Credit Restoration: Pay for Delete

Pay For Delete: Should You Do It?

Pay For Delete: Should You Do It?

Pay for delete services are something many credit users do not understand. The following is information on what pay for delete is, whether it’s for you (spoiler: it’s probably not), and how you can implement in your own life.

What happens when a collection agency receives my debt?

The collection agency generally passes along this information to the credit bureaus to notify them of the collection. This process will typically add a negative event to your credit report, which can lower your credit score. Your credit score will suffer even more if you don’t pay off the debt.

This information can stay on your credit report for up to seven years, but as time goes on, the negative information factors in less to your credit score.

What is Pay for Delete?

Pay for delete is when you offer to pay owed debt in exchange for the creditor removing the negative account history from your credit report. However, there are risks associated with it, and trying to do so is asking the debt collector to violate their contracts.

How common is pay-for-delete?

Roughly 10% of collection agencies will agree to pay for delete because they want to collect. You’ll probably have better luck with smaller, mom-and-pop collection agencies. Legitimate debt collection agencies will probably not engage in the pay for delete process.

What are the risks of pay for delete?

The risk lies with debt collectors. Therefore, there’s a big chance they will not do the pay for delete. The collectors that remove this information are actually not supposed to, according to their contracts with the three credit bureaus. They are required by law and by contract to send accurate information, so technically, pay for delete is not advisable.

How does pay for delete affect my credit report?

Collection agencies could delete the account associated with the collection. But it can’t delete anything from the creditor originally, including late payment information.

  • Fully paid collection accounts will show as “paid collection”
  • Fully paid collection accounts will no longer show a balance due
  • It will stay on the credit report for seven years from the original delinquency date

Scenarios where you can pay for delete

You never received a notification of debt

If you never received a bill, you have a chance at using pay for delete. For example, if the bill was sent to the wrong address, you have grounds for an argument that the collection shouldn’t be on your credit report. Just make sure you pay off any other debts before doing so.

The collection is from medical debt

The new FICO scoring model called FICO 9 has lower weighting for medical collections. It also doesn’t take into account paid medical collections.

  • By law, medical debt doesn’t factor into your credit score as much as other types of debt. The idea is that medical collections don’t give as much information about a consumer’s credit risk.
  • However, the new credit score models aren’t widely used yet
  • Nonetheless, it’s now more probable that medical debts will be deleted from your credit report after they are paid off. Be sure to ask your debt collector if you’re dealing with medical debt.

You’re not dealing with a large creditor or bank

If the creditor that you originally owe money to is not a large creditor, pay for delete may work with a wide variety of bills (dental, phone, utilities, medical, rent).

  • If there’s a credit card bill you never paid for, there’s a very low chance that you’ll be able to pay for delete for it. It’s near impossible to negotiate that with a very established credit card company.
  • You may have better luck if you are dealing with a smaller creditor, and working with a different type of debt

Practical Pay for Delete Rules of Thumb

Ask the original creditor

  • Communicate with the creditor to ask if your debt has been sent to a collection on contingency. What this means is that an agency is able to get a percentage of funds that it collects, even though the original creditor still technically has the debt.
  • Ask if it’s possible to just pay off the original creditor’s debt directly, without the collection agency
  • The collection will no longer be in your credit report if the debt is no longer in collections

Contact the agency

Communicate with the collection agency:

  • State to the agency that you intend to pay off the debt
  • Afterwards, request to have your credit report cleared by having the collection removed
  • It can help to be polite in your communications and try to work with them as best as possible

Have ample proof

Having ample proof and a good trail of evidence in your communications is particularly important if there’s a special circumstance surrounding your removed collection. Ensure that you can back up your statements to the debt collector with ample proof

Get it in writing

This is related to having ample proof. You’ll have a strong case if communication is in writing via mail as opposed to hearsay memory over the phone.

  • In case the collection agency agrees with you to delete the collection in exchange for a payment on your end, make sure you ask them for a letter that states this agreement before giving them any money. Don’t pay for anything until you both have agreed to the terms, and it’s in writing.
  • In case the debt collector doesn’t want to mail a letter, email generally also works as evidence

Some Final Things to Remember and Know

  • Paid and closed positive accounts will be on your account for 10 years
  • Open accounts that are in good standing will stay on your account indefinitely
  • Collections can legally stay on your credit report for up to seven years from when the account became delinquent
  • Paid collection accounts will not be removed from your credit report
  • If there is a negative account that’s on your credit reports from all three bureaus, removing it from just one bureau may not actually lead to much effect. And it won’t necessarily change the report from the other two, either
  • Because of this, you should verify if the information will get sent to all three bureaus or just a subset

Pay anyway

Even if you’re not able to get an agreement for pay for delete, it’s good to just pay off the debt anyway. It’s going to be better for your credit report and credit score to have the collection as paid as opposed to not. More recent credit score models for the FICO and VantageScore don’t count any types of paid collections. After paying, you should soon see an updated credit report that shows that you’ve paid.

how to dispute credit report

How to Dispute Your Credit Report

How to Dispute Your Credit Report

Learning how to dispute your credit report can be a confusing and complicated thing to do. The following are some practical steps for you to take to navigate your way through a financial check-up.

