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Ten big mistakes people make when trying to improve their credit score
thesimpledollar.com — You can hurt your own credit score pretty badly just by trying to improve things. This is a list of things you can do to battle the draconian practices of companies like Experian and beat them at the credit score game.
devolver42- 1882 diggs
- digg it
- OMGWTFROFLMAO, on 10/12/2007, -6/+38http://www.creditboards.com
that is the last credit info site you will ever need- TheSak, on 10/12/2007, -1/+9Agreed on creditboards.com! And the only place to get your *real* FICO scores is http://www.myfico.com
- dalex1, on 10/12/2007, -1/+6this guy is getting dugg down for spam but if you want credit info, his link is really a good site.
- SlackerCSB, on 10/12/2007, -10/+11There are very few good reasons to have any debt at all. Read one of Dave Ramsey's books
- Smuikas, on 10/12/2007, -6/+0@dalex:
3 articles, misconfigured Mambo, and huge forums.
Might be able to get some good advice by trawling through the forums, but it's an extremely poorly put together website. Both of the FAQ sections are essentially empty! One of which is the default mambo FAQ! Dugg down for spam. If he would've linked to the forum and said 'This is a great place to get your questions answered,' I would have dugg him up. - skyshock21, on 10/12/2007, -5/+3Any place where you can see your credit SCORE for free? All these assholes want to charge me $8 to look at MY OWN CREDIT SCORE. They'll all issue the report for free, but not the score... WTF?
- Acer, on 10/12/2007, -1/+1Info from Creditboards.com has helped me raise my credit scores nearly 100 points in the last year.
Great Site. - dalex1, on 10/12/2007, -2/+3@Smuikas
I assumed his link went to the forums on that site. That's where the good info is.
It's a digg discussion on people trying to improve their credit scores, and the boards on that site are an excellent resource on the exact same topic. It's relevant info, and people checking this discussion probably would be interested in the discussion there. If it's too much work for you to get there, or too complicated, or if something else in the wind makes you grumpy....feel free to digg it down. Digg me down above and digg me down here too. Go Bananas! I'll sleep ok tonight, either way. - Smuikas, on 10/12/2007, -7/+1What info? Anything that I don't need to trawl through 30,000 forum posts to find? Any, you know, cohesive source of information there? It looks fairly sparse - again, apart from the forums.
- MrOrange49, on 10/12/2007, -2/+4@Slacker
There are many great reasons to have "debt" but one has to understand that there is a difference in having debt and being over-extended.
I can't stress this enough, knowing how to manage debt will save you more money during the course of your life than you can imagine.
We live in a world now where borrowing money is not only almost a necessity but it is smart. But you have to be intelligent about it.
Don't max out your credit cards (try to keep the balance to limit ratio below 30%), pay your bills on-time and don't borrow for lifestyle unless you know how to manage it.
You don't need credit to get a mortgage, you can get a mortgage with out building your credit but the guy that builds his credit up will get a much better mortgage(with more mortgage options) than someone who didn't, thus saving said person with credit even more money in the long run. - H3LLSL33T, on 10/12/2007, -1/+10https://www.annualcreditreport.com/cra/index.jsp
This one is actually free, no fees or any other crap. - howski, on 10/12/2007, -4/+5Agreed on Dave Ramsey. He's an ultra-conservative, red-state hick who loves the sound of his own voice, but his system WORKS and works QUICKLY. How quickly it works for you depends less on the amount of debt you have than it depends on how serious/intense you want to get about paying it off.
- Klinky, on 10/12/2007, -0/+6http://www.annualcreditreport.com is the legit site created by the Fair Credit Reporting Act. It entitles you to one free credit report from each of the three major credit bureaus. It's a good idea to check these when you can. You can request a report from a different company at different times, thus having a view of your credit throughout the year(e.g, Get your TransUnion report, waite four months, get your Experian report, wait 4 months, get your EquiFax report, wait 4 months get your TransUnion report, etc..).
If you do find something wrong on your report then it's best to request all of your reports as once. Chances are the errors are on the other reports as well. Clearing up one error does not rectify the error with the other bureaus.
