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Most collection agencies and law firms that specialize in collections justify their efforts as the best way for lenders to follow consumer protection laws like the Truth in Lending Act and the Fair Credit and Recovery Act. But their efforts often appear more intimidating than helpful to the debtors. And there are collectors, debt counsellors and attorneys who make use of this impression. |
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While time will heal your credit report, there are ways to improve your credit ratings without waiting (assuming you've changed your ways). Note: If it has been nearly seven years since you had any late payments or charge-offs, you probably are better off waiting out the time until your credit score automatically increases. But, if your credit problems are more recent, you can take steps to have charge-offs reclassified as something more palatable to lenders. Keep in mind that, in order to accomplish this reclassification, you will need to pay off the debt in question-or at least pay part of the debt, if you are able to negotiate a settlement. |
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As we’ve mentioned before, the passing of time will erase some of the black marks on a credit report. If you have declared bankruptcy, after 10 years, it will disappear from your credit report. And many mortgage lenders will overlook a bankruptcy when making lending decisions after seven years. |
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If you want to see how certain actions on your part will affect your credit score (both directly and indirectly), the best way is to use a credit score simulator. There are many of these; but probably the best-known simulator is the one Fair, Isaac & Co. provides when you purchase a credit score from it’s Internet Web site, www.myfico.com. With these simulators, you can see how paying off an auto loan will affect your credit score, compared with taking that same money to pay down credit card debt or pay off a student loan. Or you can see how missing several payments will affect you. You also can see how opening another credit account will affect your credit score. Or you can see how much your ratings will improve once a bankruptcy or a late payment comes off your credit reports. |
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If you're really trying to improve your credit score in a hurry, there are some other techniques you can use. For example, your credit reports will reveal the date each month on which your creditors report your information to the credit bureaus. |
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Most people only need two or three credit cards; so that's a number to aim for, if you currently have more accounts. Just remember you don't have to get there overnight. It can improve your credit score to get rid of extra accounts. |
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The number of hard inquiries on your credit reports does effect your credit rating. So, if you’re trying to improve your credit, don’t apply for more credit cards than you need—even if they do want to give you a free toaster oven just for filling out the application form. A large number of credit card inquiries makes lenders think you’re planning to run up a lot of debt. Plus, they can’t tell how many of those accounts you’ve actually opened, since there’s a delay before new accounts show up on your credit history. Another consideration: Having new accounts will lower the average age of your accounts. The longer your credit history, the better your credit score. |
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Some people will tell you to get rid of any credit cards you aren’t currently using. And if you’re a shopaholic who can’t have a credit card without maxing it out, that’s probably good advice. Fair, Isaac & Co. and other credit rating experts point out that if you want to improve your credit scores, think twice before you close out an account. |
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Naturally, if you have several credit cards and they’re all maxed out, that makes lenders uneasy—which is reflected in your credit scores. One of the faster ways to improve your credit score is to pay down the balances on your credit cards and reduce credit card debt. |
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Whether they’ve had credit problems in the past or they simply don’t trust credit, many people think they’re better off buying everything with cash. But when it comes to credit ratings, this couldn’t be further from the truth. Whether you’ve had a bankruptcy or some other tough financial situation, lenders want to see that you’ve been “rehabilitated.” They want to see that you’ve learned how to handle credit responsibly. If you haven’t reestablished credit, you’re deemed just as risky as someone on the brink of collapse. So, if you’re looking to improve your credit scores, don’t go from bad to bad. Use credit. Just use it responsibly. |
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