Why Should You Check Your Credit Report

It’s quite common for errors to appear in your credit report, which is why it’s also common to dispute your credit report. These errors may not be insignificant. They may be important ones that can have a powerful impact on your future. The fact of the matter is that you could be missing out on a lot when you’re not looking at your credit report. Check out some important statistics and facts below:

  • 35% of Americans have never checked their credit report
  • A 2012 Federal Trade Commission (FTC) report found one in four Americans found at least one potentially important error in at least one of their credit reports
  • Errors on your credit report may affect if you can take out a loan
  • They may affect how much you will have to pay money to get that loan
  • Ensure the information on your credit report is correct, complete, and updated before applying for a loan for a large purchase e.g. home mortgage, car loan, buy insurance, or applying for a job
  • To prevent identity theft

Now is the time to act. Plan now for your future, especially if you’re thinking about doing any of the following things above. You never know what’s going to happen. And you may not know what you’re going to want.

How To Spot An Error

An error is information on your credit report that shouldn’t be there. This might be due to the fact that the information is not yours, is wrongly reported, or it’s against the law to be listed. Common credit report errors include errors in personal information, accounts, and/or derogatory marks.

Personal Information Errors

  • Wrong name listed
  • Addresses you’ve never lived at or used as a mailing address
  • Inaccurate employer information

Account-Related Errors

  • A late payment that’s more than seven years old
  • Having a credit card or loan account listed that’s not yours (or that you’re not a co-signer or an authorized user on)
  • An account that was closed by you, but shows as being closed by the provider

Derogatory Mark Errors

  • A paid-off collections account that still shows as being unpaid
  • A paid tax liens that is more than seven years past the date of payment
  • An account that was discharged in bankruptcy is still showing up as active with a balance (account history can still be reported)

How to Obtain Your Free Credit Report

The Fair Credit Reporting Act (FCRA) requires the three nationwide companies to provide you a free credit report. Equifax, TransUnion, and Experian must, upon request from you, give you a free report once every 12 months. They must provide a website, telephone number (toll-free), and mailing address. You can use any of these 3 methods to obtain your free credit report.

Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281

You don’t need to request your free credit report from the three nationwide credit reporting companies separately. In fact, you ask to get the credit report from the 3 credit reporting companies simultaneously.

Other Reasons for Getting a Free Credit Report

There are other situations where you’re entitled to a free report. You can get a free credit report if a company takes negative action against you by denying your application for insurance, employment, or for credit.

You can also get a free credit report for the following other reasons:

  • You’re unemployed and are planning to look for a job within the next 60 days
  • You’re on welfare
  • Your credit report is inaccurate due to fraud (e.g. identity theft)

Buying Your Credit Report

If you need a credit report for not any of the reasons above, it might cost you to buy another copy of your report within 12-month period. Contact the three credit reporting companies to a purchase your credit report:

Fixing Credit Report Errors

You want to get into touch with both the credit bureau and the organization that gave the information to the bureau. Under the FCRA, both of these parties are responsible for ensuring that there isn’t wrong or missing information in your credit report.

Credit Bureau

Unless the credit bureau thinks your dispute is frivolous, they must look into the item(s) in question typically within 30 days. Include copies of the documents that will help your case. The letter should include the following:

  • Your full name
  • Your up-to-date address
  • Clearly show each item you are disputing in the credit report
  • List all of the facts along with an explanation for why it supports your dispute
  • Request a deletion or correction
  • Include a copy of your report
  • Circle items you’re disputing
  • Use a sample letter such as this one

You should keep copies of your disputed letter and enclosures. Use certified mail to send your letter, along with a return receipt requested. This way you can keep a record that the credit bureau received your correspondence.

Appropriate creditor or information provider

You also want to write to the appropriate creditor or information provider. Explain that you are disputing the information provided to the bureau.

  • Include copies of documents that support your position
  • Request that the provider copy you on correspondence they send to the bureau

This process may take between 30 and 90 days. Remember that if the provider again reports the same information to a bureau, it must include a notice of your dispute.

Conclusion

Sometimes, disputing incorrect information on your credit report may be one of the fastest ways in making a positive impact on your credit score. At the end of the day, it’s really important to dispute wrong information on your credit report because it may have a huge effect on your financial future. Therefore, learning how to dispute your credit report is important to know.

bad information on credit report

How Long Bad Information Stays On Your Credit Report

How Long Bad Information Stays On Your Credit Report

Many of us have wondered this before, particularly after we make a mistake or slip in remembering to pay the bills on time. But before we go into the details of how long bad information stays on your credit report, you should be aware of where that “bad information” in your credit report comes from.

