10 keys to keeping your credit clean

Keep Credit Card Balances Low

10 Keys to Keeping Your Credit CleanAlex Frias

You’ve probably heard this by now, but maxing out your credit cards hurts your credit score even if your payments are made on time. Ideally, you should utilize no more than 30% of your credit limit.

When the scoring models recognize your low ratio of credit balance to credit limit, you get a bump. So in a way, people who don’t need the credit, get rewarded. Lesson learned. Credit bureaus like when credit is sparingly utilized, not relied upon.

Remove Collection Accounts

You had that one [or two] accounts that went bad and went into collections. You finally paid it but there’s a “collections account” reported on your consumer credit report. It’s paid and the balance is zero, but it’s still hurting you by virtue of it just being there.

You should do everything in your power to ensure that all collections accounts are deleted from your credit. You accomplish this by sharpening your @$$ kissing skills so but pucker up. Sorry. Contact the creditor and ask them [very nicely] to please delete the collection account because you’re trying to get your credit profile in order.

You may try disputing the collections account with the credit bureau but there’s no guarantee that the creditor won’t respond. If they do respond, you have a full blown dispute on your hands.. one you can likely lose because they have a right to report the “paid” collection account so long as it’s an accurate record.

If the delinquent reporting exceeds a period beyond what the laws in your state allow, that’s a different story and will obviously give you great leverage in getting the information deleted.

Avoid Unnecessary Credit Inquiries or Credit “Pulls”

If you had a difficult time managing the credit that you already have, you probably shouldn’t be searching for new credit. So even one credit “pull” or extraction of your consumer credit report, can hurt you if your credit is bad.

Conversely, if you’re credit is not so bad, and you’re shopping for credit, you should keep your credit inquiries to a minimum. Beware of credit brokers that submit your credit review authorization to multiple credit institutions. This can dramatically drop your credit score as potentially dozens of inquiries can post to your account within a short period of time.

Credit inquiries are usually very easy to dispute though.

Avoid Late Payments (30-Day “Lates” Are a Killer)

If you have no more than just one “30-Day Late” reported on your credit report, you may have some success by calling the creditor directly asking them for a courtesy. If your payment history is over-all good, the creditor may oblige and voluntarily remove the blemish. Many creditors won’t, but some may so it’s worth a try.

However, if your problems are a little greater than that, the best you can do is be mindful of paying your account on time and give yourself a few months to monitor your progress. The timeliness of your payments can account to 35% of your credit score.

Inactive or Closed Accounts

The credit bureaus update your consumer credit report in 30 to 45 day cycles or on a monthly basis. If the creditor stops reporting new data, such as with a closed or inactive account, it’s questionable as to whether the information shown adversely affects the credit score.

To be safe, you should ask that any inactive account be deleted, since the information is definitely not helping to raise your score. You can recognize when an account is inactive by locating the last date in which it updated.

Monitor Your Credit (On Your Own)

Finding tools to help you monitor your credit is easy these days. But keeping it “ol school” is easy as well. Since you’re entitled to one free credit report annually, you can request one credit report from each bureau staggered over the course of the year.

In other words, request your Trans Union report at the top of the year, then the Equifax and Experian in 3 month intervals. Get the picture? Of course you do, I practically drew it for you. This ensures that your putting an eye on your credit information on an ongoing basis without burning your chance for the free report. Did I mention you’re entitled to a free report?

Avoid Debt Settlement Offers

If you owe credit card debt that you think you’re unable to pay, debt settlement may be the worst for your credit. Debt settlement companies allow your credit cards to go into default, so that they may gain greater leverage in negotiating down your balances.

Filing bankruptcy does no greater harm to your credit than the damage a debt settlement company will inflict. They may effectively achieve reducing the amount you owe, but it comes with a price.

Bankruptcy May Be Necessary

Let’s face it. There’s a fear and a stigma associated with filing bankruptcy. But once you get past that, you realize that bankruptcy is nothing more than a tool, not a crutch.

Yes, your credit will take a large hit upon the initial filing of the bankruptcy, but if you have been struggling for years to pay off balances that are simply not budging because of penalties and high interest rates, bankruptcy may make better sense.

Getting rid of unpaid collection accounts can be challenging as well, particularly if your income situation feels uncertain. If those “charge-offs” or collection accounts go unresolved indefinitely, your credit will suffer on an ongoing monthly basis. Bankruptcy will put an end to the bleeding and re-seal your financial vascularity.

Re-Establish Your Credit with a New Trade Line (After Bankruptcy)

If bankruptcy is the path you chose to regain your credit worthiness, then you should know that it will cost you more credit.

Shortly after receiving your bankruptcy discharge, the official court order releasing your obligation to pay your creditors, you’ll find solicitations from credit card companies offering you.. more credit. Don’t be too quick to shred those credit applications because you may need a couple of them.

You should seek to establish at least 2 trade lines in the weeks following your bankruptcy discharge. Practicing sound credit management, such as keeping a low credit balance, making timely payments, and avoiding unnecessary credit inquiries will go a long way to re-establishing your credit worthiness.

However, you should know that employers now scrutinize a potential employee’s credit profile and bankruptcy may be a bar to employment particularly in a sector related to financial services.

Opening a secured credit card may be an alternative to establishing a trade line if you’re having difficulty getting credit after a bankruptcy. HSBC and Capital One Bank are helpful to consumers in need of re-establish credit.

Never Close Out Your Credit Cards

You may have also heard this one before. If possible, keep your credit lines open. Closing those credit lines may result in more harm to your credit profile because it disrupts the algorithm used by the credit bureaus to calculate your credit score. Your score will drop like a tank in a lake.

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