My girlfriend recently found 21K worth of fraudulently opened credit cards, that were past due. We're currently disputing these reports with the companies that reported them. But it could take quite a while for all this to get cleared up. - siszam, on 10/12/2007, -3/+3If you live like Dave Ramsey teaches you can live debt free and buy everything, including your home with cash. Credits cares only prove that you can't handle money and have to borrow over and over and over. Live on less than you make and don't worry about your debt score.
- fletcha, on 10/12/2007, -0/+1For Australian diggers, http://www.mycreditfile.com.au - free mailed credit report within 2 weeks, otherwise 24hr turnaround with credit card (ironic?) payment.
- n8r0n, on 10/12/2007, -34/+7Credit scores are a joke. Just live debt free and you never need to worry about your score.
- Philoushka, on 10/12/2007, -3/+14.... until your identity is stolen, and you're F'ed in the A.
- amandaw33, on 10/12/2007, -3/+23Or when you want to buy a house.. unless you're really good at saving
- Stradenko, on 10/12/2007, -3/+9Credit scores are not exclusively used to extend credit.
- northerncomfort, on 10/12/2007, -2/+5Considering more Americans today spend more than they earn, that sort of talk isn't going to be any sort of magic solution.
- tEhKewleSt, on 10/12/2007, -15/+2Supercalifragilisticexpialidocius.
- Jerkbot, on 10/12/2007, -2/+18"Just live debt free"
until you need to borrow money and I realize you have "no credit" - austindkelly, on 10/12/2007, -4/+3@Philoushka
LOL at F'ed in the A. - n8r0n, on 10/12/2007, -11/+5@Jerkbot
If you live debt free you can save more money, because you are not trying to pay off debts you owe therefore reducing your need to get a loan. - TheSavageNation, on 10/12/2007, -10/+5Credit scores mean "I LOVE DEBT".
- Jerkbot, on 10/12/2007, -1/+20So it's better to give my money away to some landlord while trying to save to by a house with cash?
No thanks. I'll take the mortgage. - banglogic, on 10/12/2007, -7/+2Commie.
- n8r0n, on 10/12/2007, -2/+5@Jerkbot
There are some exceptions, a mortgage is one of them. The key is to make sure the house is within your price range, your mortgage payment should be no more than a fourth of your take home pay and it should be a fixed 15 year note.
The only debt I have right now is my mortgage. I was smart when choosing my home and mortgage, my payment is 1/8 of my take home pay and since I have no other debts I am able to pay a larger payment every month which goes directly to the principle balance. I plan on having the home paid off in about 3 more years. Which i can then choose to stay in or move to another new home and pay cash for it. - psyanyde, on 10/12/2007, -1/+7I live debt free, but I had a hell of a time trying to move into an apartment. It seems I have no credit, which is better than bad credit, but not much better.
- boobies, on 10/12/2007, -4/+9you can get a mortgage from a lender that does manual underwriting... they don't even look at your credit score...
subscribe to Dave Ramsey's free podcast and listen to it for 2 weeks... you'll learn a lot about how to get and stay out of debt - violentvinyl, on 10/12/2007, -7/+3"Credit scores are a joke. Just live debt free and you never need to worry about your score."
That's just not possible unless you're born into money. - n8r0n, on 10/12/2007, -3/+7@boobies(nice name)
Nice to see that I am not alone!
Dave Ramsey knows what he is talking about. - iamnos, on 10/12/2007, -1/+8@n8r0n
For someone trying to appear to be incredibly smart about money, you'd be very foolish if you're paying off your mortgage faster than the minimum payment. Why? Simple, you can get far better returns on your money in investments than you'll save by paying off your mortgage early. Debt isn't always a bad thing, especially if your investments are making more than the debt is costing you. - Jerkbot, on 10/12/2007, -1/+4@n8r0n
"There are some exceptions, a mortgage is one of them."
I agree. Therefore "debt free" is a little miss leading. It would be more accurate to say live "bad debt free". Credit cards (within reason), payday loans, loan sharks, etc... - n8r0n, on 10/12/2007, -1/+4@iamnos
By paying off my mortgage early it allows me to place more money into my investments. The money I was using to pay off my mortgage would be used to fully fund all my investment accounts. There is nothing wrong with choosing to pay off a mortgage early, a home is an investment. - TheSavageNation, on 10/12/2007, -2/+3I love Dave Ramsey. He woke me up about 4 years ago. Now I am living debt free, with lots of reserves. Anyways, mostly likely the people talking about debt as being necessary and good are mostly likely either very young or in lots of debt.
