How to Get Your Credit Score High and Keep It There

By Shelly Klimusko

 

It is no secret these days that when it comes to purchasing power, job or insurance applications, or even rental applications, your credit (FICO) score can make or break you.  Most people have not yet experienced the enormous influence this number has on your life!

 

Lenders have very recently changed their rules and credit score guidelines in order to require you (the consumer) to have a higher credit score than ever to qualify for their most competitive interest rates and terms.  This gives the banks the opportunity to charge customers with what was once considered a “good score” (680), a higher interest rate, higher fees or a larger down payment than other “prime” (720 or above) customers.  They have also made it more difficult to KEEP a good score.  I am finding while handling mortgage loan applications many people who have always enjoyed the rewards of having a very high score are shocked to find it below 720.  Bottom line, the banks have raised their rates and fees to the general public in kind of a ‘back door’ manner.  It is now more than ever before a fact of life you must protect your credit score as you would any other valuable thing you have in your life.

 

These 6 fairly simple areas of attention should keep your score high:

 

1)            Manage Your Credit Cards

2)            Manage Your Installment Debts

3)            Protect Yourself From Identity Theft

4)            Establishing New Credit Or After A Bankruptcy

5)            Stay Away From Consumer Credit Counselors

6)            Know Where You Stand

 

Manage Your Credit Cards

 

This is not a lesson on how credit cards work; these are the ABC’s of what comprises your credit score.  This section is the largest in the article, as it is probably the most misunderstood and the worst to manage for most consumers, yet has great impact on your score.

 

Credit Card Balances:  Your available credit (unused credit) versus your outstanding credit card balances are analyzed and is a large factor in determining your credit score.  It is imperative that you keep your outstanding credit card balances under 30% of the available amount on each card.  For example, if you have a card with a $7,500. credit limit, use that card only up to $2,250.  The credit card companies have made this very hard to accomplish in 2009, as they have been reducing credit lines as an ongoing practice, so you may have a $7,500. credit line one day and the next they have reduced it perhaps to $4,000.  Then you would need to reshuffle debt to gain back your credit score as you should only have a balance of $1,200. to stay within the 30% ratio.  Obviously, if you can payoff your cards in full every month that is the ideal situation, but fairly unrealistic for many people at certain times in their life.  Contrary to a popular belief, paying off your cards in full monthly does not hurt your score.   The exception is if you are trying to establish new credit or after a bankruptcy.  In that situation, you should make the monthly payments on a very low balance ($500. or so) for about a year.  Sometimes you may need to reshuffle your debt load so that you can quickly raise your credit score by using the 30% formula.  Just make sure you are aware of any fees that may be charged to do this or that you are not trading in a lower interest rate for a higher one on a different card to accomplish this. 

 

Timely Payments:  Pay all credit card payments ON TIME under all circumstances!  There are NO EXCEPTIONS to this rule!  Recent late payments (within 12 months) on credit cards will take your score down drastically, not to mention the fact that the late charges have increased and the bank will now raise your interest rate because of a late payment.  If you are one of the many people I have come across over the years that works a considerable amount of hours each week and just never quite gets around to doing their own paperwork (like paying their bills), that habit must change immediately.  It has just gotten too expensive, (especially considering the impact to your future loan interest rates because of your credit score!).  You can either go to each individual bank or creditors’ website where you can schedule payments automatically in advance either month by month, or schedule them to always be paid on a certain date* (*caution where this method is concerned as I have recently noticed many banks have started moving their payment due dates around – perhaps to trip people up so that they can get you to pay a late charge and raise your interest rate due to a late payment….?), you can pay your bills through your bank online which is always very quick and easy, or simply decrease the number of credit cards you are using. 

