The Mortgage Blog

I hear the craziest things that people have been told to do in order to rescue or improve their credit score. Have you ever gotten a copy of your credit report and then gone through it and closed all of the accounts you were not actively using? You thought this would be good for fraud prevention right? Was it really a good idea? No! This was covered in Part One so if you’ve forgotten it then go back and get caught up. Today we’re going over making a bad score good.

Many people that have over used credit, and gotten into payment trouble, make one gigantic mistake – they stop using credit all together. If you have a recent history of late payments to creditors (or a long ago history) the one thing that will improve your credit score is to re-establish that you are willing to repay lenders you owe money to. The only way to do this is to utilize credit and make your payments on time. One year of perfect payments on 2 or more credit lines will go a l o n g way towards improving a bruised credit score. “Yea, but, how do I get a bank to give me an account with my credit score”? I’ll tell you that in a minute. The bottom line here is that if you don’t take steps to improve your credit score and re-establish good credit, your score will never improve.

The first step on the road to credit recovery is to get a copy of your credit report and see what’s on there. You can get a free credit report once a year at www.annualcreditreport.com. If you have charged-off accounts, balances remaining on repossessions, or collection accounts, it may be worth the effort to remedy these problems. Keep in mind that a creditor that has not been paid in a long time could be willing to negotiate a settlement – sometimes they may be willing to settle for ½ or less than you actually owe and even forgive accrued interest and fees that they have been tacking on all along! Some accounts are more important than others, so payoff accounts in this order; 1) defaulted student loans, 2) repossessed vehicle loans, 3) charged-off loans or credit cards, 4) medical collection accounts. Left unpaid, these accounts will continue to haunt you for years and years.

Re-establishing credit can be a challenge if you have serious bruises. The second step is to try to open a minor department store card (Sears, JC Penney, etc) or a gas card. Sometimes these companies can be more flexible. If you find that no one will open an account for you the next step is to apply for a Secured Credit Card. There are a number of banks that will do this. They require you to deposit the same amount of money that you want as a credit limit. This means that if they give you a $500 limit Visa card, then you have to deposit $500 in an account with them. Then if you don’t make your payments they can just use your money to payoff the card. No risk for them! If you’re going this way you want to open at least 2 of these and then make sure you have something to pay for every month and pay it on time. Don’t max the cards out. Just buy something small and make a payment every month. One year of paying on-time and lenders start to get confidence in you and will be a lot more willing to loan you money. Then you can start to accumulate regular credit accounts which you also pay on-time. Next thing you know you are a good credit risk! I have seen people with really low credit scores get back to the acceptable range in 2 years or less. It’s worth the effort.

If you have had credit issues in the past right now is the best time to start working on rebuilding. Don’t wait until you really need credit to start because then you will not get the credit you need! Take good care of your credit score and it will take good care of you.

Ken Mascia