- TheSavageNation, on 10/12/2007, -1/+5@iamnos
Your idea is good in theory, but it hardly works. I'd rather have a paid off house and less to worry about than to try to beat the market with money borrowed from a bank. Actually, if you are so good at that, and it's so easy, why don't you borrow as much money as you can from friends, families, and banks and go invest it? There are some talented people that can do it, but most people will be better off living without the debts. - iamnos, on 10/12/2007, -1/+1@TheSavageNation
Its a simple question of risk vs. reward. If I borrowed all the money I could, and market crashes, I'm screwed. My credit will be maxed out and I'll have no assets.
Where I am right now, housing is a great investment. If I were to sell my house right now for market value, pay off the existing mortgage, subtract the mortgage payments and property tax I've paid since we moved in, I'd be about even. That's right, that means over the last 6 years, overall, housing for my family, has cost me $0.
Had I not taken out a mortgage, and decided to rent for the last 6 years, I wouldn't even be close to zero. Around here, a decent two bedroom apartment would have cost at least $800/month. I'd be down somewhere around $57,600, and that's not including any interest.
For those of you quoting Ramsey, you might want to pay more attention, as he does not consider a mortgage to be debt. Why? Because its secured, and generally, is expected to appreciate in value. While he does mention that the deduction for the interest on a mortgage is not enough to counteract the mortgage itself, you're still better off in today's market to invest that money, even in low risk, low return investments, than to try and pay off your mortgage faster. If you're drowning in debt, this may not be the best idea, but if your debt is very manageable, than your better off planning long term, rather than short term. - siszam, on 10/12/2007, -2/+4Living debt free is being dugg down and people think you are more likely to have your identity stolen if you don't have cards than if you do have cards? Man, this whole generation has been brainwashed by Visa, Mastercard and Amercan Express. I guess it will take another Great Depression to teach people to live within their means and spend less then they make. That's sad. It's so good to wake everyday and know you are not a slave to another. Think how rich you can be when you stop giving all your money away.
- argoff, on 10/12/2007, -4/+3I can't believe all the people who buried him for saying not to go into debt. 1st, if you can't afford things without debt, then you certainly cant afford things with it and the interest charges. 2nd, paying rent to a landlord isn't as bad as paying interest to a banker. Also, equity is never guaranteed by the market and being in debt for a 15-30 year mortgage provides less security than renting. BTW, equity is a poor investment. The same forces that always push up equity are always guaranteed to push up other markets even more. Also, if stocks start to look bad, you can unload them in an hour, but if housing goes down you are stuck and screwed.
As for credit scores, I have none. That's right none. You should see the shock that people have when the page comes up blank - their first instinct is to think there is some kind of mistake. But the funny thing is, is that 6-21% that goes into interest for other people goes into additional savings for me. And with that kind of money in savings, I have never been turned down for any purchase ever. Not that I care. Anything other than a house I can afford cash, and as for housing it's really not a good nor rational investment right now. Currently, people would be well advised to get out of housing even at a loss, and buy gold and silver like it's doomsday.
- acoustech, on 10/12/2007, -9/+0Yah just live debt free. We were born into families without debt anyway right?
- n8r0n, on 10/12/2007, -15/+11Just because the family you were born into has debt does not mean you need to have debt.
Just pick up one of Dave Ramsey's books or listen to his radio show.
Debt is for suckers. - netdawg, on 10/12/2007, -7/+12@n8r0n
You're either naive or simple minded I'm not sure which. - n8r0n, on 10/12/2007, -8/+7@netdawg
What exactly make me naive or simple minded? It is entirely possible for everyone in this nation to live debt free, unfortunately we are a society that loves to spend and too many people spend beyond their means. - Homunculiheaded, on 10/12/2007, -2/+7n8ron managed debt is just a part of the any finanical process and is all about a process of calculated risks and gains. As someone mentioned before it makes more sense to buy a house with debt than it does to pay rent for 20 years and then purchase a house, because the rent is not an investment. Same goes with student loans, If 30k debt for student loans will increase your salary over 20k a year and in interest you pay on your loans over 5 years is 5k (just guesstimates here) that debt was worth it, alternatively if you had to save for even only 4 years to go to shcoolyou're not going to make up the difference you would have earned because you're not making the 20k a year you would have otherwise.
