Throughout my banking career, I have found it extremely difficult to properly service customers with an unsatisfactory credit score.
People tend to overly complicate credit. When ones credit score has taken a giant hit, most believe that it has been damaged beyond repair. Here's a BONUS tip for you all: IT'S NOT TRUE
Having experienced both sides of credit, the lender and applicant, I have picked up a couple tips & tricks along the way to boosts ones credit score and properly meet the applicant's needs.
Fundamentals to keep in mind:
- Everyones situation is different. One tip & trick might be more beneficial for one person than the other.
- Credit is good thing, but don't get ahead of yourself. It all comes down to discipline.
- It's all about debt to income. How much are you charging vs. how much you're bringing in.
1. Can't Get Approved For A Credit Card? No Problem!
Many banks and credit unions offer secured credit cards. You walk into the financial establishment with anywhere between $300-$800 and deposit it into a savings account. The bank will then withhold those funds and use that amount as the credit limit for your new secured credit card. The secured credit card will impact your credit score just the same as a traditional credit card.
This is the best way to repair severely damaged credit scores. The bank has opened this credit line to you because you have already pre-paid the credit limit if things were to go south. All the credit bureau sees is the open line of credit to you, from a financial establishment.
2. Dispute. Dispute. Dispute.
Can't recall the collection? Dispute it. Is the collection posted in error? Dispute it.
You can file disputes through Equifax, Experian and TransUnion. After filing a dispute, the collection agency has a limited number of days to confirm a collection that is effecting your credit score. If they do not confirm the collection within the time frame, it falls off and your score recovers.
3. The Art of Negotiation
Have some of your disputes been confirmed after you filed? Negotiate.
Many collection agencies are more than willing to negotiate. Hell, I did it as the treasurer of my fraternity. The organization had outstanding dues dating back 10+ years when I entered office. I ended up recovering over 90% of the lost debt. I found it very useful to negotiate with long-term debtors in my organization before it had to go to collections. I say this because from a collection standpoint, your credit score is already dinged, now they just want their money.
4. 30% Rule
Its always good to exercise your credit lines, but not to the max. Out of your credit limit total, you should never carry a total balance over 30%. The 30% rule is perfect. It shows that you can healthily exercise credit while not taking off more than you can chew. If you have regular expenses that total over 30%, you may want to look into doing one of 2 things.
1. Raise your credit limit to lower the percentage used while keeping your expenses the same.
2. Pay your bills off bi-monthly, so your credit balance percentage is cut in half while your expenses stay the same.
5. Never Close Credit Lines
Closing your current credit lines looks bad in the eyes of the credit bureau. Your credit will surely drop. A great way to keep a card active is to make all of your necessary purchases. Budget and keep the funds necessary to pay it off at the end of the month. Are all of your monthly necessities is too much of a commitment too quick? Start small like I did. Only use your credit card on gas, then work your way up.
BONUS TIP:
When choosing a credit card, you always want to maximize your benefits. Do your research. Find the credit card that works best for you. The reward points for purchases are huge. If you're going to charge your credit card, you might as well get as much back as you can. If you're building your credit, work your way up to get there. You won't regret it. There are plenty of credit cards available that have no interest anywhere from 12 to 15 months. For all of you adventurous travelers, pick you favorite airline, and start racking up those flyer miles.
Whether you're building, exercising or recovering your credit, the opportunities are endless. Find out what you works for you and implement your plan. When used correctly and executed with discipline, credit helps us all reach our financial goes.
Feel free to comment your thoughts, opinions or even personal experiences with your credit history. I love all the feedback and topic recommendations.
Disclaimer:
I don't do this for the money. I want to educate everyone on financial principles that should have been taught in school, to break bad habits started at home and to develop new ones that help everyone reach their financial goals.