credit — 4/6 — Beating Broke

Using Positive Information to Improve Your Credit Score

February 16, 2011 By Frank Collins 4 Comments

To rebuild your credit score, you must add positive information to your credit report. Knowing the exact type of information to add will ensure you’re taking the right steps toward complete credit repair.

New Credit Accounts

If you can’t get all the negative information erased from your credit report (and sometimes it’s better if you can’t), you need to overshadow it with positive information. The more credit accounts you can add to your credit report the better. But, be careful not to apply for too many credit cards or loans in a short period of time. Lenders will start getting suspicious about the number of applications you are making and will start turning you down.

On Time Payments

Payment history has the biggest impact on your credit score. Delinquent payments are likely what caused your credit score to drop, but unfortunately, the same number of positive payments won’t restore your credit score. Instead, it will take dozens of months of timely credit card and loan payments to bring your score up. But, in time, your score will recover as long as you continue to pay on time and never miss a payment again.

Low Balances

When you get new credit cards, it’s not time to go on a spending spree. Instead, you should only charge a small part of your credit limit – like 30% or less. On a credit card with a $1,000 credit limit, keep your balance below $300. Another large part of your credit score (30%) compares your credit card balances to your credit limit. Using too much credit hurts your credit score.

Some people charge a large balance and pay it off before the grace period thinking that will save them from the damage. That won’t necessarily save you from the damage of a high credit card balance because you don’t know when the credit card issuer will report your balance to the credit bureau. If your balance is reported while your credit card balance is high, your score is still affected even though you pay off your balance.

Get Different Types of Credit

Credit cards are just one way you can improve your credit score. Another part of the credit score calculation considers the types of credit you have experience with. If you don’t have any installment loans on your credit report, getting new ones will help you. But, make sure you take out loans only as needed and not just to improve your credit score. Only borrow a loan that you can afford to repay to protect your credit score.

Many credit repair resources recommend you borrow a passbook loan, place the loan in a savings account, and then use what you’ve borrowed to repay the loan. Before you pursue this option, make sure the lender actually reports these loans to the credit bureaus because many of them don’t. If the loan payments aren’t reported, they won’t help your credit score.

The key to successful credit repair is adding more and more new positive information to your credit report. Over time, you’ll see your credit score improve. Maybe you’ll need a free credit score estimator.

A World of Cash Only

December 17, 2010 By Shane Ede 11 Comments

What if you couldn’t use a credit card. What if you couldn’t get a loan? Imagine a world where “credit” as we know it no longer exists. Or never existed in the first place. Would that world be better or worse than what we live in now?

In many ways, credit that is used wisely can be a benefit to our lives. It allows us to get a house without having hundreds of thousands of dollars in cash available. It allows us a car without having to have tens of thousands available. I know, if you purchase smartly and within your means, you don’t need hundreds of thousands of dollars for a house and you don’t need tens of thousands for a car. But, for those that feel that they can afford to pay those payments, credit makes it all possible.

What would a world where there was no credit look like? Instead of spending our last dollar to pay off the loans we get with our credit, we’d spend more of our time working for fulfillment. If we didn’t have the ready cash available to pay for something, we’d have to save for it. Or trade for it. And we’d do more for ourselves. We’d mow our own lawns. We’d do our own handyman work. Do-it-y0urself tasks wouldn’t be something of a novelty, but more of a normal thing.

For some, it may seem trivial. What difference does it matter whether I use credit or not. I’m responsible and pay my bills, they’ll say. And then, they’ll get up on Monday morning and go to the job that they’ll freely admit they don’t like much, but they keep it because it pays well. But, if there was no credit, they wouldn’t need a job that pays well. They probably wouldn’t need any resume tips. They’d have the ability to find a job that they enjoy. A job that is fulfilling and rewarding.

And that makes a difference. The stress and turmoil that a job you don’t like can bring into your life is not only unpleasant for you and those around you, it can actually be fatal. Without credit, keeping up with the Joneses becomes a thing of the past. You only need to keep up with what skill sets they have that you don’t and find an amicable trade.

Will this world ever exist? Wholly? No. There are way too many hands in the pot of credit for it to ever go away. Too many millionaires made by taking advantage of other people through credit. But, that doesn’t mean that you and I can’t strive to lead our lives in the direction of no credit. We can take control of our finances through good financial management principles and lead a life as free from credit as possible. And, it is possible. Don’t be afraid to dream of that. And don’t be afraid to guide your finances with intention.

Breaking free from the harness that we’ve given ourselves can lead us to a better life.

photo credit: TheTruthAbout

The Building Credit Fallacy

October 13, 2010 By Shane Ede 11 Comments

Building credit is a phrase that you’ll see around the Internet and anywhere most financial experts talk. It’s basically the act of getting a loan with easily repayable terms, or piggybacking on someones loan, in order to create a positive record on your credit report and thus increasing (building) your credit score.

But, for many, it’s a fallacy that acts as another trap in the debt cycle. Here’s the scenario. You need to build your credit. So, on the advice of a few friends or experts, you go down to the bank and get a $300 loan. It’s all they’ll give you, and the interest rate is way more than you should spend. But, you don’t plan on spending any of the money, so you’ve just got to come up with the payments with the added interest and viola! A shiny new positive mark on your credit report. Except. Except that after about 2 months, you get a flat tire. Or you’re favorite band comes to town. Or your friends want to go out on the town. Something comes up and you need some money. You don’t have any.

credit report Where do you get your money? Why from the loan, of course. You’re gonna pay it off anyways, right. So, you’ll just have to scrape together a bit more for the next payment, that’s all. Except. Except, you don’t scrape together that money. You use the rest of the funds to pay the next few months payments, but you come up short. You still need to scrape a few dollars together to make the last few payments. How’d this happen?!? It must have been those parasitic lenders, right?

Not quite. You did it to your self. And instead of a shiny new positive mark on your credit report, now you’ve got new delinquencies. And eventually, maybe a nice new collection note. All because you thought it would be nice and easy to build your credit. You fell victim to the fallacy.

It doesn’t have to be that way. Many people pull this off, but it takes a mindset as well as the money. If you attempt to do something like this, but you don’t have your whole mind in it, you stand a high risk of ending up with negative marks instead of positive ones. But, if you’re determined to stay out of debt at whatever cost, you can make it work. It means you can’t touch that money for anything. No drinking with friends, no Bieber concert, and no new tires. If you want to improve your credit score, and you’re in a situation where this is the only solution, you’ve got to be ready to make a few sacrifices.

Take a step in the right direction, take responsibility for your actions, and do the financially sound thing. Building your credit can be that easy. It’s not a easy task, but once you’ve built it long enough and high enough, maybe you can continue to build it with a nice used car loan of a couple thousand.

Image Credit: credit report by TheTruthAbout…, on Flickr