This “bad information” is gained from multiple sources. Examples include collection agencies, lenders who have issued your credit, or whatever is included in your public information. All of this information is then reported to the three nationwide credit reporting agencies. These credit reporting agencies put all of this information together and lists it in your credit report. So, credit reporting companies don’t make judgments about the information; they simply reveal what’s being sent to them.

Luckily for you, the Fair Credit Reporting Act (FCRA) limits how long a credit reporting agency can reveal negative items in your report. The following is a breakdown of what kind of bad information is included in your credit report and how long bad information stays on your credit report.

Public Records

There are 3 types of public records that show up on a credit report: bankruptcies, tax liens, and civil judgments. A tax lien usually results from not paying your taxes. A civil judgment is a debt you owe through the courts because of a lawsuit. Judgments generally stay on your credit file for 7 years. This is 7 years from the date filed, whether paid or not. Paid tax liens generally stay on your credit file for 7 years from the date paid. Unpaid tax liens, however, remain on your credit file indefinitely.

Bankruptcies

A bankruptcy is a legal proceeding in which an individual is given relief from paying debts they’re unable to repay. The 2 important forms of bankruptcy are called chapters because they are defined by chapters in bankruptcy law. For Chapter 13 bankruptcy, a person repays at least a partial amount of their debts. Under Chapter 7, a person doesn’t pay any of the debts.

Completed Chapter 13 bankruptcies remain on your credit report for 7 years, and 10 years for Chapter 7 and 11 bankruptcies. If your Chapter 13 bankruptcy was dismissed, it remains on your credit file for 10 years from the date filed. The 10 years starts from the date of the dismissal. Contrary to a completed case, a dismissed case means you didn’t get an order discharging your debts.

Criminal Records

Most criminal records like information on arrests and indictments can be reported until the expiration of the statute of limitations or before seven years, whichever is longer. But criminal convictions may be reported for an indefinite period. An indictment only establishes whether or not there is enough information to charge a suspect with crime. A conviction has to do with an individual who’s been tried and convicted by a judge or jury.

Credit Accounts

Also called trade lines, lenders report on each account you’ve created with them. One of the important things reported is the type of account (whether it’s a bankcard, auto loan, mortgage, etc.). Other reported information include the date you opened the account, your credit or loan amount, account balance, and your payment history.

Late payments remain on your credit report for about 7 years. Accounts with current statuses such as R1 and I1 that show previously late payment history will remain on the credit file for up to 10 years from the date of last activity. R1 means revolving debt on credit cards and home equity lines where the account holder has never missed a payment. I1 is installment debt such as auto or student loan. Only the late payment history is taken out after 7 years.

Collections

Collections refer to the transfer of late or past-due accounts to a collection agency. Amounts are then fully or partially recovered. Collection accounts stay on your credit file for 7 years. The start date begins from when the account first became past due prior to the account being placed in a collection agency.

Foreclosures

A foreclosure basically means that you lost your house due to not paying your mortgage. It’s actually seen by lenders as being something very negative, second only to bankruptcy. A foreclosure on your credit report will remain there for 7 years.

Inquiries

Inquiries occur when you apply for a loan. You’re essentially authorizing your lender to ask a copy of your credit report. These inquiries list everyone who’s accessed your credit report within the last 2 years. The reports includes voluntary inquiries which are  inquiries due to you asking for credit. And it also includes involuntary requests which happen when a lender orders your report for the purposes of pre-approved credit offers in the mail. Involuntary requests do not affect your credit score but will remain on your credit file for 12 months.

Bullet Point Summary Of How Long Bad Information Stays On Your Credit Report

  • Public records like paid tax liens and civil judgment will remain for 7 years. Unpaid tax liens may remain indefinitely.
  • 7 years for completed Chapter 13 bankruptcy. 10 years for dismissed chapter 13 bankruptcy. 10 years for Chapter 7 and 11 bankruptcies.
  • For arrests and indictments, 7 years or if the statute of limitations has expired, whichever is longer. Criminal convictions may be reported indefinitely.
  • Late payment on credit accounts remain for 7 years.
  • Collections stay on for 7 years.
  • Foreclosures stay on for 7 years.
  • Voluntary inquiries stay on for 2 years.

At the end of the day, you should know that the three nationwide credit reporting agencies receive both negative AND positive information. A credit report is obviously not all about negative things in your credit. Items that are also positive or neutral are not only included but may be there indefinitely. Another thing to realize is that the older the negative items, they less of an effect they’ll have on your FICO® score. Further, the type of information channel affects how long bad information stays on your credit report.