If you have a credit card and you pay it off everyone month this is a great thing because essentially the credit card company is lending you money, without interest, for 30 days.
Managed debt is part of all financial practices, heck your bank borrows money from you to pay for the loans it makes to other people (where do you think the interest on savings accounts come from?). - n8r0n, on 10/12/2007, -10/+3@ Homunculiheaded
Debt is bad no matter how you look at it. Why let your money go to a credit card every month because you decided to buy a bunch of things you most likely did not need? Let that money be used to make you more money, invest it. Why rack up student loans to go to college? Suck it up and get a job in the summers and deliver pizzas at night. Don't let Sally Mae dictate where your new salary goes after college. Instead of worrying about needing to pay off your student loans after graduation you can invest your new salary.
I never said it was better to rent and save your money to buy a house with cash, if you read my above posts you will see that I said you should choose your mortgage wisely and make sure it is something you can afford. - MrOrange49, on 10/12/2007, -1/+9@n8r0n
you have to understand what Homunculiheaded is saying. I do this. Almost everything, virtually everything i buy each month goes on a AMEX, then when the bill comes in i pay it off. No interest, no fees. I get to use someone elses money free for 30 days while my money is sitting in an account earning almost 5% interest until i have to pay the amex bill.
It's not debt that is bad, its not knowing how to manage it thats bad. - kliewer, on 10/12/2007, -2/+9@n8r0n
If you think delivering pizza will pay for college these days you are sadly mistaken. - OsiVert, on 10/12/2007, -3/+1@n8ron
"because you decided to buy a bunch of things you most likely did not need" - mcduckov, on 10/12/2007, -2/+1My credit card pays me a decent amount of money for the honor of loaning me their money. 5% cashback on gas, pharmacy, and grocery purchases and 1% on everything else. Oh, Chase Rewards is the card if that sounds good to you. I doubt they give it to any Joe, my FICO is 760.
- n8r0n, on 10/12/2007, -6/+3That's great, but you never hear a millionaire saying that they made all their money on cash back rewards from their credit cards.
- Otto, on 10/12/2007, -2/+7@n8r0n: True, but you'll also never hear a millionaire tell you to live debt free. People with serious bank know how to manage debt properly.
As it is, I use my AMEX for everything I buy (which is admittedly mostly just food) and get cash back on it. Doesn't cost me a dime, since I pay it off. Okay, so the cash back is very small, it's still better than nothing and if you consider the extra time my money earns me cash from interest bearing accounts, it's even better.
There's nothing inherently wrong with debt as long as you actually think of it as borrowed money that must be repaid, at all times.
- n8r0n, on 10/12/2007, -15/+11Just because the family you were born into has debt does not mean you need to have debt.
- thcobbs, on 10/12/2007, -1/+5I could be wrong about this, but I think the military checks your credit score(especially for officer candidates) and so do some companies.
It can be used as a gauge on your reliability (paying bills on time, etc.)- n8r0n, on 10/12/2007, -1/+4Yes many places check your credit for employment purposes, but if you do not have debt there you can easily explain this to them. Trust me, I have had to.
- weizilla, on 10/12/2007, -0/+5I think most places check your credit history with a credit report, not your credit score
- neoform, on 10/12/2007, -2/+7you think the military would turn someone down given it's current lack of soliders....? hah.
- thcobbs, on 10/12/2007, -1/+2@neoform
If that person has a massive debt and criminal record, they'd do it in a heartbeat. - hilbertspaceboy, on 10/12/2007, -3/+0The military is recruiting people off street corners.
I'm sure they are not concerned about credit scores.
LOL - Pyrogen, on 10/12/2007, -0/+2The military, law enforcement, retail, and banking industries care about 'patterns of fiscal irresponsibility." They look into your credit report and formulate their own "score," using companies like Checkpoint, to determine if you are useful or not.
- majortom1981, on 10/12/2007, -2/+3Some employers also check your credit history when you apply for a job.
