Bankruptcy & Foreclosures

In case you haven’t read Jason Rich’s excellent book Dirty Little Secrets: What the Credit Bureaus Won’t Tell You, the following excerpt is very useful information and an effective summary of the type of material presented. The actual book contains 10 strategies to improve your credit score. For the sake of space restraints, I’ll break down the strategies presented into two parts (1-5 below and 6-10 in my next blog post).

Strategy 1: Pay Your Bills on Time.

Although this strategy may seem extremely obvious, late payments are the most common piece of negative information that appears on peoples’ credit reports and are often responsible for significant drops in credit scores. When it comes to loans and credit cards, it’s vital that you always make at least the minimum payments in a timely manner each and every month, with no exceptions.

The impact on your credit report and credit score will be considerable if you’re late or skip one or more mortgage payments, however, making late payments on other types of loans or defaulting on any loans will also have a disastrous impact on your credit score that will have an impact for up to seven years.

Strategy 2: Keep Your Credit Card Balances Low.

The fact that you have credit cards impacts your credit score. Likewise, your payment history on those credit card accounts also impacts your score. Another factor that’s considered in the calculation of your credit score is your credit card balances. Having a balance that represents 35 percent or more of your overall available credit limit on each card will actually hurt you, even if you make all of your payments on-time and consistently pay more than the minimum due.

If you have a $1,000 credit limit on a credit card, ideally, you want to maintain a balance of less than $350, and make timely monthly payments on the balance that are above the required monthly minimums.

Strategy 3: Having a Good History Counts, So Don’t Close Unused Accounts.

One of the factors considered when calculating your credit score is the length of time you’ve had the credit established with each creditor. You’re rewarded for having a positive, long-term history with each creditor, even if the account is inactive or not used. The longer your positive credit history is with each creditor, the better.

Strategy 4: Only Apply for Credit When It’s Needed, Then Shop for the Best Rates on Loans and Credit Cards.

If you’re in the market for a bunch of new appliances or other big-ticket items, it’s common for consumers to walk into a retailer and be offered a discount and a good financing deal on a large purchase, if they open a charge or credit card account with that retailer. Before applying for that store’s credit card, read the fine print. Determine what your interest rate will be and what fees are associated with the card.

Strategy 5: Separate Your Accounts after a Divorce.

During a marriage, it’s common for a couple to obtain joint credit card accounts and co-sign for various types of loans. Coming into the marriage, the information on each person’s credit report and their credit score will eventually impact their spouse, especially when new joint accounts are opened or a spouse’s name is added to existing accounts. Consolidating all your accounts once married makes record-keeping easier. If a couple gets divorced, however, this can create a whole new set of credit-related challenges.

First, understand that just because you obtain a legal divorce, it does not release one or both people from their financial obligations when it comes to paying off a joint account. As long as both names appear on the account, both parties are responsible for it.

As your divorce proceedings move forward, be sure to pay off and close all joint accounts, or have one person’s name removed from each account, meaning only one person will remain responsible for it.