Many of us have made financial mistakes in one way or another. Understanding what mistakes you’ve made in the past and how much of an impact it has on your credit will give you a better perspective in rebuilding your credit. If you haven’t checked your credit report recently, why not have a look? Make sure that all your information is correct and accurately shows your personal financial history.

Check out our list of where to get your credit report and credit score for free, to see what’s on your record. If you’d like more information about the credit repair companies that are most effective, you can view our list of the best reputable companies for credit repair.

new years resolutions

How To Improve Your Credit Score In 2017

How To Improve Your Credit Score In 2017

The New Year is a great time to set new goals, and it gives people the fresh start they need to make the changes they desire. At the beginning of each year, around two-thirds of Americans vow to make their lives better by having a New Year’s resolution. Out of those two-thirds, only 8% achieve their goals. Improving credit scores and getting out of debt is among the most popular resolutions each year. With so many people desiring to improve their credit scores, why do most fail? The answer is that most goals fail without having a concrete plan in place. If improving your credit and getting out of debt is one of your resolutions this year, having a roadmap ensures you will improve your credit score in 2017.

A credit report is simply a compilation of information obtained from lenders that an individual has used. The information in a credit report determines your credit worthiness as a borrower. In a nutshell, a credit report is a measuring tool to analyze how a person manages debt and their likelihood of repaying a loan. A credit report also depicts a person’s spending behaviors. Debt to income ratios could indicate if a person is spending more than their ability to pay.

Credit affects many important areas in life. Everything costs more with poor credit scores, which often makes it even harder to improve your credit score. While resolving to improve your credit score may not be the most glamorous New Year’s resolution, it may be one of the most important. The financial freedom and self-discipline that comes from seriously improving your credit score will be an investment you cannot afford not to make. Here are the steps to keep your resolution and improve your credit score this year.

1. Take an honest assessment of your credit

The first step in improving a credit score is to know exactly what needs improvement. In order to make an effective get out of debt plan, take some time to understand your current credit situation. Set aside a day and time that you can truly delve into your finances to create a plan.

A crucial part of improving your credit score is being honest with yourself. One of the most overlooked steps in improving credit is understanding your own behavior with money and debt. Use credit card statements and bank statements to track spending habits. Did an emergency arise that caused you to max out a credit card? Maybe an unexpected car repair, loss of income, medical situation, or natural disaster forced you to use credit cards more than you would have liked. Perhaps impulsive spending led you to high credit card balances. However you ended up with credit card debt, it is wise to learn from it, so you could plan for the future. Having a savings account to handle life’s emergencies can protect your credit score and your wallet.

Credit card debt does not always signify a money issue. It’s often a behavioral issue. Changing behaviors and relationship with money will not just propel you to improve your credit score, it ensure that bad habits will not surface again once your credit goals have been met.

2. Clean up your credit report

According to the FTC, millions of people have errors on their credit reports that can result in a lower score. Carefully check your credit report to ensure all information is being reported accurately. Once a year, you can obtain a free copy of your credit report from all three credit bureaus. If you suspect fraud, inaccurate information, or need to update your personal information, you can contact the credit bureaus individually to find out their dispute process.

To find out where to obtain a free copy of your credit report, check out our blog post on how to get your credit report and credit score for free.

Professional credit repair companies can help you clean up your credit report. However, it’s important to choose the right one, since many credit repair companies are ineffective scams.

3. Understand how credit scores are calculated

Many people have lower credit scores because they do not understand how it is calculated. Depending on your situation, aiming to eliminate all credit card debt may not be possible in one year. Around 30% of your credit score stems from credit card balances. Aim to reduce the debt to income ratio by paying off 20% or more of credit card balances.

Another credit score buster is applying for too much credit in a short period. Apply for credit only if it is absolutely necessary. 10% of a credit score is calculated by the number of hard inquiries. Another 15% of a credit score is determined by the age of the accounts. Having too many new accounts or inquiries could put a significant dent in your score, so avoid opening new lines of credit if possible.

4. Change spending habits

Knowing how to allocate your income will be a beneficial asset during this process. Is there something you can sacrifice to get to your credit goals faster? Maybe skipping your daily latte for a short period or avoiding take out lunches will speed up the process of paying off a credit card or increasing your emergency fund. It is wise to be mindful of how money is spent. Small purchases here or there may seem fine, but they eventually add up quickly. Look for ways to be smarter about money and use the savings to improve your financial health.

5. Be responsible with the credit you already have

To successfully improve your credit score this year, you will have to take care of the credit you already have. Establishing a history of paying bills on time will be viewed favorably and will have positive impacts on your credit score. If paying bills on time has been a struggle in the previous year, commit to paying bills on time this year. It is vital that all payments are made on time, every time. A late or missed payment can stay on your credit report for up to seven years. A person with an excellent score could potentially lose around 90 points because of a missed or late payment.

