Credit Improvement Series 1 of 2
Hey folks. Not many people have a good grasp on how to improve your credit score. We know it’s important, even when we don’t know exactly why. In this short series, I’ll give you some of those answers so you can think about how to check your financial situation.
How do you think about credit?
In 2017, everyone knows how important it is to have “Good” credit, but the majority of people do not know exactly how to get there. Many look for a solutions with agencies who specialize in repair, and frankly are kinda sketchy. Some wait it out, hoping that the adverse reporting will eventually fall off (yeah right). Others stay away from borrowing altogether, hoping to avoid the pitfalls of those who struggle with financial issues. All of these options have fatal flaws.
Agencies who “fix” your credit use one main tactic, disputing all negative items on your report. When an item on your report is disputed, the creditor has a fixed amount of time, usually 60 days, to confirm to the crediting agencies that the outstanding debt is valid. Most creditors will miss this date and the agencies will have to remove that entry from your file. However, this is a temporary solution, and sounds more like the “Hope and Pray” method. As expected, the creditors eventually catch on and report the entry again.
Avoidance is not the answer!
Some people decide to play the waiting game with their credit. They hope that in 7-10 years all the negative entries will have fallen off and their score will magically shoot up to 800.
That’s not going to happen…ever.. no really ever. The clock is always reset due to the debt market.
- Your initial creditor will quickly sell your debt to a collection agency. If their attempts are unsuccessful, they will sell it to a different collection agency.
- Every time this happens, the debt is reported to the bureaus under a different name, which resets the clock.
No Credit is Bad Credit
You think to yourself, I have this all figured out, “I will avoid opening any accounts”. Having little or no credit is worse than bad. Inevitably, you will need to open a line of credit, for a house or a car, and they will continually be denied for lack of history. When creditors check your report, they look at a combination of factors and decide how well the debtor is “managing” their finances. When your report is void of accounts, this is a difficult determination to make and this unknown makes them an even greater risk.
The last strategy, also the most popular, is paying off any outstanding debt and cutting up the cards. This is a logical conclusion if you salivates every time you pass the mall, or you can’t pass up a good sale. After all, it’s not a sale if you didn’t need the items to begin with. Again, creditors look for debtors who can show how effectively they spend and repay funds that were never their’s. Simply paying off all your debt is a bad way to do that. If you do not use your accounts, the ones without balances, will eventually be closed , negatively affecting you.
So what do you do now?
- Avoid “Fix Your Credit” services.
- Do not play the waiting game , your problems will not fix themselves with time. (try these to begin to rebuild)
- Debt is not the Devil. Don’t be afraid of borrowing, manage it responsibly.
In the next post, we will get into the most effective ways to improve your score.
There are tons more material coming that will give your life a complete financial overhaul.
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