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Improving your Credit Scores (updated 8/2001)

BayHouse Credit Forum: Links and MY two cents: FTC opinon letters and on-line complaint form, FCRA, Collections, SOL +++: Improving your Credit Scores (updated 8/2001)
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Christine Baker (Admin)

Tuesday, June 27, 2000 - 08:41 pm Click here to edit this post
Updated 10/20/03:

For much more info on FICO credit scores please read Credit Scoring Basics, the many other relevant threads in the Credit Scoring Forum and at CreditFactors.

My 2003 Credit Suit blog


While we are told by Fair Isaac and others that the sure way to a good Credit Score is paying your bills on time, THAT IS JUST NOT TRUE!

I've seen many low Credit Scores without a single late payment in 4+ years or even no late payment at all.

I'll try to summarize my recommendations on improving Credit Scores:

1) If you don't have the money to pay ALL your bills, pay the mortgage first, then installment loans and last revolving debt.

You are not reported as late to the bureaus until you are 30 days past the due date (15 days for mortgage verifications.)

If you have a short term cash flow problem, use your cash to pay several small REPORTED bills instead of one or two large ones.

Pay the credit cards instead of utilities.

Utilities are usually not reported until they go into collections and they will often negotiate UNREPORTED payment plans.

DON'T pay everybody LESS than the minimum due, they'll ALL report you late.

No points for an honest effort!

If you have serious long term financial problems, don't be afraid to file for bankruptcy.

Your credit rating will be MUCH better after a bankruptcy with a few years of re-established credit with no lates, instead of having chronic lates while desperately trying to keep up with the bills.

AVOID the CCCS (Consumer Credit Counseling Service.)

They are financed by the creditors and will most likely RUIN your credit. Sometimes the notation attached to your reports after getting into the CCCS program is rated as bad as a bankruptcy, yet you still get to pay your debt.

In most cases consumers end up with countless late payments and the absolutely WORST credit rating.

I have also read that some of the credit counseling services even made the payments to the creditors LATE or not at all.

2) BEFORE filing for bankruptcy, check for any accounts (department stores, gas cards) that you haven't charged up. Do NOT include those accounts in the filing if you owe little or nothing. If you owe a little, pay them off before filing, that way they're not a creditor and they won't be notified.

After the filing USE those accounts occasionally, but don't charge a lot, as that might trigger an account review credit report, possibly resulting in the account closure.

Since some creditors like American Express constantly run your credit, this method isn't 100%. But I know that it worked many times with department store cards and I've seen many credit cards survive the bankruptcy too.

You can also look into reaffirming one or two credit cards. Please post if you consider this, there are potential problems.

There is nothing like a few open accounts with a several years history and no lates to greatly help your credit cores and approval for new accounts.

3) If you don't have several open accounts, get some (secured) credit cards ASAP.

Stay away from Cross Country Bank and Capital One, check for approval guidelines, credit reporting and links to various credit cards.
It doesn't matter how low the limit is, the key is to get the account opened and to establish HISTORY ASAP.

Make sure they report to ALL 3 credit bureaus!

Do NOT apply for low interest platinum cards if you know you have low xcores and/or bad or little or no existing credit. The inquiries will only lower your score, ultimately resulting in lower limits and higher deposit requirements.

4) Become an AUTHORIZED user for a good friend's or relative's account.

According to Fair Isaac, credit scoring software will view the account as yours, read for more details.

5) You should have 2 to 3 credit cards and 2 to 3 department store cards. I've read that Target cards are very easy to get. All you need is one Visa or M/C and you should qualify for their "instant" $200 store credit.

A couple of gas cards would help too, especially if you have less than 4 credit/department store cards.

USE those accounts occasionally and pay them off in full if possible.

Stay away from finance company accounts such as AVCO, Household Finance, Beneficial, ITT, Transamerica, etc. You lose points with Fair Isaac for having finance company accounts.

However, it's better to have a finance company account than NO accounts and unfortunately we often don't know what we'll get when we apply.

Installment loans also help the scores in the long run. However, until you pay down the originaly balance the account will lower your scores. Also, I don't like to encourage people to get into debt, and new car loans are a huge waste of money (in my opinion.)

Credit Unions sometimes offer good deals on installment loans for consolidations or special purchases.

6) 2 - 3 months after bankruptcy discharge order all three credit reports and dispute all inaccurate info. Check out the Disputed Bankruptcy Credit Report.

Obviously EVERYBODY desiring high credit scores needs to review their credit reports periodically, but after a bankruptcy, chances of INCORRECT credit reporting are at least 90%.

You can order your credit reports at the BayHouse Credit Order page WITHOUT an additional inquiry and I frequently update the page with my report recommendations and the best deals.

7) Make sure that you do NOT have as much as a SINGLE NEW late payment.

I highly recommend utilizing your bank's online bill payment service.

Using online banking often results in ELECTRONIC transfers and ELIMINATES postal service and creditor screw ups.

If a check mailed by the bank gets lost by the post-office, you have PROOF that the check was mailed and you don't look like a deadbeat when the check really got lost by the post-office.

And of course it prevents YOU from transposing account numbers, etc. Once a bill is set up correctly, it's difficult to mess it up.

Do whatever works for you, but make sure the payments got there. Look for the cleared checks if you bank on-line and/or check new bills right away or make that phone call to the creditor verifying receipt.

Avoid paying with money orders and cashier's checks and NEVER pay cash!

Creditors catering to consumers with bad credit often purposely DELAY the posting of payments.

They make most of their profits on outrageous late and overlimit fees and of course want your credit ccores to stay low so you don't get better credit cards.

8) The ratio of outstanding debt to total available revolving credit is EXTREMELY important.

If your cards are maxed out, your scores will be significantly lower.

Be aware that when PAYING DOWN debt, it might take up to 3 months to show up on your credit and the scores are based on your credit report.


Can you calculate YOUR balance/limit ratio?

9) Inquiries: FICO Scores only look at the last 12 months.

If you plan that far ahead, as for the purchase of a home, DON'T apply for new credit cards, checking account, pager, cell phone, etc. etc. in that last year prior to the mortgage application.

Insurance inquiries will NOT lower your scores.

You'll probably incur a couple of unavoidable inquiries anyway, but definitely ALWAYS ask when you apply for ANYTHING whether they'll run your credit.

If you got the cash, offer a deposit instead of your credit report. I found that most cell phone services will wave the credit report if you deposit $1,000.

10) Summary: There is a lot more to be said, as there are many different scenarios and it's difficult to make general recommendations.

I mainly wanted to address how to improve low credit scores because I've been reading too many times that paying your bills on time is the answer.

Paying your bills on time will NOT give you a good credit score unless you have the right type of bills for several years along with low balances and few inquiries.

For a personalized recommendations I need to see YOUR credit reports, and you can order at BayHouse Services.

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