 

If you only use one major credit card, a MasterCard or a Visa, there is a far better chance that if a bill goes astray as they sometimes do, you will notice it.  You cannot afford to miss a payment by accident because the billing statement was never received.  In fact, you can have your statements e-mailed to you.  If there is only one card in use it simplifies your world.  A MasterCard or Visa can be used at all retail establishments, gas stations and department stores.  The individual store and gas cards have a much higher interest rate and a much lower available credit line.  So they don’t really help your credit score or your budget.  When your favorite store says you can get “20% off everything you buy that day” if you sign up for their credit card… either “just say no” and run like the wind, or if you cannot resist the great deal…, please make a note on your calendar to watch for the bill to come in, pay the balance in full, stash the card in your file drawer and don’t use that card again.  In fact, all other credit cards should be locked up in a file drawer.  You need the balances available to enhance your credit score (except store cards which are too small and insignificant to make a difference), but you need to be able to completely control your payment record, which can get too confusing if there are many accounts and you have actual other things going on in your life to think about….

 

You should also know that with credit cards or any type of revolving credit line you cannot pay your minimum monthly payments ahead of time.  If you make 2 minimum monthly payments at the same time because you are going on vacation, the creditor will just use the additional funds to pay down your balance, and another monthly payment will again be due same time the next month and you will receive a late payment on your credit.  Therefore I urge you to simplify, pare down and automate as much as possible.

 

Stop Applying for Credit Cards In Every Store:

 

When your credit report is run by a retailer or bank, an inquiry is created on your credit report.  A certain number of inquiries over a period of time is considered normal and will not significantly dilute your score; however a habitual routine of applying everywhere you go will most definitely impact your score for the worse!  I will repeat, you really do not need all of those cards!

 

Do Not Close Out Your Open Credit Card Accounts:

 

As silly as this sounds, keep those existing accounts open, put your cards in a safe place and don’t use them.  And for heavens’ sake do not carry them around with you!  The exception to this rule is now in the new credit world of 2009, if you do not use a card within a 6 month period, the creditor will usually cancel your credit line and if this is a sizable available balance and it is taking away from your 30% available credit vs outstanding debt rule, it will hurt your credit score.  They will tell you it will not hurt your score as you have done nothing wrong, but the problem lies in your 30% ratio if you have any credit card balances.  However, I would think twice about keeping a credit card open if they were charging you a yearly fee or charging you for not using it.  This would depend upon the amount of other unused credit you have available.  If you have no other available credit, except on a card that charges an annual fee, the fee may well be worth getting you on your way to a better credit score, which can get you a better rate on a car loan or home loan.  They in turn can get you an even better score and you can then cancel the card with the annual fee.  And this brings us to our next subject, car loans and home loans…installment debts…

 

Manage Your Installment Debts

 

These would be car loans or leases, home loans (NOT home equity credit lines, they are revolving credit just like credit cards), any loan that has a specific number of payments of a specific amount for a specific length of time and you cannot access additional funds once the loan has started.  These loans can certainly be paid in advance, and I highly recommend that you make one extra payment at the very beginning.  In other words, make payment #1 and #2 at the same time.  This way, if your bill gets lost in the mail or you are out of town or just too busy, your payment can never ever be late.  Believe me, the price of the extra payment upfront should be viewed as ‘good credit insurance’ and is well worth it!  Of course you cannot cheat and skip a month, just because you know you can or this plan will not work.  You also end up paying a little less interest over time because of the way interest is calculated.

 

Signing up for automatic payment deductions is also a way to avoid late payments, however some people just don’t like that idea as it doesn’t fit into their lifestyle.

 

Either plan will insure you of excellent credit on those loans and a high FICO score.

 

 

Protect Yourself From Identity Theft

 

By now we all know to shred any mail that contains personal information.  One of the best websites you can visit for more great information on the subject of protection and what to do in the event you find that you have been a victim is go to: www.lacountyda.org .  Go to fraud, then identity theft and read or download their brochure ‘Prevention Techniques and Solutions for Victims’.  If you would like me to send you a copy, please call or e-mail me and give me your name and e-mail address. 

