There are two major ways to fix bad credit score. The “hard” way requires time, patience, effort and careful financial planning. The SMART way requires better knowledge of the credit system and its loopholes. Here is a 4 step guide that will help you raise your score in no time:
1 Don’t play the credit game blindfolded.
Most credit consolidating places will charge you an arm and a leg for thing you can do yourself if you have the right information. Do you know how is the credit score calculated? Do you know what are the most detrimental items on your credit report? Why does paying off old collections can bring your score down? What is the perfect debt to balance ratio on your credit cards? Is installment credit(auto loans, house loans, student loans) or revolving credit (major credit cards, department store cards) more important for your final FICO score? How can piggybacking someone else’s credit increase you score? Why do “deleted” negative items from your report are far more beneficial that “paid off” negative items? The more you know about the credit system, the easier it would be to choose the right course of action.
2 The most important rule in the credit world
The credit world revolves around one magic phrase “ON TIME”. Creditors expect you to pay off your loan in accordance with the terms and conditions of the contract. You are required to pay one fixed monthly payment (installment credit) and one minimum payment calculated from your current card balance (revolving credit). When you stop paying “as agreed”, you are violating the contract. By far payment history is the single most important factor in your FICO formula. If you do have late car, mortgage or credit card payments, take care of them first. This should bring an immediate increase in your credit score.
3 The collection agency paradox.
Old collection are a tricky area when it comes to your FICO score. Paying off an old collection will not increase your credit score. On the contrary, it might bring it down. Paying off the collection simply upgrades the account to “paid’ status. It is still a negative item on your report, albeit paid. Only now it has bigger influence on your score, because the last activity on the account is more recent.
4 The time factor.
In general the older an item on your credit report, the less effect it has on the overall FICO score. And vice versa-most recent payment history has the biggest impact on your score. Focusing on what’s current will bring the most drastic changes to your credit score. Paying off old accounts might have the negative effect described in the example above.
Educate yourself on the mechanics of the credit system if you want to fix bad credit report. There are many secrets that can boost your score fast, but you have to start thinking outside the box first.
