“How is your credit?”… Then comes that awkward pause. “I think it is okay” is usually the response. A good amount of consumers really don’t have any idea how their credit is or even if they have credit. Additionally, many have negative marks and just do not know what to do to fix them and so they give up. When getting ready to purchase a home, credit is a crucial part of qualifying. Many consumers don’t know enough about different aspects of credit. Let’s take a look at some helpful tips in establishing, maintaining and repairing your credit.
Establishing Credit
Student Loans
For those that have student loans, the easiest way to build your credit is to pay those loans on time. Student loans, as installment loans, make up 35% of an individual’s credit. In the event that you think there may be an instance where you may not be able to make the payment on time, contact the service provider and let them know. In some cases, as long as you notify them in a timely fashion, they may be willing to work with you and work out an agreement that works for each side (and not report you as 30 days late to the credit report bureaus).
Secured Loan
A secured credit card is another way to establish credit. The way secured loans work is the individual would present their own funds to the bank and the bank in return would give them back, normally, 90% of the amount. The customer would then pay a designated monthly amount back to the bank, until the loan is paid in full. Once the loan is paid in full, the bank would then give the amount originally loaned back to the individual. The monthly payment is reported to the credit agencies each month and helps to either establish or rebuild one’s credit. In simplified terms, the customer is essentially borrowing from themselves.
Cell Phone accounts
Not all cell phone providers report your monthly payment history to the 3 national bureaus. However, they do report any account that goes into collections to the credit reporting agencies. Many times, I have seen collection accounts for at or around $100 dollars dramatically bring down a client’s credit score. Many times, consumers think that if they switch servicers the old amount will magically go away; it doesn’t. To prevent a small balance from really having a huge impact on your credit, you should just pay it, unless you want to dispute it; but do not just try to walk away from the debt as this will negatively impact your credit report and score.
Maintaining Credit
Installment Loans
Maintaining good credit is sometimes as simple as paying the respective account on-time. Installment loans make up 35% of your credit history, so paying those on time can really help not only jump start your credit but also maintain your credit.
Credit Cards
When it comes to credit cards the magic number is 30. 30 represents the percentage you want to keep your balance at or below when compared to your overall credit limit. For example, a consumer may only have a balance owed of $300 on a credit card; however, if the limit is less than $1,000 on that particular credit card, that account is actually negatively impacting the consumer’s credit score. Knowing what your limits are on each of your credit cards, and monitoring your balance, in order to not exceed the“30% rule” will help keep your credit score from decreasing.
Helpful Resources
There are two great resources that consumers should utilize to help maintain their credit and ensuring it remains in good standing. The first is www.annualcreditreport.com, which allow a consumer to obtain a free copy of their credit report once a year. This allows the consumer to ensure that the information on their credit report is complete and accurate. This site will also give you contact information for any of the accounts on your individual credit report should you need to contact them. The second is www.myfico.com, which will solely give you your three credit scores as calculated by TransUnion, Experian and Equifax. A number of the credit card companies, now include on their monthly statement, your actual fico score, as reported by one of the 3 bureaus. Keep in mind, in some cases, there could be a significant difference between the scores from the 3 bureaus. This is usually because there is an account(s) that are not reporting to all 3 bureaus. In a high number of cases, this is due to an account with a negative characteristic, such as a collection account. By utilizing the www.annualcredit report.com site you are able to obtain information on the account, while also getting specific information, including how to contact the creditor in order to resolve it.
Repairing Credit
Time Heals
When it comes to repairing your credit, first and foremost, realize that as far as late payments and derogatory accounts that have been paid, time is your best friend. The impact those late payments and paid derogatory accounts have on your credit score is less as they become further and further in your past. However, this is also assuming you are paying the rest of your accounts on time and as agreed. Any additional new late payments, more or less, start the clock again. The more accounts that show late payments, the more impact on your credit score this will have.
Obtain Documentation
When you are addressing an outstanding collection account the first thing to do is to contact your creditor and confirm the balance owed. Request that they send you a response in writing, via email or fax. In addition, get a name and direct phone number to whoever it is that is assisting you at that creditor. Follow up with that person to confirm they have received you payment and posted it to your account. In addition, ask them when they will be reporting it paid to the credit bureaus. It is also a good idea to ask them to send you documentation stating that the account has been paid in full and there is a zero balance on the account (while also referencing the account number). Keep this documentation with any of your financial records in the event this account rears its head again on your credit report down the road. By maintaining such documentation, this will save you time in potentially having to start back at square one. In some cases, consumers can negotiate the amount owed. In the event that you are able to do this, it is important to confirm and obtain documentation stating that the account has been satisfied and that there is a zero balance (while also stating that the credit bureaus will be notified of such zero balance and account being paid in full. Often time, consumers make the mistake of settling with a creditor but not confirming the account will show “paid in full” with a zero balance. In those instances, the credit report will typically show a reduced balance, but it hasn’t helped you in clearing up that account.
Follow up with Credit Bureaus
Once you have been advised the credit reporting agency will or has been sent necessary documentation from the creditor, it is very important to monitor your credit report either on www.annualcreditreport.com or by contacting the credit reporting agencies directly; this is important in confirming that the reporting agencies have in fact received necessary documentation and that your account has been properly updated.
In Closing
Hopefully, if you are in the market to purchase a home this summary gives you a better understanding of the “how to’s” regarding your credit; specifically, when it comes to establishing, maintaining and repairing your credit. If you have followed the advice provided above, you should be able to answer knowing firmly… “GOOD”, when the question is asked to you, “How is your credit?”
