Aug
05
2009

Improving your credit is a matter of common sense

Dear Experian,

I would love to get an answer on how to increase my credit score other than common sense answers like, “Pay your bill on time.” No duh. I’m past that. I didn’t pay on time, now what? Or, get a credit card. My credit is messed up. I can’t get a credit card. I hope you have some information that can actually be applied, like who to pay first. If it’s already in collection should I even pay it off?

- UPE

Dear UPE,

Everyone would like there to be some big secret to turning your credit around in an instant, but there isn’t one. It took time and bad credit habits to get you into trouble. It will take time and good credit habits to get you out of trouble.

I’m surprised you didn’t mention making a budget and sticking to it. That’s always part of our common sense advice. While you don’t want to hear it, the fact is that good credit management is just common sense. Pay your bills on time, keep your balances low and you will eventually rebuild your credit.

My advice to you is to hold off on trying to get another credit card. You aren’t in position to take on more debt. You need to focus on the debts you already owe and on changing your credit management behavior.

You should pay off the collection account. First, because it is a small step toward rebuilding your credit. Doing so might not result in an increase in your credit scores, but it does show that you are taking responsibility for your past mistakes. Second, you made a contractual agreement to pay the debt when you opened the account and you have a personal responsibility to live up to that agreement.

That’s what credit is really all about — living up to the agreements you make with your creditors. If you don’t live up to those agreements, new creditors are going to have good reason to suspect you won’t live up to new agreements with them, either.

It doesn’t really matter which debt you pay first. Some people start with their smallest debt. They can pay it off fairly quickly, which gives them a sense of accomplishment. That payment amount can then be added to the payments for a larger debt so that it can be paid off more quickly.

Others start with a large debt and get it out of the way. Getting a big weight off their shoulders helps them knock out their remaining debts faster.

If one debt has a higher finance charge, it is always smart to pay the most toward the balance of that account. That’s because so much of your money is going toward fees and is not lowering the amount of the debt. When it is paid off, all the money you were paying in interest can be applied to the balance of another account.

Do what works best for you. Then, when you get all of the debt eliminated and build up some savings for an emergency cushion, go to your local bank and apply for a secured card. Use it as a starting point for opening additional accounts that in time will restore your good credit.

You have to be patient and committed. And, you have to keep doing the common sense things.

Thanks for asking.

- The “Ask Experian” team

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