It’s mission-critical if you’re suffering from a less than perfect credit score, that you take immediate action with these five ways to build credit. The big picture goal is to remove bad credit, because this is the information that’s damaging, and dragging down your credit score.
We’ll also need to build a trail of positive on-time payment history. This is what builds good credit. Stop living with the embarrassment, expense, and with your credit score being a hindrance. It won’t happen overnight, but it need not take seven long years.
1. Available Credit
This first strategy is looking at your utilization ratio, this is the amount of available credit you have compared to the amount of debt. The big picture idea is to have available unused credit and it does make sense. Lenders know that borrowers who max out their cards often have difficulty repaying what they’ve borrowed and you’ll naturally be viewed as a higher risk to potential lenders.
As opposed to having a low monthly balance on your card. The experts say you want to keep monthly balances on revolving lines of credit at about 30% utilization. For example, if you have an unsecured credit card with a limit of $1,200 then you’d want to keep a monthly balance of about $360.
This will make it appear that you’re using your credit responsibly because you have additional unused and available credit. You want to appear as a good creditworthy individual, rather than a college student that’s just received his excess student loan checks.
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2. Make All your Payments on Time
Of course, it’s wise to pay your current bills and on time. This will begin to create a trail of positive payment history and as past mistakes age and get older, they’ll have less impact on your credit score.
It’s imperative that we display current and future creditworthiness by making on-time monthly payments, this information is an essential ingredient of good credit. This is how we start raising your credit score.
3. Settle Outstanding Debts
Listen, one of the dirty little secrets of debt collectors is to re-age consumer accounts. This way they can continue to contact you for payment, along with reporting a collection on your credit report files that will ultimately lower your credit score.
Consumer debt accounts including medical bill collections, utilities, charged off credit card accounts, and much more typically state on your credit for seven years due to the statute of limitations and it does vary depending upon your state of residence.
Once this time window expires, then by law you’re no longer legally responsible for repayment. Additionally, the collections on your credit reports should be removed once this time, runs out. Clearly, this is not what the collection agencies want. Which is why it’s common for them to illegally re-age consumer debts.
This is one of the more common reasons the Federal Trade Commission (FTC) consistently issues fines against collection agencies that do not follow rules and regulations which is why consumers are surprised to see new collections on their credit reports, that seem to come out of nowhere.
Consumers are unaware of how exactly the debt collection industry works, and the fact that their account will be sold from one agency to another, and potentially five more agencies. This is done in an attempt to sidestep the rules and regulations, along with pressuring you into making a payment.
The larger the balance on your debt, the more likely it is to be sold to additional collection agencies. Each one of these debt collectors will be able to report bad credit on your credit reports, and with larger debts, often times more likely to file a civil lawsuit to collect payment from you. This can result in a judgment against you, and if this happens your credit score will be obliterated. It can also lead to your wages being garnished and potentially liens placed against you, or your property.
To avoid this, we encourage you to take action to resolve any outstanding debts, you may currently have. You have many rights protected under the Fair Debt Collection Practices Act (FDCPA).
The two big keys are:
- Request account validation – this makes the debt collector prove and provide you with evidence, that they own the rights to your account
- key is to never just pay because of many reasons, the most important being that upon your payment, the collection on your credit reports, will only be changed to a paid collection. This is still a negative, derogatory, and damaging item to have on your credit history
4. Clean Up Credit Reports
This step is hands down the most effective way to improve your credit score. This is your right, protected by the Fair Credit Reporting Act (FCRA). The piece of legislation empowers you and every citizen to dispute any item on your credit report, that you believe is questionable, inaccurate, or misleading.
It’s important to note, every alphabet soup credit law is on the books to protect you and your credit history. The many laws, you’ll often hear tossed about are not passed for the credit bureaus, collection agencies, or credit card companies!
They’re all for you, and to protect you, the consumer. Moreover, the credit bureaus are often falsely believed to be government agencies, but they’re not. They’re private for-profit businesses just like the collection agencies.
Many folks are shocked to learn that both these industries have been fined multiple times by the FTC for not following regulations, breaking the law, and the rules. These illegal tactics come at your expense and to every citizen’s detriment.
The truth is the credit bureaus must spend money to comply with federal regulations and investigate consumer disputes. This money is otherwise profit and why the critics believe the credit bureaus are so reluctant to investigate consumer disputes.
You’ll hear other folks even claim it’s illegal to remove accurate bad credit from your credit reports. That’s a big stinking pile of horse manure, and about as likely as government health care to provide decent medical treatment to every American citizen. Don’t hold your breath.
In over four decades since the original passage of the FCRA, not one single citizen has ever encountered civil or legal retribution for disputing an item on their credit reports! Let us repeat, the laws are all there for your protection, not any bureaucratic business or debt collector.
Should you encounter the status quo and hoop jumping, when you submit your dispute and challenge the accuracy of items on your credit reports, don’t just give up! The credit bureaus primary hope is for you and all consumers to give up, and just continue to live with less than perfect credit.
This way they’ll earn more profits and provide a better return to their stockholders. All because they’ve successfully avoided the expense of investigating consumer disputes, despite that right being protected by federal regulations.
5. Large Monthly Payments
This last strategy in the interest of full disclosure is speculative. The idea is we want to make large monthly payments on your revolving credit accounts. For example, if you have an $800 balance on your credit card by making a large $700 monthly payment, you should see a boost to your credit score.
This is speculation because FICO, the credit scoring company, doesn’t say explicitly that large monthly payments will raise your credit score. However, by using this strategy, you’ll also be improving your utilization ratio by creating more available unused credit. And FICO does say this helps to increase your credit score.
The only path to a good credit score includes removing bad credit and damaging information on your credit reports, while simultaneously building positive payment history. It’s a two-pronged approach, and it won’t happen overnight but that doesn’t mean you have to suffer for seven long, expensive, and embarrassing years.