| Ah credit, what a mysterious thing you can be. In a | | | | current information. While this information may be |
| perfect world, the credit reporting agencies (Trans | | | | positive in some aspects (the balance was paid in full) |
| Union, Experian and Equifax) would give us clear cut | | | | it is negative in others (a 3 year old collection is now |
| guidelines as to how they calculate your credit score | | | | reporting as a current collection). So, the net result may |
| and convince us that there is a method to their | | | | actually be a lower score. |
| madness. Alas, they leave us lost in darkness to fend | | | | From a long term perspective, it certainly makes sense |
| for ourselves. | | | | to settle or pay all collections in full. However, don't rush |
| If you have ever had to deal with any of the credit | | | | out and do this a few weeks before you apply for a |
| agencies in correcting duplicates, outdated accounts or | | | | new home loan. You may actually be doing more |
| flat out erroneous information, you know this is no | | | | damage than good. |
| simple task. It is often a several month long, knock | | | | 6) A Balancing Act |
| down, drag out contest of wills to see who gives in | | | | The most overlooked aspect of anyone's credit is |
| first. That being said, there are some specific things | | | | often their account balances. More specifically, their |
| you can do to proactively improve your overall credit | | | | balances relative to their limits. A maxed out credit |
| and therefore your credit score. | | | | card, even though it may be paid perfectly every single |
| 1) Knowledge Is Power | | | | month, will drag down your credit score. It is important |
| To begin to understand and improve your credit, you | | | | to keep your credit card balances at or below 50% of |
| must first know where you stand right now. You are | | | | their limits. You will see a significant improvement in |
| entitled to one free copy of your credit report per | | | | your credit score if you can consistently keep the |
| year. Go to to obtain yours. Go through the entire | | | | balances below half of their limits. |
| report from each credit agency looking for errors, | | | | 7) Oldy But Goody |
| inconsistencies or omissions to ensure you know | | | | The length of time you have had credit will also have |
| where you stand right now. | | | | an impact on your score. So, don't be so quick to close |
| 2) Get Up To Date | | | | that credit card you opened in college. It may actually |
| Many accounts will simply stop reporting to the credit | | | | be helping you qualify for better interest rates now. In |
| bureaus once they are paid off. So, rather than | | | | addition, a new car loan, credit card or even a new |
| showing paid in full with a zero balance, it will report the | | | | home loan will reduce your credit score once it is |
| last balance prior to receiving the payoff. Be sure all | | | | opened. Over time, as the account establishes itself, it |
| paid accounts show paid in full, report a zero balance | | | | will only help to increase your score as you prove your |
| and show account as closed. | | | | ability to make the payments on time each month. |
| 3) Inquire Within | | | | However, the immediate impact upon your credit score |
| Each time a creditor pulls your credit, it is reported on | | | | is a reduction due to the creation of a new |
| your credit as an inquiry. Inquiries generally remain on | | | | un-established account. |
| your credit for 90-180 days. Excessive inquiries can | | | | 8) The Shallow Or The Deep End |
| dramatically lower your credit score. It is important to | | | | It is important to have credit, but not too much credit. |
| only allow a company to pull your credit report after | | | | How much is enough and how much is too much? |
| you have done your shopping and only if you are | | | | There is no exact answer to this question, but you |
| serious about opening an account with them. | | | | have to use common sense. A good general rule of |
| 4) Collections - Part I | | | | thumb is that you need to have a minimum of three |
| Collection companies are notorious for listing the same | | | | active tradelines. That does not mean that you have |
| collection account on your credit numerous times. This | | | | to go run up balances on three credit cards, but you |
| can trick the credit scoring programs into thinking you | | | | must show some activity on at least three accounts in |
| have more derogatory items than you actually do and | | | | the last 12 months. These accounts can be mortgages, |
| therefore drag down your credit score. Be sure that | | | | car loans, credit cards or student loans. Often using a |
| any current or previous collections only appear once | | | | credit card to make a purchase and then paying the |
| and the status of the account (outstanding or paid in | | | | balance off in full will satisfy this requirement. You do |
| full) is accurate. | | | | not need to carry a balance, but you have to prove |
| 5) Collections - Part II | | | | your ability to make timely payments. Using credit |
| If you do have current outstanding collections or | | | | wisely means not over-using credit. While it may seem |
| charge off accounts, don't rush in and pay them off | | | | tempting to accept every 0% credit card offer you |
| prior to refinancing or purchasing a home It can actually | | | | get in the mail, excessive open tradelines will lead to |
| hurt you in the short term. Here's why: | | | | lower credit scores and turn downs from mortgage |
| Many collection accounts report once the account is | | | | lenders. Keep your number of tradelines to a |
| created and then do not report again. So, a collection | | | | reasonable level and don't let yourself be tempted into |
| account from 3 years ago may only have reported | | | | overloading yourself with debt just because it is at a |
| when it was created and not since. So, it may not be | | | | good interest rate. |
| hurting your credit score as badly as an account from | | | | While no one can say how much each of these items |
| say 3 months ago. But, if you payoff that 3 year old | | | | will raise or lower your score, it is important to know |
| collection today and then get that collection company | | | | that each one will have an effect. So, go employ your |
| to report to the credit bureaus that it is paid in full, you | | | | newfound knowledge and watch your credit score |
| are asking a 3 year old derogatory account to report | | | | soar. |