If you think you will be late with paying your bill, do not wait until the last minute to contact the lender. Contact the creditors right away and set up alternative payment arrangements. Most creditors and banks have automated payment options available to make paying bills on time easier.

6. Adjust expectations and work hard

While “improving credit” and “getting out of debt” are some of the most cited New Year’s resolutions, they are often the ones people break the quickest. Like many resolutions, improving credit scores takes hard work, patience, and a change in behavior. These things normally do not happen overnight. Create a realistic budget and stick to it. This will keep track of bills and spending habits. Wallethub.com suggests breaking credit goals down into smaller goals to maximize your ability to follow through with your plan. For example, setting a deadline to order credit report, increase emergency funds, and create a budget could be mini-goals that pushes you closer to your ultimate goal.

Concluding Thoughts

Everyone could benefit from analyzing their credit reports and spending habits. Surprisingly, the most effective way to improve a credit score is to change your mind set about credit and money. By understanding your previous credit pitfalls, you can work hard at eliminating them. A healthy relationship with money, hard work, and perseverance will eventually translate to excellent credit. This year, resolve to investing in yourself by improving your credit score.

poor-credit-score

Actions That Lower Your Credit Score

Actions That Lower Your Credit Score

Maintaining a healthy credit score is important for your financial safety. You probably already know that late or missed payments on your credit card bills and loans can lower it, but there are other subtle yet still dangerous things you could be doing that may be jeopardizing your credit score as well. Here’s a list of the biggest ones, so that you can avoid these surprising actions that lower your credit score.

Opening too many new credit cards or loans

Credit history is important. Lenders like being able to trace your credit history back for many years because it gives them more information in order to construct a more accurate creditworthiness profile for you. Having good credit for an extended period of time is an obvious benefit. If you’re closing old credit cards and opening new ones, you’re likely hurting your credit score because it limits how much information lenders can access about you.

Using only one type of credit

Part of your credit score is based on the types of credit that you use. If you use multiple types of credit, from mortgages to credit cards and beyond, this indicates to a lender that you’re an experienced borrower and can responsibly handle loans.

Not using your credit

This might seem counterintuitive, but neglecting to use your credit can actually hurt your credit score. A good credit score comes from using your existing credit intelligently, not from abstaining from using it. You should regularly use your credit, such as by using your credit card for daily expenses. Make sure to pay off all of those balances though!

Using too much credit

This tip might seem obvious, but sometimes even if your balances don’t exceed your available credit, your credit score might be in jeopardy. If your balances get too close to your available credit (for example, if you have a $4000 balance but a $5000 credit card limit), this tells lenders that you’re cutting it a bit close and might lower your credit score. Keep your credit expenditures somewhere in the middle, and make sure you pay off your balance every month (or at least most of it).

Having wrong information on your credit report

While rare, errors can still pop up on your credit reports. Errors that can hurt your credit score include reports of late payments or unpaid loans that you never made. Even more common errors, like an incorrect address, can be annoying to deal with. It’s important to pull a report once a quarter and make sure all of your information is correct. You should also monitor your credit score to see if anything unusual happens. Most major credit card providers will give you your score if you ask.

Want more information?

Above were some surprising actions that lower your credit score. If you want more, check out these tips for What NOT To Do To Increase Your Credit Score.

skyrocket

10 Credit Utilization Tips To Skyrocket Your Credit Score

10 Credit Utilization Tips To Skyrocket Your Credit Score

Here’s the gist of it: how much available credit you’re using becomes one of the most important factors, second only to making timely payments. Meet the credit utilization ratio. Simply put, it’s the amount of credit you’re using in comparison to your credit limit. If you have a credit limit of a $5,000, and you have a balance of $2,500 on your card, your credit utilization ratio would be 50% (which would be way too high to be good for your credit score, according to most experts). In fact, most would agree that having a balance of over 30% can damage your credit. Lower your credit utilization ratio and kick your credit score out the park with these 10 steps.

1. Welcome to the Credit Score Bureau

Understand how the credit score system works. Essentially, each month, your balance is sent to the 3 major credit bureaus by your credit issuer. This data then pops up in your credit report. When the new credit card balance comes in, it replaces information from the previous month.

2. Say When

Understanding credit score bureaus takes us to the next step: find out when your card issuer actually reports to the credit bureau. The date they report this balance doesn’t always coincide with when your bill is due. If the reporting date is a few days before your billing cycle, and you haven’t paid down the balance yet, you might look like you’re carrying a large balance. You can avoid this problem by calling your issuer’s customer service. Find out when they send the report, and simply pay the balance before that date every month.

3. Pay Not Once, But Twice Per Month

The trick here is to halve the time between each payment so that your credit utilization ratio is always below 30%. Set up an automatic twice-monthly payment to your card to make it easier. This’ll be a good alternative to the option above if it’s too much of a hassle remembering when the credit issuer sends the report, or if you simply don’t like calling customer service.