 

You are entitled by Federal law to receive your free credit report from all three bureaus once a year.  This is so you can monitor against identity theft and creditor errors.  They are not however mandated to include your credit (FICO) scores with these reports.  The 3 credit bureaus have set up a website to enable you to request these reports yearly.  This is www.annualcreditreport.com or by calling 1-877-322-8228.  The Federal Trade Commission, Consumer Protection Bureau recommends that you use only this resource to obtain these reports, as many that are advertising to you may have “other” agendas to get this personal information from you or are trying to sell you something, (as in the case of freecreditreports.com, who does have a catchy jingle, but has repeatedly been fined in the millions for false advertising – their credit service is not free, and if you do sign up for the service, it only does what the credit reporting bureaus are required to do for you for free anyway… did I mention they are owned by one of those credit reporting bureaus?).  See I’ve saved you $14.99 per month already. 

 

I personally cannot recommend signing up for one of those services that monitors your credit and/or sends you a credit report several times a year.  I find it a waste of money and unfortunately I have seen time and time again things just slipped through the cracks of their system.  When clients apply for a mortgage and find a charge off that doesn’t belong to them on their report, the company that was supposed to have alerted them to the serious item always has a very unconvincing excuse as to how it did not get picked up by them (?!).  They will also not help you in any way to find out how it got there or how to get rid of it, while you were so blissfully feeling protected by them against just such an occurrence that you did not proactively monitor your credit report yourself.  If you have a credit card or account that will let you see your credit score occasionally, that should be just fine for monitoring purposes. 

 

Another very good tool you should use is to go to your bank accounts and credit accounts at their website and set-up e-mail alerts; for example you set up an alert that if a check goes through for over $500. you are to be alerted, if you know you wrote it yourself, all is well, if not you can take immediate action with the bank.  You are notified immediately whenever an event occurs that exceeds the parameters you have set. 

 

Establishing New Credit Or After A Bankruptcy

 

You must establish or re-establish your credit record.  This takes time, patience and vigilance.  Basically you are trying to establish trust and a reputation with the ‘credit establishment’.  They have their rules, don’t question them, just go along until you have a firm foundation and can prove you can handle your credit affairs wisely.

 

College students, people newly out of bankruptcy, and many others are routinely offered credit cards.  Some of you lucky ones may just be able to be added to your parents or relatives credit cards or have them cosign for you on a loan.  Just be very careful about making this request, as whatever you do will affect their credit record also.  You should know this is a very large risk on their part and they may refuse your request, which you should give them the right to do without bad feelings.  It is actually less risk to just loan someone the money and risk losing it all, than to cosign and end up obligated on a debt and potentially lose their excellent credit record.    

 

The easiest way to establish credit is with a car loan or a home mortgage loan.  If you can get approved for one of these you are way ahead of the credit game.  This is only if you are already in the market to make this kind of purchase of course, as I am certainly not advocating you make this purchase to better your credit score.  You may also need to have a co-borrower or cosigner, and/or examine the various home loan products available for your circumstances.  It may be more difficult and will definitely be more expensive than if you had great credit. 

 

The credit card method definitely works if it is the path you choose, it may just take a little longer.  I always recommend MasterCard or Visa, but I understand the easiest credit cards to get approved are the large discount stores and/or the large home improvement stores.  You may have to start out with a very small credit limit ($500.00 or so), an annual fee ($50. to $100.) and a fairly awful interest rate to get the ball rolling, and following the basics in the section ‘Manage Your Credit Cards’ is essential here.  After about a year or so, try applying for a credit card on your own if you have a cosigner or apply for a better quality card if you have annual fees and/or a high interest rate.  For some reason it is easier to get an entirely new card from another bank, then to have your original creditor change any of their initial terms (like that annual fee).  But it can’t hurt to try; it may work better for you than for others.  If you are then approved for a better card, don’t forget to cancel the card with the annual fee, or you will owe it every year and it would have outlived its purpose.  If there is no annual fee, then do keep it open to add to your available credit ratio.  If you still cannot get approved for a higher quality credit card, then continue making your payments on time and try again in another 6 months.  As was stated in the section ‘Manage Your Credit Cards’, please do not apply for several cards within a short period of time (six months or so), as that will get you denied credit instantly (especially if you are trying to establish credit). 

