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Fix Bad Credit Tips and Advice
Friday, Dec 26, 2008
Question: I have bad credit. I need to know the steps in rebuilding my credit. Should I go back and pay off old debts. How do I begin fixing my credit?
Answer: In order to fix bad credit, and thus establish and maintain a good credit score, you must open, use, and timely pay credit accounts that regularly report to the three major credit bureaus (Equifax, Experian, and TransUnion). You should pay off open derogatory listings, and you should start making payments on other credit lines to reprove your credit worthiness.Accounts that should help you build your credit rating by reporting positive payment information to the credit bureaus include auto loans, home mortgages, credit cards, and personal loans.
Consumers with negative credit listings, such delinquent accounts, must establish new positive credit lines to try to counterbalance the negative impact of their delinquent items.
As you are inquiring about credit scores let me give you some information on how it is calculated. It is important to understand how your credit score is calculated. Your credit rating is calculated based on several variables, including:
1) Payment history, which counts for approximately 35% of your score, is the most heavily weighted factor used in calculating your credit score. Consistently paying your bills on time has a positive influence on your score, while late or missed payments will hurt you in this area. If you have delinquent payments, the older the delinquency the less the negative impact on your score will be. Collection accounts and bankruptcy filings are also taken into consideration
when analyzing your payment history.
2) Total debt and total available credit, which counts for about 30%. This section looks at how much debt you have compared to the total available credit on your accounts. If all of your accounts are maxed out, you will be considered a poor credit risk, because it appears that you are struggling to pay off the debt you have already incurred. If your account balances are relatively low compared to your available credit, this part of the risk analysis should help your overall credit score. The score calculation also looks at these two factors independently. Having too much available credit, whether you have used it or not, could hurt your credit score, as statistical studies have shown that people with excessive amounts of available credit are a higher credit risk. Unfortunately, the bureaus do not define exactly what they consider excessive, so best tip is to use credit conservatively and to keep your debt to credit limit ratio low.
3) Length of positive credit history, which counts for about 15%. The longer you maintain accounts in good standing, the better your score will be. This shows that you are able to make a long-term commitment to a creditor and are consistently
2) Total debt and total available credit, which counts for about 30%. This section looks at how much debt you have compared to the total available credit on your accounts. If all of your accounts are maxed out, you will be considered a poor credit risk, because it appears that you are struggling to pay off the debt you have already incurred. If your account balances are relatively low compared to your available credit, this part of the risk analysis should help your overall credit score. The score calculation also looks at these two factors independently. Having too much available credit, whether you have used it or not, could hurt your credit score, as statistical studies have shown that people with excessive amounts of available credit are a higher credit risk. Unfortunately, the bureaus do not define exactly what they consider excessive, so best tip is to use credit conservatively and to keep your debt to credit limit ratio low.
3) Length of positive credit history, which counts for about 15%. The longer you maintain accounts in good standing, the better your score will be. This shows that you are able to make a long-term commitment to a creditor and are consistently
responsible about making your payments. If you have accounts with long history (5 or more years) and no missed payments, you should keep these open and paid off.
4) Mix of types of credit, which counts for approximately 10%. Having several different types of credit, such a credit cards, consumer loans, and secured debt, will have a positive influence on your credit score. Having too much of one type of credit can have a negative impact.
5) The number of new credit applications you have recently completed, which accounts for about 10% of your score. Applying for too much new credit in a short time period makes indicates that you could be credit risk, as you may be desperately trying to keep your head above water. The models make an exception for people who are shopping around for a loan, so if you are simply applying to see who can give you the best rate on a new loan, you need not worry too much about damaging your credit score.
If you would like to learn more about credit reports, credit scoring, and what it means to you, I encourage you to explore the wealth of material offered by the Bills.com Credit Resources and Information page.
I hope this information helps you Find. Learn. Save.
Best,
Bill
www.bills.com/blog/
4) Mix of types of credit, which counts for approximately 10%. Having several different types of credit, such a credit cards, consumer loans, and secured debt, will have a positive influence on your credit score. Having too much of one type of credit can have a negative impact.
5) The number of new credit applications you have recently completed, which accounts for about 10% of your score. Applying for too much new credit in a short time period makes indicates that you could be credit risk, as you may be desperately trying to keep your head above water. The models make an exception for people who are shopping around for a loan, so if you are simply applying to see who can give you the best rate on a new loan, you need not worry too much about damaging your credit score.
If you would like to learn more about credit reports, credit scoring, and what it means to you, I encourage you to explore the wealth of material offered by the Bills.com Credit Resources and Information page.
I hope this information helps you Find. Learn. Save.
Best,
Bill
www.bills.com/blog/
Also, make sure to get a free financial health check-up with Bills IQ!
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1. Posted by Ginger Brown on Sunday 22nd March 2009 14:43
I have some charge offs from 5-10 years ago. Now they are sending me credit cards to pay off those debts. Should I try to pay off those debts or should I open other accounts and keep them in good standing to repair my credit. I have one credit card with a 500 limit and of course my bank card. I have a car loan in my name that is in good standing.
2. Posted by Bill on Monday 23rd March 2009 11:13
Paying off those accounts will help getting your credit score up faster, than if you were to not pay them but please do not use credit cards to do so. Please see here for tips on improving credit: http://www.bills.com/blog/pay-off-debts-to-improve-credit-score/