- goodness0001, on 10/12/2007, -3/+3A high credit score means that you could be borrowed out to the hilt, but you have never missed a payment. I think someone who has no debt and a stable income should have a 1000 on their credit score, not 0.
- Homunculiheaded, on 10/12/2007, -2/+7execpt that the the agency lending you money is trying to assess the risk in this practice. You can have a great income, and be excellent at staying out of debt but still be horrible at paying back any debt you have. That's like saying that someone must be a perfect driver because they have no record of every having any sort of driving violation even though they've never actually been inside of a car.
Just because you're good and earning money, and good at saving money doesn't mean you're good at handling debt. - MrOrange49, on 10/12/2007, -2/+6@Homunculiheaded
I couldn't of said it better myself. I don't know why its so hard for people understand this.
If you have never borrowed anything how are companies suppose to be able to judge how you will do when borrow money and need to pay it back? - n8r0n, on 10/12/2007, -10/+4@Homunculiheaded & MrOrange49
if you live a debt free lifestyle and save/invest your earnings appropirately you will never need to get a loan and you will never need to worry about what your score is. - MrOrange49, on 10/12/2007, -2/+7@ n8r0n
That is completely insane. Never have to get a loan? Ok, yes its possible, smart? Hell no. What are you going to do when you want a home? Rent your whole life (not smart), save long enough to pay cash? not unless you make a lot of money or buy something insanely cheap. Buy the time you saved the money for a home look at all the money you threw away.
wait one more option i guess.. you could build the house as you go, buy some lumber this month, then some electrical wire the next so on and so on.
come on we are not in the 17 or 1800's where people hand built their own homes from stuff on their land. - n8r0n, on 10/12/2007, -7/+3@MrOrange49
Have you ever heard of manual underwriting? They do not look at your credit score/history when you get a mortgage this way. - MrOrange49, on 10/12/2007, -1/+6@n8r0n
There are many programs out there that are not credit score driven. However all lenders look at you credit history whether it is tradition credit(credit cards, loans, etc) or non-traditional credit (ie, stuff not shown on a credit report). Your views/knowledge on manual underwrite are inaccurate. It is done often, however there must be compensating factors for example large sums of money in reserve, large down payments etcetera. And even then programs that dont look at traditional credit or your credit score are much more limited and generally carry a higher interest rate than programs that do look at your credit score/history. Its all about risk for the people lending you the money. There is credit risk involved with a person that has not established a strong credit file. period.
Trust me, this is my field, its what i do. - n8r0n, on 10/12/2007, -8/+4@MrOrange49
No wonder you are so against the whole idea of a debt free lifestyle and no getting loans. You claim that "this is your field" if it wasn't for people with debt you would not have a job. I understand your take on the subject now, job security is a big factor if you are not living a debt free lifestyle. - MrOrange49, on 10/12/2007, -1/+4n8r0n
we are definitely going to have to have to agree to disagree here. It's not about me making a living, and i'm definitely not against a debt free lifestyle.
As I said earlier its about knowing how to manage debt. The only point i'm trying to make is that in todays age having good credit and knowing how to manage it will help you and save you money. and to do that you have borrower money.
Tell me how a single mother making 25k a year is suppose to pay cash for a house? or imagine how hard it is for that person to save a large downpayment or how long it will take? Whereas that same person could have a couple of small credit cards buy necessities each with them and pay them off and then be able to get a great mortgage and borrower all the way up to 100% if the need be (not that i'm recommending 100% financing). for the 600-800 a month that person is paying in rent they could be owning a home, plus have another nice tax deduction.
There is a difference in living debt free and being wise about borrowing money. The fact is act some point or another 95% of the population will need to borrow money for something and having a good credit history will make it alot easier when they do.
borrower money is not bad, doing it foolishly is. there is a differnce
- Homunculiheaded, on 10/12/2007, -2/+7execpt that the the agency lending you money is trying to assess the risk in this practice. You can have a great income, and be excellent at staying out of debt but still be horrible at paying back any debt you have. That's like saying that someone must be a perfect driver because they have no record of every having any sort of driving violation even though they've never actually been inside of a car.
- aussia, on 10/12/2007, -1/+2I also found out (or at least in Canada) that you need more than one source of credit-- so just having one credit card and paying it off in full every month isn't good enough, they want more than one reference.
