Repairing Your Credit
If you have gone through a
period of being late on payments, there are steps you can take to repair your
credit history, starting with the process of disputing any negatives that are
not legitimate, as described above.
First, paying off or down on your credit cards will be more effective at raising your overall credit score than if you pay down mortgage, auto or other types of installment loans. It is a good idea to get, and keep, your credit card borrowing to know more than 30% of the amount you have available in credit. (This is one reason it is good to check your report and make sure that your credit card company is reporting the limit that you think you have on the card. If the company reports a lower limit, it can negatively impact your credit rating).
If you have multiple credit cards, start working on the ones where the amount you have borrowed is closest to the credit limit. It stands to reason, also, that it is a good idea to curtail your credit spending while you are busy trying to pay down the balances. Also, consider using older cards that you have not used in awhile and pay off the balance at the end of the billing cycle. When cards go unused for long periods, the card companies can stop reporting your history. This does not necessarily look negative on the report, but it can lower the basis of your overall borrowing capacity.
If you are a long-standing customer, and have missed a payment, consider working with the credit card company to get a goodwill adjustment. A variation of this approach is to ask that the company expunge old delinquencies after a set period (one year, for example).
Some people believe that closing old accounts will help their score, and this often is not the case, as it lowers the total amount of borrowing power, which is used to calculate your credit score.
Always & Never
Credit cards are relatively simple to use, but it’s not always easy to understand how best to use them. Following are some simple Do’s and Don’ts for effective management of your credit and credit scores:
Do
- Pay your bills on time
- Read and understand the terms of your cards
- Shop for the best rates
- Shop for the rewards program most suited to your lifestyle
- Use credit cards to pay for day-to-day expenses that must be made (assuming the payments can be met)
- Communicate with your card company if you think you will fall behind on your payments
- Read your credit report and correct errors
- Understand that paying off a collection agency will not remove the derogatory information from your credit report
- Keep balances low
Don’t
- Spend what you don’t have; plain and simple
- Take on more borrowing capacity than you need; having five credit cards with $10,000 spending limits is not a good idea, even if you don’t use the cards
- Move around debt in order to avoid paying it
- Open a lot of new accounts in a short period
- Close accounts simply because you think it will improve your credit score
- Avoid the card companies if you are falling behind on your payments; contact them or a reputable credit counselor
- Ask a creditor to lower your account balance (unless it is a stipulation of getting a loan)