 

Stay Away From Consumer Credit Counselors

 

Don’t ask me why, but when you engage the services of Consumer Credit Counselors it will be considered derogatory on your credit report.  I have seen many times where they also make your payments late, which further erodes your credit score.  Bottom line, if you feel like you are between a rock and a hard place on this issue, first call all of your creditors and see if you can get some kind of payment arrangements or your interest rate and/or your balance reduced due to your unusual circumstances.  Or please call a trusted person that is finance and/or credit savvy, or call me and we can discuss your issues.  Many people just feel embarrassed about this and don’t speak to anyone before they act.

 

Know Where You Stand

 

The point of this section is to impress upon you the importance of follow through on your credit matters.  Time and time again I see people with perfect credit on their loans and accounts, but they have collections, judgments and/or public record information against them.  What makes this even worse, the amounts may be very small and easily avoided.  These items will affect your credit more seriously than late payments.  When I ask about them, because the clients are always required to write a letter of explanation to the underwriters, it usually turns out to be the balance of a gym membership fee after cancelling, a disputed cell phone bill, medical or lab bill, non returned movie rental, a DMV tax that was charged to them in error, or some other such thing that the client did not believe they owed.  Sometimes the client did take the steps to get it resolved with the creditor, but at the very end dropped the ball and did not get anything in writing immediately (over the fax or e-mail) that the issue had been resolved and with whom, their name, title and phone number.  Later on down the road they may find that it is still appearing on their credit report and basically stealing points out of their credit score because the creditor who said it was resolved did not then take the necessary steps to remove and/or correct the reported information.  Unfortunately, when this is discovered, the person who handled it may no longer work there; or the company has been acquired by another company and can’t find the old records, or some other excuse.  If you do not have documentation to the contrary, you may be asked to pay it off (sometimes for the second time).  The above matters are sometimes due to an argument with the creditor, and the borrowers’ refusal to pay just to make a point.  Know where you stand when this happens, because it may not be worth it.  Sometimes you must just swallow your pride and continue to get this resolved to the end (documentation in hand) in a more businesslike manner, rather than on an emotional level.  I know, sometimes people are not reasonable; you must just hang-in there, as your credit score is at stake (which in the long run costs YOU money)! 

 

When you monitor your credit reports for fraud and errors, you must also take the next step to dispute the incorrect information with the credit bureau that is reporting it.  There will be information on how to do that with each credit bureau.  Sometimes it takes more than one attempt to get them to get it right.  Patience is a plus in this area.  You also have the right to issue a consumer statement which can be attached to your credit report from all 3 bureaus.  Please note, while this consumer statement acts to explain situations to someone making a credit decision about you, it DOES NOT do anything to improve your credit score regarding the matter.  In mortgage lending, you will be categorized by your credit score, and that will be the criteria for the interest rate you will be offered, the fees you may have to pay and the program (s) you will qualify for irregardless of what your consumer statement says about it.  So please, do take the time to handle it directly through the creditor and/or the credit bureaus.  

 

In closing, I will also give you my very favorite tip for dealing with completely non responsive customer service people you may encounter while getting your credit issues handled.  Go to one of the office supply stores and invest in one of those Micro-mini cassette recorders (very inexpensive) and a package of a few of those cassettes and you are good to go (they are soooo easy to operate). You do not need any other equipment except for a phone that you can converse over speakerphone.  When you call a customer service department, be sure to tell them you are recording this conversation.  You need to be very courteous and to the point, and you will find that remarkably there are no longer any rude and ignorant customer service reps!  If the person you are speaking with seems to have a lack of power to handle your problem (or a lack of cognizant abilities to understand your problem) then ask for a supervisor.  You will be amazed at how happy they are to provide you with their supervisor (and get off the call), and at how happy the supervisor will be to have the opportunity to help you!  Just be sure to also advise the supervisor that you are recording the conversation.  Now you are soon going to have your problem resolved!  You can hear the birds singing and the ‘happy ending’ music playing in the background already, can’t you?

 

Now go out and improve your credit score, live in prosperity, and call me if you need any input or encouragement…..or a mortgage loan!

 

                                           Best Wishes,

                                           Shelly Klimusko

                                           Mortgage and Finance Specialist     

                                           shelly@asaplending.com

 


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