Spotlight: Nicole White – President of the Short Bowel Syndrome Foundation...
“How is your credit?”… Then comes that awkward pause. “I think it is okay” is usually the response. A good amount of consumers really don’t have any idea how their credit is or even if they have credit. Additionally, many have negative marks and just do not know what to do to fix them and so they give up. When getting ready to purchase a home, credit is a crucial part of qualifying. Many consumers don’t know enough about different aspects of credit. Let’s take a look at some helpful tips in establishing, maintaining and repairing your credit.
Establishing Credit
Student Loans
For those that have student loans, the easiest way to build your credit is to pay those loans on time. Student loans, as installment loans, make up 35% of an individual’s credit. In the event that you think there may be an instance where you may not be able to make the payment on time, contact the service provider and let them know. In some cases, as long as you notify them in a timely fashion, they may be willing to work with you and work out an agreement that works for each side (and not report you as 30 days late to the credit report bureaus).
Secured Loan
A secured credit card is another way to establish credit. The way secured loans work is the individual would present their own funds to the bank and the bank in return would give them back, normally, 90% of the amount. The customer would then pay a designated monthly amount back to the bank, until the loan is paid in full. Once the loan is paid in full, the bank would then give the amount originally loaned back to the individual. The monthly payment is reported to the credit agencies each month and helps to either establish or rebuild one’s credit. In simplified terms, the customer is essentially borrowing from themselves.
Cell Phone accounts
Not all cell phone providers report your monthly payment history to the 3 national bureaus. However, they do report any account that goes into collections to the credit reporting agencies. Many times, I have seen collection accounts for at or around $100 dollars dramatically bring down a client’s credit score. Many times, consumers think that if they switch servicers the old amount will magically go away; it doesn’t. To prevent a small balance from really having a huge impact on your credit, you should just pay it, unless you want to dispute it; but do not just try to walk away from the debt as this will negatively impact your credit report and score.
Maintaining Credit
Installment Loans
Maintaining good credit is sometimes as simple as paying the respective account on-time. Installment loans make up 35% of your credit history, so paying those on time can really help not only jump start your credit but also maintain your credit.
Credit Cards
When it comes to credit cards the magic number is 30. 30 represents the percentage you want to keep your balance at or below when compared to your overall credit limit. For example, a consumer may only have a balance owed of $300 on a credit card; however, if the limit is less than $1,000 on that particular credit card, that account is actually negatively impacting the consumer’s credit score. Knowing what your limits are on each of your credit cards, and monitoring your balance, in order to not exceed the“30% rule” will help keep your credit score from decreasing.
Helpful Resources
There are two great resources that consumers should utilize to help maintain their credit and ensuring it remains in good standing. The first is www.annualcreditreport.com, which allow a consumer to obtain a free copy of their credit report once a year. This allows the consumer to ensure that the information on their credit report is complete and accurate. This site will also give you contact information for any of the accounts on your individual credit report should you need to contact them. The second is www.myfico.com, which will solely give you your three credit scores as calculated by TransUnion, Experian and Equifax. A number of the credit card companies, now include on their monthly statement, your actual fico score, as reported by one of the 3 bureaus. Keep in mind, in some cases, there could be a significant difference between the scores from the 3 bureaus. This is usually because there is an account(s) that are not reporting to all 3 bureaus. In a high number of cases, this is due to an account with a negative characteristic, such as a collection account. By utilizing the www.annualcredit report.com site you are able to obtain information on the account, while also getting specific information, including how to contact the creditor in order to resolve it.
Repairing Credit
Time Heals
When it comes to repairing your credit, first and foremost, realize that as far as late payments and derogatory accounts that have been paid, time is your best friend. The impact those late payments and paid derogatory accounts have on your credit score is less as they become further and further in your past. However, this is also assuming you are paying the rest of your accounts on time and as agreed. Any additional new late payments, more or less, start the clock again. The more accounts that show late payments, the more impact on your credit score this will have.
Obtain Documentation
When you are addressing an outstanding collection account the first thing to do is to contact your creditor and confirm the balance owed. Request that they send you a response in writing, via email or fax. In addition, get a name and direct phone number to whoever it is that is assisting you at that creditor. Follow up with that person to confirm they have received you payment and posted it to your account. In addition, ask them when they will be reporting it paid to the credit bureaus. It is also a good idea to ask them to send you documentation stating that the account has been paid in full and there is a zero balance on the account (while also referencing the account number). Keep this documentation with any of your financial records in the event this account rears its head again on your credit report down the road. By maintaining such documentation, this will save you time in potentially having to start back at square one. In some cases, consumers can negotiate the amount owed. In the event that you are able to do this, it is important to confirm and obtain documentation stating that the account has been satisfied and that there is a zero balance (while also stating that the credit bureaus will be notified of such zero balance and account being paid in full. Often time, consumers make the mistake of settling with a creditor but not confirming the account will show “paid in full” with a zero balance. In those instances, the credit report will typically show a reduced balance, but it hasn’t helped you in clearing up that account.
Follow up with Credit Bureaus
Once you have been advised the credit reporting agency will or has been sent necessary documentation from the creditor, it is very important to monitor your credit report either on www.annualcreditreport.com or by contacting the credit reporting agencies directly; this is important in confirming that the reporting agencies have in fact received necessary documentation and that your account has been properly updated.
In Closing
Hopefully, if you are in the market to purchase a home this summary gives you a better understanding of the “how to’s” regarding your credit; specifically, when it comes to establishing, maintaining and repairing your credit. If you have followed the advice provided above, you should be able to answer knowing firmly… “GOOD”, when the question is asked to you, “How is your credit?”