Let’s face it – we’re all obsessed with it. Everywhere you turn, you are being inundated with the importance of it, how with ‘good’ ones, you are a master of the universe; with ‘bad’ ones, you are nothing.
By now, you’ve figured out that I’m talking about credit scores (hear the soaring trumpet strands…) and you are nodding your head, acknowledging that you, too, have obsessed at least a little bit over this subject. For most folks, this article has little value, save for the rare opportunity to refer a friend in need to it. That’s because most of us have perfectly fine credit scores and don’t need to do anything. However, a select few do have problems and need some help.
That’s what this article is designed to accomplish: A simple, self-guided, free, and reliably successful prioritized list of the steps you can take to raise your scores. While there’s an entire industry built on the notion that only paid professionals can repair your credit, from what I’ve seen, they are long on promises, quick at taking your hard-earned money, and short on delivering the goods.
Let’s get started with a couple of Big Picture ideas that provide a foundation for this guide:
- Late payments kill your credit. If you’ve been making late payments, resolve to pay on-time, every time from here on.
- You need at least 3 open, active credit cards. The people with the highest scores have a nice mix of mortgage, installment, and revolving credit but having at least 3 credit cards is a minimum starting point.
- Your ratio of balance to limit on your credit card accounts matters. The closer you get to 100% of the available limit, the worse your scores will be.
- As in Love, time heals all with credit. That means that past sins will become less important with each passing month and, thus, it’s really not essential to try to get the bad things removed; if it’s old news, it isn’t really affecting your scores in a meaningful way.
Here we go…
Step 1: Get a copy of your credit report. You can get a free copy (without scores) by visiting https://www.annualcreditreport.com/index.action . You are entitled to one free report from each of the 3 bureaus each year. I usually recommend that you space these out every 4-months (e.g.; TransUnion in January, Equifax in May, Experian in September) so that you are monitoring your credit throughout the year.
Step 2: Pay-down any credit card accounts. If you have any past-due accounts, catch them up immediately. Then, pay-down your balances to less than 15% of the available limit (for example, if your credit limit is $1,000, then your balance should never be higher than $150 at any point in the billing cycle).
Tip: If cash is tight, make minimum payments on all of your accounts except for the account with the smallest balance. Apply 100% of any “extra” money to pay that account down and then move on to the next card. They call this the “Snowball Method” because you’ll have more and more money to throw at each account as you pay each card down.
Step 3: Resolve any medical collection accounts. I’ve had 100% success getting medical debt collection companies to REMOVE adverse information IF the debt is paid in FULL. So, your job is to contact each collection agency reporting a medical debt and agree to pay 100% if they will agree IN WRITING that they will delete the account from your history. Once you have it in writing (email is fine), then go ahead and pay the account in full. That will have an immediate and profound impact on your scores.
Editorial comment: You should know that the Consumer Financial Protection Bureau (CFPB) is closely scrutinizing the use of the credit reporting system for collecting medical debts. Their view – and I think it’s the correct one – is that people don’t make a “choice” when they are sick or need medical care and, thus, this type of debt shouldn’t count against them. They haven’t made any rules yet but I’m hopeful this source of bad credit reporting vanishes in the next couple of years.
Step 4: Resolve any non-medical collection accounts. I’ve had some success getting non-medical debt collection companies to REMOVE adverse information IF the debt is paid in FULL. In this case, your job is to contact each collection agency reporting a debt and tell them that you’ll pay 100% of the amount they are reporting if they will agree IN WRITING that they will delete the account from your history. Once you have it in writing (email is fine), then go ahead and pay the account in full. That will have an immediate and profound impact on your scores.
If they do not agree to remove the account from your history, it’s no longer a clear-cut decision as to whether you negotiate some settlement amount. The criteria for moving ahead will be the amount of the claim (if it’s small, just pay it; if it’s big, maybe not), the age of the item, where this fits into your overall profile (if you have lots of non-medical debt in collection, you may wish to consult an attorney rather than attempt to negotiate on your own), and what your objective is in raising your credit scores.
Step 5: Save, Save, Save. One of my favorite stupid sayings is that “There’s nothing like having money in the bank to make you feel like you have money in the bank.” The ultimate way to avoid having to re-visit this article is to always have enough money so that you can pay your obligations in a timely manner, no matter what life throws at you.
Last comment: Sometimes you need a coach. If ever you have a question about how or what to do, or you just need some buoying-up, call or email me.
To your success!