The 12 Steps to Improve Your Credit Rating
Michael Laurance  The Wealth Coach

     Your credit rating is one of the most important numbers in your life.  Right up there with your blood pressure, cholesterol level, and anniversary date.

     Well, okay, maybe not THAT important, but very important!

     Today, most lenders, many insurance companies, and some employers review your credit history when deciding whether or not to lend you money and at what interest rate, whether or not to issue you homeowners or car insurance and at what price, and whether or not a company will hire you.  I will cover the reasons lending institutions, insurance companies, and employers rely on your credit rating later.  The fact is, your credit history may play a key role in getting a loan, insurance, and a job.

     That being said, why am I sharing this with you?  There are two reasons!  First, all the books about sharing information say that the writer has to establish credibility, so here goes!

     I am an executive in the Financial Services industry, and have worked with countless thousands of customers in all aspects, both lending and collecting money.  I am currently a Vice President at a one of the largest banks, and I am responsible for operations lending over $250 million per month.

     Second, I believe that Tryon Edwards, a fabulous 19^th Century philosopher has it right when he says,  If you would thoroughly know anything, teach it to others.

     That is what I intend to do here.  Share what I have learned and experienced over the past fourteen years!  So, how can you improve your credit rating?  Here are twelve ways to do this without paying a “credit doctor” to fix it for you.  My experience is that they do not work. My experience is that they cost YOU money! So let’s do this without a credit doctor:

The Twelve Steps!

1.    Pay your bills!  Sorry, if you were expecting something magical here.  It is really that simple.  Not paying even a $100 charge that you do not agree with can severely impact your credit rating.
2.    Pay your bills on time!  Don’t confuse this with “Pay your bills.”  Paying your bills late is the second biggest negative impact to credit ratings, next to not paying them at all.  Make sure payments are received prior to the due dates.  In addition to saving your credit rating, you will also avoid expensive late charges, which now average almost $40 for credit cards.  Additionally, many firms have a “punitive pricing” clause in their lending agreements which allows them to raise interest rates SIGNIFICANTLY if you are late on a single payment.  It is not uncommon to see interest rates go from market rates of 12% or so up to 20+% by only being late on one payment.

3.    Pay off or settle any judgments, liens, or collection accounts in your credit history.  In many cases you may be able to settle them for less than the full amount.

4.    Never go over your credit limit, and keep your credit usage low.  Going over limit hurts you in two ways:  it damages your credit rating, and you may well end up paying an “over-limit fee” which now averages $30 for credit cards. Keep the balances on credit cards and lines of credit below 80% of your credit limit on each account.  Keeping the balances below 50% is better still.

5.    Reduce the number of people looking at your credit history, or “inquiries” as they are called.  Too many “inquiries” can drop your credit score as well as lead potential lenders, insurers, and employers to believe you are desperately shopping for credit because you are in financial trouble or financially irresponsible. So, do not give out your social security number to anyone unless you are sure you are going to borrow money from them.  Some disreputable car dealerships frequently ask for your social security number to pre-qualify you for a car purchase, even if you are “only looking.”

6.    Pay off any Finance company loans.  Finance companies, typically those with “Financial” in their name, are known as the “lenders of last resort.”  In addition to carrying generally higher interest rates and fees, they signal to other lenders that you may not have been able to find better quality lenders.  Be wary of in-store promotions or store based credit cards.  Most are actually financed through Finance companies, and even the “six months with no interest deals” can hurt if you miss a payment.  Read the fine print, especially about interest rates and fees.
7.    Review your credit files each year, even if you have to pay for them.  The investment of $30 or so (they cost somewhere between $8 and $13 each) and a few hours to review them are well worth it!  These agencies handle a tremendous amount of information (one of them maintains over 400 million credit files!), and sometimes the information is incorrect.  Check it, especially if you have a common name, move a lot, or have family members with the same or very similar names.  (My father’s name was Michael as well.  His file continually got mixed up with mine, even though some of the accounts reporting in my credit file were “opened” before I was born!)  Accidents do happen!  Make sure they do not happen to you! Here are the web addresses of each of the three major credit reporting agencies. You can access your credit report online, or via the mail:  Experian.com, Equifax.com, TransUnion.com. 
8.    Challenge anything that is not yours, or is plain wrong, in your credit file.  When you get                    a copy from the credit reporting agencies, it has instructions on how to dispute information contained in your history.  (Generally, this is what “credit doctors” do for you for a fat fee!)

9.    Pay more than the minimum payment due if at all possible.

10.  Reduce the amount of unused revolving debt (credit cards, and “store” card in particular) by closing accounts that are inactive.  This accomplishes several great things:

-Limits identity theft risk (one less account for someone to “steal.”)

-Removes temptation to use cards (as lenders love to send “enticing” offers to get you to use your accounts again!)

-Reduces what lenders call “contingent liability” which is the total amount of your credit lines, or the total potential amount of their losses!

Two caveats:

Don’t close all of your accounts; you still need to live!

The “length” of your credit history, which is the age of your oldest account, counts in determining your credit rating.  Don’t close your oldest account if there are no other accounts open for more than ten years.

11.    Do not “accept” every solicitation you receive.  Do not accept every “pre-approved offer” from lenders.   Doing so raises three problems that will hurt your credit rating:

-Too many inquires

-Too much temptation

-Too much “contingent liability”

12.    Get help if you need it!!!  There are many reputable non-profit agencies that specialize in helping people get out of debt, with an added specialization in helping folks get out of “credit card jail.”  Here are some sources:

-Your company may offer such help through your Employee Assistance Group; check with your Human Resources department to see if this type of confidential help is available.

-Your clergy may offer financial counseling.

-Consumer Credit Counseling Services (nfcc.org).  A few general rules if you decide to go this route:

-YOU SHOULD NOT HAVE TO PAY FOR THIS!  Reputable firms have agreements in place with lenders who then repay the agency from their pockets, not yours. If someone asks for money from you for their fees, RUN!

-You should be assigned a knowledgeable and experienced counselor to help you.  Typically you can meet over the phone or in person.

-With this representative, you should be able to develop a customized plan to meet your obligations and needs.

-Most will offer help in establishing a budget.  The good agencies do not want repeat customers!

-Remember that it is still up to your lenders to accept the proposed plan. 

-While they are under no obligation to accept the proposal, or to pay the counseling service for that matter, most do if the proposal is reasonable. 

-Remember, lenders want to get their money back, even if it takes a while!

-Generally, if your proposal is accepted and you keep to your payment plan, lenders will not call you.  That, in itself, can be a great benefit!

     I know this information will help you better manage your credit rating.  If you find that it does, please tell me!  Of course, I would also love it if you would tell 100 of your friends as well!  If you find it did not help you, please tell me why.   I want to make sure that you find many times the value of this great information!

Wishing you all the best!

Michael Laurance