While some things in life may be better off left alone, your credit is generally not one of them; unless of course you have no intentions of applying for credit of any kind in the next decade or so. While 7 years is the statutory limit on many derogatory items on your credit, Bankruptcies, Child Support and Judgments will stay on to hunt you much longer.
Credit Score models are no exact science but rather a statistical model based on several factors such as:
- Payment History
- Account balance versus available credit limit
- Age of accounts and overal credit history
- Types of credit (instalment loans, revolving debt, mortgages,etc)
- Recent credit and credit applications
Also, and this works in your favor when you are working on improving your score, your credit score is a snapshot in time, any of these items addressed below can and will affect your credit score in a as little as a few days or more commonly 30-90 days.
Follow these simple 5 steps to improve your credit score in less than 90 days:
- 1) This one sounds obvious: Pay your bills on time. This is the most simplest and yet most important thing when it comes to credit repair. Should you do nothing else, pay your bills on time! The way the statistical models in credit scoring are designed, current events matter much more than aged accounts. Thus, you can spend a ton of time and money to get an old derogatory account off your credit report, and if in the meantime you forget to pay your $15 department store credit card, your score will probably be lower than what you started with.
- 2) Review your open revolving accounts (Credit Cards) and pay them down to 30% of the available credit limited granted to you by the Creditor. If you had a Visa credit card with a $1,000 limit, never owe more than $300 at any given moment in time. Why any given moment in time? While you may pay your entire credit balance each month, your credit card company reports their customers balances monthly and while it shows whether you are current or had late payments, it does not show whether you tend to pay it off in full or pay the minimum. Thus charging $950 on a credit card with a $1,000 limit shows you as “maxed out” and will result in a lower credit score, although your check for $950 may be in the mail.
- 3) Ask your creditors to forgive a late payment. This works more often than not but as with many things in life, if you don’t ask you won’t receive. Call your car loan company, credit card issuer or student loan servicer and ask them to forgive your late payment due to an exceptional circumstance (I once was late while on my Honeymoon and Target was willing to remove that late payment), a personal hardship (loss of job) or simply because you have had years of on time payments, and you simply deserve a break (done it and that works too). Please bear in mind when you call your creditor, a lot of their willingness to help you depends on the customer service rep you are dealing with. So please be nice! It’s a favor you are asking for after all. And, worst case scenario, end the call on a good note, to avoid negative remarks in your file, and call back to speak to someone else.
- 4) Do NOT pay off/down or settle old collections. This by far is the most counterintuitive advice you will receive when it comes to repairing your credit. Sadly, paying off old collections (older than 2 years) will receive in an initial drop in our credit score. I have seen credit scores drop by 40 to 100 points simply because an old collection was paid. Here is why: While accounts stay on your credit for 7 years +, the most current 12-24 months matter the most as they are considered to be the most relevant. Let’s say you have an unpaid collections from 5 years ago and you contact them and pay or settle the account. That collection remains on your credit report, with 2 small but significant changes: First, it will now say settled or paid collection. Second, it will show the date of last activity to be now, thus bringing this nasty old collection from 5 years ago into the now and here, thus hurting you exponentially. The bottom line is you dind’t pay your bills when they were due. The exception to this rule is the instance when you are successful in negotiating a “delete” letter from your creditor which states that upon payment the creditor will delete your account, in which case it will be removed from your report altogether and paying it would be highly beneficial. These “delete” letters are not the easiest to come by, but I have seen my share over the years.
- 5) Check for mistakes and when you find one call the creditor who is reporting you incorrectly and see if you can get the issue resolved. It is amazing how many legitimate mistakes are on people’s credit reports. I have seen accounts belonging to a sibling or parent (due to similarities in names), accounts belonging to an entire different person and different social security number, and unfortunately most commonly accounts opened by others through identity theft (an increasingly growing white collar crime in America).