4. Raise the Roof

Ask for a credit line increase on your card. This is a different route you can do in terms of avoiding using 30% of your available credit. This is a great option if you’re not able to pay down your debt—just raise the ceiling. At the same time, remember that you want to continue to keep the balance low. Don’t go on a spending craze. As a word of warning, know that doing this may make you lost a few points in your credit. As long as you’re dutifully everything to keep up a good credit score though, you should be able to bounce back.

5. Just Do It

Sometimes the simplest choice is the smartest choice. The easiest thing you can do to lower your credit utilization ratio is to completely pay off your balance every month. It’s a quick, no-brainer, fool-proof solution. If you have the means, this is your best option.

6. Retail Credit Cards: Thank You But No Thank You

You want to avoid opening up that new Macy’s card, because retail store credit cards usually have very low ratios. This is due to the fact that they generally have low credit limits, and having one may encourage you to go on a shopping spree. One large shopping experience could shoot your credit utilization ratio over that bar of 30%. So give a big smile and politely decline that bright red card. 

7. Spread It Around, Baby

Instead of blowing up your credit utilization ratio on one card, why not use several cards and keep it low on each? The key thing to remember here is that credit bureaus may assess your utilization ratio based on individual cards AND their collective totals. So be careful to keep your ratio at 30% or less on each card in addition to the total. Also, if you don’t already have multiple accounts you can do this with, make sure not to open up too many new accounts in a short time span.

8. Check Yourself Before You Wreck Yourself

Make it a habit to always check your balance on your credit cards. You can’t fix or monitor your credit utilization without knowing what it is first. Then, make your move to pay up as soon as you are inching towards 30%. If you can’t make the payment, switch it up by using a different card for your purchases.

9. Hello, Mr. Robot

Technology can sometimes be your friend. If you’re having a hard time remembering to check your accounts online, set up balance alerts so that you get them through text message or email. This way, it’s almost guaranteed that you’ll see that 30% limit creeping up. One thing to remember is that it’s a good idea to set the alert so that it warns you at 20%. That way, you’ll have more time to pay your balance off before you hit that 30%.

10. Stop, Drop, and Roll

Setting an imaginary limit is a great way to improve your credit score. Ignore your actual credit limit and develop a discipline of responsible spending. Having a $4,000 doesn’t mean that you should buy a $4,000 suit. Keep a 30% limit and stick to it. Budgeting is another great way to follow this step. 

A Summary of the 10 Steps

  • Understand the process of how your credit scores are reported
  • Know when the credit card issuers reports your balance and pay before that reporting date
  • Pay 2 times a month instead of once to consistently keep that credit utilization ratio low
  • Raise the credit limit while maintaining the same balance
  • Just pay off your total balance
  • Avoid retail store credit cards
  • Spread your balance among several cards instead of one
  • Make it a habit to always look at your balance
  • Set up email and text alerts to remind you of upcoming credit card bills
  • Ignore your actual credit limit and come up with a credit limit in your mind that’s much lower

Conclusion

As you can see, there are a whole host of options in keeping down your credit utilization ratio. Choose which method is convenient and effective for you in keeping that balance low, thereby skyrocketing your credit score. When seeking credit repair, remember that coming up with an effective strategy means figuring out how that strategy fits your lifestyle. The FICO scoring model and its rival VantageScore ranks credit utilization ratio accounts for one third of your credit score. In other words, it’s really, really important that you look at how much you pay off, but how much is owed—because that’s what the credit bureaus look at.

not-to-do

What NOT To Do To Increase Your Credit Score

What NOT to Do To Increase Your Credit Score

A bad credit record can cause multiple problems. With a low credit rating, you diminish your chances of being approved for new credit or loans. If you are approved, you are liable to face extremely high interest rates.

A bad credit history can also prevent you from being approved for a cell phone contract or from renting an apartment; there are also some jobs that require you to have a good credit record. The good news is that you can improve your credit rating, but it is going to be a slow and tedious process. There is a strategy to credit repair, and if you take incorrect actions, you can actually lower your credit score. Here are some tips on what NOT to do when trying to repair your credit history.

1. Apply for Multiple Accounts

Despite the fact that new credit plays an important role in keeping your account active, applying for too many accounts, particularly in a short time span, can affect you negatively. Every credit application made places a hard inquiry on your file, and having multiple hard inquiries can lower your score from this risky behavior.

2. Co-sign a Loan

Unless this is your son or daughter, or other close family member, and you are okay with potentially ruining your credit score for their benefit, do not become a co-signer. Even if you are confident that the individual will be able to make payments on a loan agreement, it is best to refrain from becoming a co-signer. When you vouch for someone else’s loan, the following occurs:

  • Their account is placed on your credit file.
  • In certain instances, it increases your credit utilization ratio.
  • If the individual is unable to pay, you will have to take responsibility for the debt.
  • If no payment is made, your credit will suffer.

