Getting to see the credit files of hundreds of people has taught me a great deal. The biggest one is more of an affirmation and less of a lesson and it is that People Suck. A very small percentage of people actually pay the biggest majority of their bills. I’m going to say 11; my guess is that 11 people in the United States pay all of their bills in full and on time.
That said, if your reading this and you have been put in a position that has forced you into a delinquency or poor credit standing because of job loss, medical issues, family issues, or anything outside of your control, not know that the above is not directed at you. The above is directed exclusively at people who have the ability to pay their bills but choose not to for some unknown reason.
Having worked with these hundreds of people, I have not only built up a higher intolerance for the general population, I have also picked up some tricks and tips to improve your credit in case you have gotten off of the straight and narrow. Now I am not a credit expert, CPA, tax professional nor do I have any certification from any credit agency or government outlet, so remember that as you read these and know that any changes you make to your credit accounts is done at your own risk. I am merely trying to offer some of the things that I have picked up along the way that are based exclusively on my experiences.
There are hundreds of factors that play into your credit score that range in obscurity from percentage of revolving vs. installment credit to frequency of payment amounts over minimums. However, by themselves these typically have very small impacts on your credits. Below are topics that are much more general in nature but can have a much larger affect on your credit standing.
Pay your Bills
This one should be pretty easy, but from my experiences, it appears as though its a lesson that is almost unheard of, so I thought it should be included. It’s not rocket surgery, you get a bill for a service, product, or otherwise that you have purchased or agreed to pay for you should pay it.
I will even break it down for everyone:
1. Get bill– This could come through the general USPS mail, UPS/Fedex type delivery services, email, or even through some sort of SMS service. However it comes, it will say, “Hey, you owe us/me/we $xxxx, please pay by xxxx date.”
2. Pay bill– Write a check and mail it, pay electronically, or work off the debt. However it’s done, the payment balance should be $0.00 when this step is complete.
3. Reflect– Think to yourself, “Was that crap I bought worth it?” If so, you’ve just completed a satisfying transaction. If not, try and determine how you can keep similar situations from occurring in the future.
Credit Card Balances
This bit of advice is a little known factor in credit scoring. Your credit balances, even the ones in good standing, will begin to have a negative impact on your credit score once you go above 60% of your credit limit.
For example I worked with a gentleman that originally had a 611 credit score. His accounts were for the most part in good standing and he typically paid his bills in full and on time. However, all 3 of his credit accounts were small and maxed out. We talked about what he might do to improve his score and came to the conclusion that his high balance to credit limit ratios might be the biggest negative factor against him. Over the next month he took $500 and paid down all of his small accounts to below the 60% mark. What happened? His score jumped to a 638 in 35 days. This may not seem like a huge jump, but it was the difference between securing him financing and telling him good luck renting for life.
Let me be clear, bankruptcy is not a fun adventure and it will have long-lasting negative impacts on several areas of your existence is you do file. However, if done properly, you can significantly limit the length of the negative impact and rebuild you credit in a reasonable amount of time.
Bankruptcy should be completed like the removal of a band-aid, quick, complete, and all in one motion.
The first thing that needs to be done when you file is to monitor your credit. If something is reporting that was included in the bankruptcy, it needs to be reported to the credit agencies immediately. I’ve seen so many times where accounts will continue to have a negative impact on an individuals credit long after it was closed through the courts. If it is closed, it needs to report as such.
As soon as you leave the court, you need to start rebuilding credit. Secure revolving accounts are a great way to build credit quickly and effectively. Basically you go to the bank with a few hundred dollars and the bank holds the funds as collateral and let you borrower against the funds on a credit account.
Start rebuilding immediately, but do not start applying for multiple credit accounts immediately. I know that this sounds like a catch 22, but multiple inquiries on your credit account will have a negative impact on your credit score. Start with accounts you know you can get such as a secure line of credit. Your not going to get a Black Amex card 6 days after your bankruptcy, so don’t waste the inquiry trying.
I have personally witnessed an individual file bankruptcy and within a 24 month period take his score from 480 to 740.
It’s not impossible. Follow these five steps and you will be back on your feet very quickly.
I’ve heard this situation 1000 times, “I pay cash for everything, I don’t have any credit.” I am very happy that you have the ability to pay cash for everything and in a perfect world, that would be the only form of payment.Credit however is a necessary evil that will all must have and deal with.
Nota Bene: For my fellow pig-dog capitalists, I am not referring to the extension of all credit as evil, only unnecessary consumer credit IE. I make $9/hr and I want a 60inch LCD type credit. When utilized properly, credit gives you the ability to expound on an investment and the……… you know where I’m going with this, it’s not worth the time.
Having good or any credit is like having passing grades in school; you don’t have to have them to succeed in life, but there are certain situations that will make your life much easier if you do.
The perfect example is my father. About five years ago he was going to purchase a vehicle for my mother and he wanted to finance it for a short amount of time, (something unheard of in our home). When he went to the dealership, they said, “Big-D, it’s not that you have bad credit, it’s that you have no credit. You have an empty scorecard and with the state of things, our corporate department won’t extend financing.” Needless to say, my old man was pissed and paid cash for the truck and drove it home. However because he had to pull cash from one investment, it actually costs him significantly more than it would have if he would have been able to utilize the credit extension from the dealership.
This is called Opportunity Cost of Capital and if you are skeptical about the utilization of credit, read a little further into it and open your mind.
Review your Credit Often
I cannot stress how important it is to keep an eye on your credit. Everyone thinks they are safe and that they have great practices in place to protect them, but I know from personal experience that this is not always the case. I was the “victim” of identity theft. Luckily for me, I did have some monitoring in place from my banking institution, but damage had already been done.
It’s easy and cheap and everyone should do it. Don’t find out for yourself, learn from my mistakes that if the $15 dollars a month seems expensive, compare it to the hundreds and thousands of dollars of bad credit in your name, the lost time of trying to correct the situation, and the damage to your credit account. Believe me, it’s worth it.