Credit Cleanup – Ways to Raise Your Credit Score

23
October

Isn’t it great that you’ve never missed a credit card or mortgage payment, that creditors fall at your feet with offers of 0% financing, and your credit score resides somewhere in the 840 range? It must be nice to be you. Oh wait – this isn’t you? You’ve actually had some credit issues in the recent past? Well, rest assured you are not alone. About 1 out of 5 individuals have very poor credit, according to Experian. Experian’s research also indicated that between 2006 and 2009, the number of people with poor credit scores has risen by 15-20% to more than 40 million. The facts are that having a poor credit score is costing you money in terms of qualifying for lower interest rates on both fixed and revolving credit, and it is severly limiting your ability to qualify for mortgage and auto loans. All the while, unpaid debts could be accruing interest and fees costing you even more.

Sometimes people fall into the trap of ignoring their bad credit. Its hard to face collection accounts, shoddy payment histories and the dreaded credit score. However, ignorance is not bliss in this case and the first step to cleaning up your credit is to stop ignoring it.

Once you resolve to take control, the next step is to take advantage of a free annual credit report by visiting annualcreditreport.com or you can look into a more comprehensive tool like those found at credit.com (which also includes a free credit score).

Understanding your Credit Score is important. Your FICO Score is the primary tool creditors use to determine whether or not you are credit worthy. Scores range from 300 (the absolute worst) to 850 (the best). Payment History (making on-time payments) and Debt Usage (Your debt balances compared to your available limits) make up about 65% of your credit score. So they should be your focus. A combination of Credit Age (length of credit history), Account Mix (different types of credit – i.e. not all revolving), and Inquiries (requests by creditors to view your credit) make up the other 35%. Focus on these only after exhausting your options with the other two more impactful components.

If you have the means, paying down your debt on revolving loans or credit cards can boost your score significantly. Experts recommend keeping your debt-to-limit ratio under 30%, or even under 10% if possible.

Payment history is a little more tricky. You can’t easily erase past records of slow payments. You should identify the low hanging fruit, so to speak, which are the small balance accounts that may be in collection or outstanding. Pay these off if you can. Then focus on working with creditors for the larger accounts. Your credit report should provide some contact information or you can rummage through your old bills and gather the ones you need.

When cleaning up your credit and working with agencies, always ask if they participate in Credit Delete. This is a practice where collection agencies or creditors may be willing to actually delete an item from your credit report if you agree to pay it off. This can have a huge impact on your credit score and if you can work out similar agreements with other creditors/collectors, you may arrive at an overall boost that suprises you. Not all agencies offer this but it can’t hurt to ask.

As you begin your journey to the upper limits of the credit score range, remember to always stay current on any active accounts that you have; Being even a few day’s late on your credit card or car payments can result in delinquent reporting. You need to display to anyone viewing your credit that you have changed your old habits, you are serious about cleaning up your credit, and you have become a responsible borrower. Good luck!

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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