Improving your credit is and should be an individual process; you can reduce the risk of further damaging your account by simply saying “NO.”

The bottom line is this. Repairing your credit can prove very challenging; the amount of time that it takes for you to recover is dependent upon the severity of the damage. However, you shouldn’t allow your current situation to have a negative effect on your long term future. Ensure your financial security by taking a proactive position.

3. Maximize your Credit Limit

When you max out your credit, your credit utilization ratio is affected. In fact, you don’t want your credit utilization ratio to be anywhere near 100%. If your ratio is high, it implies that you are a risk, and this will have a negative effect on your credit score.

To be safe, you should aim for a 25% or lower ratio. For example if your credit card limit is $5,000, make sure that you keep a balance of $1,250 or less.

4. Close your Old Accounts

Age is a virtue in the credit scoring world. While you may think that it makes sense to close any accounts that you are not using, this can actually damage your credit score as it will increase your credit utilization ratio.

For example, you might have two credit card accounts and both of them have a $10,000 limit. You don’t use one of the cards and it has a zero balance. The other card has a balance of $3,200. Since you don’t use the card with the zero balance, you choose to close the account meaning that you lose $10,000 in available credit which will raise your utilization score from 16% to 32%. This spike in your credit utilization will lead to a lower credit score. Keep your accounts current and active to assist in improving your credit score.

5. Spend without a Budget

Credit repair begins with budgeting! By creating a budget you are able to identify:

  • Saving and spending habits
  • Your overall progress
  • Areas that need to be improved

The above three points can hurt or help your credit depending on how they are monitored. In order to create an effective budget, you will need to keep track of your monthly expenses. Check out our guide on how to budget effectively.

6. Ignore your Credit Report

A study conducted by the Federal Trade Commission discovered that one out of five consumers had at least one inaccuracy on their credit reports. Even the smallest mistake can have a negative effect on your credit score.

People who know their FICO scores are at an advantage when it comes to obtaining the best credit terms for them. Rather than searching for ways on how to fix your credit report, take an active role and review your credit score on a regular basis.

7. Miss Payments

When you are trying to rebuild your credit, missing a payment is going to have a negative effect on your credit score, and when you are in the rebuilding stage you can’t afford to have such blemishes on your record.

If you can’t afford to pay off the full balance, make sure that you at least make the minimum payment. If you are unable to make a payment at all, call your creditor to make alternative arrangements. Your credit card company would prefer to make an affordable payment plan with you than mark your debt as uncollectable.

Try and Find a Quick Credit Repair Fix

Debt is like being overweight: you didn’t gain it over a short period of time and you won’t lose it over a short period of time. There are several companies offering a quick fix. Don’t fall for it! Ask yourself this simple question: “What can they do to improve your credit rating that you can’t do for yourself?”

On the other hand, if you do hire a credit repair company to assist you and they fail to deliver what they have promised, you can sue them. Legally, such companies are not permitted to charge you any fees until they have been successful in their claims. If you have made an advance payment and been cheated out of your money, you are permitted to sue them in federal court. You can either take this action alone or join with others to form a class action lawsuit. However, it’s best to prevent it from ever getting to that state. View our top reviewed credit repair companies here.

Final thoughts

While it is essential to avoid the above information when rebuilding your credit, the worst thing that you can do is to leave your credit as it is. Rebuilding your credit history is not an easy assignment, but don’t give up. Stick to your goal, be disciplined and allow positive momentum to assist you on your quest towards excellent credit.

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5 Riveting Things You Probably Didn’t Know About Credit Scores

5 Riveting Things You Probably Didn’t Know About Credit Scores

Credit scores are a significant part of adult life. A person’s credit score can greatly affect how easy or expensive it is to buy a house, finance a car, apply for a credit card, or rent an apartment. Good credit makes all of those things a lot easier. And yet, there are many aspects of credit scores that many people don’t know but would be useful to ensuring that you have a good credit score.

1. Millions of people don’t have a credit score

Don’t be one of them. By default, you don’t have a credit score if you don’t use credit. It’s very important to build your credit history and use credit cards (responsibly) as opposed to cash or debit cards all of the time. In order to have a FICO credit score (the most common credit scoring system), you need to achieve these attributes:

  • At least one account opened for more than 6 months
  • At least one account that’s been reported to the credit bureaus within the past 6 months
  • Have no indication of being deceased on the credit report (this is rare, but mistakes can and sometimes do happen)

2. You have more than one credit score

There isn’t a single source of truth when it comes to credit scores. In fact, there are 3 major credit bureaus: Equifax, Experian, and TransUnion. Each of these bureaus maintains their own score for every consumer that it knows about (so again, you need to have used credit to get on their radar). Therefore, you will have 3 different credit scores, each of which will most likely be slightly different from the other 2. Some lenders look at just 1 score, while others look at 2 or 3 of these scores. Because of this, it may be worth spending the money to know what your score is from all 3 of these credit bureaus. Mortgage lenders will look at all 3 scores and take the middle score to figure out whether you qualify for a loan with what percentage interest.

