8 Methods to Raise Your Credit Scores:
1. ELIMINATE YOUR COLLECTION ACCOUNTS.
Did you know that paying a collection account can actually lower your credit scores? Here’s why: credit scoring software analyses credit reports for each account’s date of last activity (DLA) to determine the impact it will have on the overall credit score. When a payment is made on a collection account, collection agencies submits new updates to the credit reporting bureaus to reflect the account status as “Paid Collection”. When this happens, the date of last activity becomes more recent. Since the guidelines for credit scoring software is the date of last activity, recent payment on a collection account damages the credit scores more severely. This method of credit scoring may seem unfair, but it is something that must be worked around when trying to maximize your scores. So, how is it possible to pay a collection account and maximize your scores? The best way to handle this credit scoring dilemma is to contact the collection agency and explain that you are willing to pay off the collection account under the condition that all the current negative reporting be withdrawn from the credit reporting agencies/bureaus. Request a letter from the collector that explicitly states their agreement to delete the account upon receipt/clearance of your payment. Although not all collection agencies will delete reporting, removing all references to a collection account completely will increase your score and is certainly worth the involved effort.
2. BRING YOUR PAST DUE ACCOUNTS CURRENT.
Within the delinquent accounts on your credit report, there is a column called “Past Due”. The Credit scoring software penalizes you for keeping accounts past due, so Past Dues accounts destroys an individual’s credit scores. If you see an amount in this column, pay the creditor the past due amount reported.
3. ELIMINATE CHARGE OFFS AND LIENS.
Charge offs and liens barely affect your credit score when older than 24 months. Therefore, paying an older charge off or a lien will neither help nor damage your credit score. However, charge offs and liens within the past 24 months severely damage your credit scores. Paying the past due balance, in this case, is very important. In fact, if you have both charged off accounts and collection accounts, but limited funds available, pay the past due balances first, then pay collection agencies that agree to remove all references to credit bureaus second.
4. ELIMINATE LATE PAYMENTS.
Contact all creditors that report late payments on your credit reports and request a good faith adjustment that removes the late payments reported on your accounts. Be persistent if they refuse to remove the late payments at first, and remind them that you have been a good customer that would deeply appreciate their help. Since most creditors receive calls within a call center, if the representative refuses to make a courtesy adjustment on your account, call back and try again with someone else. Persistence and politeness pays off in this scenario. If you are frustrated, rude, and unclear with your request, you are making it very difficult for them to help you.
5. CHECK YOUR CREDIT LIMIT(S) AND EVENLY ALLOCATE THE BALANCES YOU ARE CARRYING.
Make sure your creditors are reporting your credit limits to all three major bureaus. When no limit is reported, the credit scoring software scores the account as though your current balance is “maxed-out”. For example, if you know that you have a $10,000 limit on your credit card, make sure that the limit appears on the credit report. Otherwise, your score will be damaged as severely as if you were carrying a balance of the entire available credit. The Credit scoring software likes to see you carry credit card balances as close to zero as possible 10% for optimal results. If it is difficult for you to pay down your balances, read the following guidelines to maximize your score as much as possible under the circumstances:
There are different degrees that the scoring software can impact your scores when carrying credit card balances.
Balances over 70% of your total credit limit on any card damages your score the most. The next level is 50% of your balance, then 30% of your balance.
In order to maximize your score without having to pay down your balances, evenly distribute your credit card balances among all of your credit cards, rather than carry a large balance on one credit card. For example, if you are carrying a $9000 balance on a credit card with a $10,000 limit, and you have two other credit cards with a $3,000 and $5,000 limit, transfer your balances so that you have a $1,500 balance on the $3,000 limit card, a $2,500 balance on the $5,000 limit card and a $5,000 balance on the $10,000 limit card. Evenly distributing your balances will maximize your score.
6. DO NOT CLOSE YOUR CREDIT CARDS.
Closing a credit card can hurt your credit score, since doing so effects your debt to available credit ratio. For example, if you owe a total credit card debt of $10,000 and your total credit available is $20,000, you are using 50% of your total credit. If you close a credit card with a $5,000 credit limit, you will reduce your credit available to $15,000 and change your ratio to 66% of your credit available. There are stipulations to this rule however, example: if the account was opened within the past two years or if you have over six credit cards. The magic number of credit card accounts to have in order to maximize your score is between 3 and 5 (although having more will not significantly damage your score). For example, if a card was opened within the past two years and you have over six credit cards, you may close that account. If you have more than six department store cards, close the newest accounts. Otherwise, do not close any at all.
7. OPEN BUSINESS CREDIT CARDS.
Most business credit cards do not report to your personal credit reports unless of course the person pays the card late. Given that fact, any debt carried on these cards does not hurt your personal credit scores, because again it’s not being reported to your personal credit profiles. You can carry credit card debt on these cards without hurting your personal credit scores. Just apply for business credit cards now to start building this segment of your credit. If you operate your own business and want to learn how to build your business credit profile under the company’s name give us a call and we will show you how.
8. KEEP OLD CREDIT CARDS ACTIVE.
15% of your credit score is determined by the age of the credit file. Fair Isaac’s credit scoring software assumes people who have had credit for a longer time are at less risk of defaulting on payments. Therefore, even if your old credit cards have horrible interest rates, closing those cards will decrease the average length of time you’ve had credit. Use the old card at least once every six months to avoid the account rating from being reported as “Inactive”. Keeping the card active is as simple as pumping gas or purchasing groceries every few months, then paying the balance down. An inactive account is ignored by Fair Isaac’s credit scoring software, so you won’t get the benefit of the positive payment history and low balance that card may have.
The one thing all credit reports with scores over 800 have in common is a credit card that is twenty years old or older. Hold onto those old cards, trust me! Preparing credit is a slow and time consuming process. Full knowledge of your credit profile and how it represents you to creditors and credit bureaus is pivotal to full credit restoration success. Credit bureaus always advise individuals that they have a right to dispute their own credit files, but when the rights of the Credit Bureaus slow you down, you know where to turn to for help.
If you’re worried about errors on your credit reports, and you don’t want to go it alone, you can hire – InCreditable Advisors, LLC – to manage the credit repair process for you. Learn more about them here or call them at (317) 202-1297 or book a consultation and let them help you save money!