit scores. Once the collection account finds its way onto your credit report, it’s part of your credit history. Whether you pay it off or not is of little consequence.

Original Dollar Amount of Collection Account Doesn’t Matter

Whether, the collection account is $100 for a severely overdue library book or $5,000 for 50 overdue library books-the end result is the same-your credit scores can decrease by the same amount.

This is a critical point. Many people think that because the debt is small, it can’t possibly hurt their credit scores. Wrong.

Everyone knows that late payments on your mortgage or car loan, which can be hundreds or thousands of dollars, will damage your credit. However, if you let even a small $70 amount go to a collection agency, and it appears on your credit reports, it can damage your credit just as much.

Bottom line: anything from a collection agency that appears on your credit reports is going to decrease your credit scores. So, become extremely vigilant in protecting your credit reports from this type of information appearing in the first place.

Check Personal Credit Reports for a Collection Account

It’s a good idea to check your personal credit reports on a regular basis. When was the last time you checked yours? Now would be a good time. Go to www.myfico.com/12 and pay close attention to any negative items in the Public Records section.

Another option would be to subscribe to a credit monitoring service that allows you to monitor all activity on your three credit reports.

To Fight or Not to Fight…

If you want to win the credit scoring war, you have to know which battles to fight. The little battles over small dollar amounts are the ones you want to avoid. You’re going to lose those…even if you’re right. In my opinion, it’s not worth the risk of lowering your FICO credit scores.

Here’s an example of how a collection account can damage your credit. It comes from a Life After Bankruptcy subscriber in Marietta, Georgia.

She lived in an apartment with two other girls. They had all signed the lease. When they moved out, the apartment complex assessed them $300 in fees to cover damages to the apartment. Two of them sent in $100 each, but the third didn’t bother.

When the apartment complex sent a letter to all three girls demanding the last $100, the girls ignored it.

You guessed it-it eventually showed up as a collection on all three of their credit reports. That collection, for only $100, lowered her Equifax score from a high of 720 to a low of 512!

This was years ago-and her score still hasn’t fully recovered.

Wouldn’t it have been worth it for them to swallow their pride and pay the last $100?

Other Items that Show Up in the Public Records Section

Other items that can show up in the Public Records section and are treated much like collection accounts by FICO scoring models are:

– Federal and state tax liens (released and not released)
– Judgments and satisfied judgments
– Bankruptcy

When any of these items show up on your credit reports, your FICO credit scores go down.

How much? There’s no specific number, but your scores can easily go down by 100 points…or more.

Sure, if you pay off the collection it will show a $0 balance on your credit report. The problem is-from a credit scoring standpoint your FICO credit scores will go south regardless if the public record item is paid or not.

So the moral of the story is-once a collection account appears on your personal credit reports, you can’t resolve it by paying it off. You’re better off paying what you owe before it gets sent to a collection agency and shows up on your credit reports.