3. Not using your credit can lower your credit score

Just because you have credit cards open doesn’t mean that you can just stop there. It’s important to keep your credit usage active so that you have a history of making payments on time. This might seem slightly counterintuitive because generally, the lower your credit utilization, the better your credit score. Yet, a 0% credit utilization does not help and may even hurt your credit score. The sweet spot is getting to a very small, but non-zero, utilization rate. It helps to keep even a small credit card balance on one or more cards.

4. Bad credit can be fixed

If you feel your credit score is lower than you want it to be, don’t fret. There are many things you can do to improve your credit score. Negative information is typically dropped from your credit report completely after 7 years, and the impact of those negative marks will have less of an effect on your credit score over time as you generate more recent history of on-time payments. There are some exceptions. Bankruptcies will stay on your credit report for 10 years, and unpaid tax liens will stay on your credit report for 15 years.

For more tips on how to repair your credit, view our 2017 Guide to Credit Repair.

5. Checking your credit doesn’t impact your score

You’ve probably heard that credit inquiries hurt your score, so why are we saying it doesn’t impact your score? There’s actually a difference in types of inquiries. There are “hard” inquiries, which occur when you apply for new credit such as a loan or a credit card. These can impact your score, so it’s best not to, for example, open up too many new credit card accounts at once. Then, there are “soft” inquiries, which occur when you check your own credit or even when a credit card company wants to pre-screen you for a credit card offer. You’re also entitled to a free credit report every year, so not only does it not impact your score, it can be free too!

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How to Get Rid of Credit Card Debt

How to Get Rid of Credit Card Debt

Credit card debt is all to common. Most than 45% of Americans carry a balance every month. This is even after knowing that this balance will eventually come back with a vengeance. A cardholder who owes $15,956 (the average debt per household) will need to pay $11,000 in interest if only the minimum due is paid each month. This is why it’s extremely financially savvy to get rid of credit card debt.

Life can throw many unexpected events. Some people get into debt after losing a job or getting very ill. Regardless of the cause, hopefully you are now in a place where you are ready to tackle ridding yourself of this financial burden. This will ultimately save thousands of dollars in interest fees. Here are the 5 steps to create a plan to get rid of credit card debt.

1. Budget your expenses and make sure you live within your means.

This is an obvious one, but it still is amazing the number of people that try to eliminate their credit card debt without having any accounting in place to figure out where their money goes versus how much they bring in.

By ensuring that this step is done, you are confident that you won’t increase your credit card debt month over month. If after this budget exercise, that’s the case, you’ll have to figure out how to decrease your costs. Whether it’s eating out less often or something more drastic like moving into a lower rent location, you will need to make these changes in your life before you can move forward with eliminating your credit card debt.

To learn more about budgeting, check out our guide on How to Budget Your Money.

2. Pay off one card at a time, from highest to lowest interest rate.

If you are having trouble paying off multiple cards, then rather than trying to pay them off evenly, you will pay less in interest if you try to tackle paying off the card with the highest interest rate first. And then move on to the next one from there.

A bonus of doing this approach is that you will feel the momentum at having paid off one card, then the next, and then the next. There will be a satisfaction at having a reduced number of cards carrying a balance month-over-month.

3. Ask if you can get a lower interest rate from your creditors.

It never hurts to ask. One phone call to your credit card issuer often allows you to have a lower interest rate. This typically works better if you have a good credit score already (730 or higher). It’s even better if you are also a long-term customer that typically makes payments on time. Still, it may be worth it to try even if you don’t meet these requirements. Even a decrease or a percentage point or two can add up to hundreds of dollars saved in interest per year.

4. Use a peer-to-peer lender.

Using a peer-to-peer lender means that you’ll borrow money from another service, such as LendingClub.com or Prosper.com. Then, use this borrowed money to pay off your credit cards and get rid of your credit card debt. Then, you’ll just have one loan with an interest rate that is typically around 20% to 30% lower than most credit cards. This can make it easier to track how much you need to pay off per month and also save on interest payments.

5. Make two minimum payments each month.

Maybe it’s easier for you to make the minimum payment on your cards after your paycheck arrives every other week. It’s far better to make two minimum payments each month as opposed to one. For example, if you charged $2,000 on a card with a 17% interest rate and only make the minimum monthly payment, it would take 21 years to pay off the entire balance. But if instead you made an additional minimum payment every month, it would only take 3 years. Every bit counts, even if it doesn’t seem like it. So, consider making payments not just once but twice a month to your credit cards.