OK, so maybe you were unemployed for a bit or got sick or had a new baby.
Whatever caused you to fall behind economically, there is a way back to a respectable score. As soon as you can, make a plan to start rebuilding it – the higher your score, the better rates you get on car loans, insurance, and even apartment rent.
Pay your bills on-time, even a few days early.
If you’re behind on some bills, call your creditor, explain the situation and ask them for a repayment schedule. They may even be able to lower your monthly payment, quit reporting your late payments, possibly lower your interest rate.
Send the minimum payments before they’re due. Use your bank’s bill payment system to automate the payments and avoid any delays in the mail or processing.ssibly lower your interest rate.
Do not use your available cash to pay off accounts that have already gone to a collection a
gency, no matter how annoying they become. Settling with agencies will not improve your credit score since the original account holder has already written it off and reported the collection action.
After you’re current with all your accounts not in collection, negotiate with the collection agency for a discounted settlement amount. Make sure the agreement (get it in writing) includes the agency reporting the account as paid off on your credit report.
Pick one account to start paying down.
Psychologists say pay off the smallest one first, it will give you a sense of accomplishment and encourage you to continue paying off the remaining debts.
But the FICO folks (creators of the FICO credit score) weigh both overall credit utilization (add up all your account limits and divide by total balances) and the percentage of each account’s balance you use.
So, if you have an account that’s maxed out, paying it down first may help improve your score faster. You get the maximum advantage by reducing your overall utilization to 30% or less.
You can use a free payoff calculator from: www.PowerPay.org to create a plan and start paying off old debts. You have to create an account but it’s a free service sponsored by Utah State University.
Fix any errors that show up on your credit report.
In addition to the CreditKarma report, you’re entitled to one free report every 12 months from each of the major credit bureaus (Equifax and Experian plus TransUnion). Use the site: www.annualcreditreport.com to request one every 4 months and check for errors.
If you find errors, you must follow the bureaus dispute process (the FTC regulates the credit bureaus). The Fair Credit Reporting Act outlines how errors are corrected. Since there are two parties, the bureau and the company who provides them information on your payments and balances, it’s a two step process.
First, you send the credit bureaus (in writing, with supporting documents) a letter explaining why you’re disputing an item on their report (include a copy of the report too). Ask that the information be removed or corrected. Keep a copy and expect a response after about 30 days. Find the full process explaination at http://www.consumer.ftc.gov/articles/0151-disputing-errors-credit-reports.
Next, you write the creditor or income provider, again, in writing, disputing the item. Include all the copies and that you have filed a dispute with the bureaus.
Twenty to 25 percent of consumers find errors on their credit reports so check yours carefully and make the effort to get any errors you find fixed. It will improve your score almost immediately and, along with your better payment history and lower credit utilization lead you to a higher score.
Maintaining your credit score, like your car or home, will save you money – money you can keep for yourself instead of paying higher interest and fees to the bankers!
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