How Can I Improve My Credit Score? – Part I

Wow…that’s a big subject.  Remember that 35% of your credit score is composed of your payment history.  The answers are complicated because it depends upon so many factors, including:

• What is your current score?
• How much debt do you have?
• How much credit do you have?
• How many “late payments” have been recorded?
• What is your annual income?
• Have you had a bankruptcy in the past 10 years?
• Do you have any judgments against you?
• Do you have any liens against your property?
• Do you own a home?
• How many car loans do you have?

Once a credit restoration specialist has the answer to these, and a few more questions (depending upon the answers to the above), then some determinations can be made about what to do.  It is very difficult for the average consumer to do this without the help of an experienced, professional consultant.
But there are some things that every consumer can do to be sure that he/she does not rack up negatives on the report…that is, any more negatives than will automatically happen by errors.

Let’s take a look at the standard things that everyone should know and practice:

1. Pay your bills on time.

If you are delinquent, even once, it has a major downward affect on your credit score.  Once you have a late payment, it is important to get current as soon as possible, and then stay current.  After a few months, the late payment (if not repeated) will not count so negatively.
One thing that you can do to help yourself is to calendar your payments by the use of a calendar program or financial program like Quicken[1] or Quickbooks[2], or simply log your bills into Microsoft Outlook[3].  Note the actual day the payment is due, and then put a ‘tickler’ reminder 3-5 days before that.  Look at your calendar every week, and note the dates that your bills are due.   Then pay them.

1. if you are sending a check to the creditor, be sure that you send your payment a week ahead of time.  Since none of us can trust ‘snail mail’ these days, it is imperative that you send your payment early.  The creditor will not care that you sent it 2 days ahead, and it did not arrive on time.  They will still note your payment as late, and report it as such.  And in addition, there is usually a pretty substantial charge for late payments, anywhere from $5 to $35 per occurrence.  So plan your finances in such a way as to be sure that your payment arrives before the date due.
2. if you are paying online, check the credit policy of the creditor.  They usually have a cut-off date and time that a payment must be made before a late fee is incurred.  Again, if you make the payment late, they are not likely to care what your reason is.  They want those late fees.  So if your creditor states that you must make the payment by 5 pm eastern time on the day before the due date, then be sure that you mark that down on your calendar or financial program.  Also, it is a good idea to check your bank account before sending the payment, to make sure that you have enough funds available to actually make the payment.  If you skip this step, thinking that you “know”, you may find that not only will the payment not go through or “bounce”, you will incur a late payment AND a bank charge for the insufficient funds or overdraft.
3. if you are making only the minimum payment, please get into the habit of sending at least one dollar more than the minimum payment, and make your payment ahead of the due date by a day or two.  These two things will make a positive impression on your creditor, and make a big difference in your credit score.

2. If you have missed payments:

There are two important factors to curing this default.

1. if you miss one payment, contact your creditor preferably ahead of time to make them aware of your difficulty.  You may be surprised how they may work with you to head off the fees and late status.  However, remember…they have heard it all.  You must be sincere with your story, and truthful.  For instance, you had an emergency hospitalization that caused you to have to pay up front for the emergency room, and therefore, you do not have this month’s payment available.  You promise to catch up next month, and perhaps the creditor will work with you.Remember, the longer you go after that late payment in paying every month on time, the more your credit score will improve after taking a hit by the late payment.  So try to manage your money in such a way as to make all subsequent payments on time after becoming current.
2. if you miss a series of payments, do not fail to contact your creditor and discuss the situation.  Let them know of your difficulty, such as you yourself were hospitalized for an extended period, and you did not receive any income because you were not working.  Work out a repayment program with them, and see if you can minimize the damage to your credit report and relationship with the creditor.  Good FICO scores take into account the way you manage your accounts over time, and weigh any credit problems against the positive information that says you’re doing as good a job as possible.
3. if your creditor will not work with you when you are in financial difficulty, contact a credit counseling agency to help.  They can assist you by contacting your creditors.  They inform the creditor that you are working with them to legitimately try to get through the difficult financial time, and will usually suspend interest, or lower interest rates to accommodate the new payment schedule.  However, be advised that when you start up a program like this, that creditor is not likely to extend additional credit to you…so you will not be able to use that card again.
4. one of the most misunderstood issues that comes with this territory is that all of your creditors that report to the credit reporting agencies (bureaus) also purchase information from them.  At least several times a year, they are checking to see if you have late payments with other creditors.  Even if you are current with a particular creditor, and are late with another, it may affect all creditors equally depending upon their internal policies.  It is likely that your credit will be negatively affected with all creditors, even though you are keeping up your payments with them.  Their risk is greatly enhanced by your one late payment.  And they react accordingly.  They can raise interest rates, and they can reduce your available credit amount.

3. What if my account goes to collection?  How does that affect my credit score?

Be advised that paying off a collection account will not remove it from your credit report.  Unless you negotiate with the creditor to remove the negative once you pay the bill, it will stay on your credit report for seven years.  There are laws surrounding the reporting of collection accounts.  By working with a credit restoration specialist, there may be a legal reason why the negative can be removed.  Collections definitely affect your credit score downward.  Therefore, it is important that you address this issue immediately with a credit specialist.

There are rules regarding how you must answer a demand letter from a collector, and their letters are designed to confuse you and get you to act.  If you receive a demand letter from a collector, contact a credit restoration specialist or attorney so that you know your rights, and the procedures that must be followed.