- TheBowerbird, on 10/12/2007, -2/+3Here's to hoping that http://www.duggmirror.com caught it.
- chrisinsocalif, on 10/12/2007, -5/+0I tried to improve my credit score by not paying my bills.
- shibainu, on 10/12/2007, -3/+0i took a student loan out to go to spring break!
- spickly, on 10/12/2007, -1/+1i actually found this article to be helpful, seeing as i've currently been trying to raise my credit score. this brought one or two things to my attention that i really hadn't thought about before.
- netdawg, on 10/12/2007, -4/+5@n8r0n
Maybe it's "possible" in your world, but the real world's economy RUNS on credit(debt). Always has and always will.- n8r0n, on 10/12/2007, -6/+5It only runs on credit and debt because we allow it. Live on less than you make and stop buying things you don't need or cannot afford.
- iamnos, on 10/12/2007, -1/+3@n8r0n
Not all debt is bad debt. You seem to think that everything outside of a mortgage is a "bad thing". Well, as numerous others have pointed out, student loans are generally a good debt. The thing is, debt has to be managed, and managed well.
If everyone took the advice you are offering, the housing market would crash, there'd be very few college graduates under the age of 40. Have you actually tried paying for school by working the jobs you can get while in school? I did, and was making more that most of my friends. I was still about $10,000/year shy of what schooling and associated expenses were costing me. Should I have waited ten years to go to school till I saved up enough?
Sure, buying a brand new car isn't a great financial decision, but most of us at least try to balance what we want, with what we can afford. I'm probably going to buy a next-to-new vehicle next year, and yes, I will be going into debt to buy it. However, at 0% or possibly 0.9% financing, and a budget that allows the payment while continuing to put money away every month, is not a bad thing. - n8r0n, on 10/12/2007, -1/+6So why not buy a used car for a few thousand dollars and save all the money you would have spent on car payments. Saving and investing that money will allow you to buy nicer cars down the road, without ever needing a loan.
- Otto, on 10/12/2007, -2/+3>>>"It only runs on credit and debt because we allow it. Live on less than you make and stop buying things you don't need or cannot afford."
This has nothing to do with "debt". Just because you have and use credit cards does not equate to living outside your means. The two are wholly unrelated, and Dave Ramsey's silly nonsense keeps making you think otherwise. Think for yourself for a change. It's entirely possible to use credit and debt properly.
>>>"So why not buy a used car for a few thousand dollars and save all the money you would have spent on car payments. Saving and investing that money will allow you to buy nicer cars down the road, without ever needing a loan."
Because then you would have to drive a cheap used car for a few years. Properly done, there's no reason you cannot buy a nicer car at a good deal with an affordable price. The fact that you need a loan to do it is not necessarily a bad thing, you simply have to know how to manage the loan properly and to understand risk vs. return.
Basically, you're saying that all risk is bad, which is just plain ignorance. - siszam, on 10/12/2007, -2/+2Only because there will always be people who won't live within their means and lack self control. They want things that they can't afford and they want it NOW. Like children. Adults should work for and wait for what they want.
- biv2k, on 10/12/2007, -1/+2Your moms quarterly utility bill? That's credit.
Would you like to pay higher rates *and* have to go to the store to load up a pre payment card for electric?
Thought not. Debt isn't all bad.
- CobaltBlue, on 10/12/2007, -2/+1@spickly
Raising your credit score quickly is difficult. The best course of action is to sit tight and make all your payments on time. If you don't have any major derogitories like bankruptcy, liens, judgments or collections then your score will go up quickly. I work in the financial industry and see scores go up more than 200 points in 2 years following this advice. Also, any derogs will drop off eventually. Remember, anything over 740 is just icing on the cake and anything over 680 will qualify you for most loans. - pidge, on 10/12/2007, -1/+2One thing you can try is to challenge your marks after a while. If you challenge it, they have to prove with documents that you defaulted on your payments. After a few years, these documents tend to get lost so if they can't prove it, its off of your records.
- biv2k, on 10/12/2007, -0/+1pidge speaks truth, make it difficult for companies to prove it and they can be removed.
- netdawg, on 10/12/2007, -5/+2@n8r0n
Absolutely correct and it would be wonderful. And maybe too we could have world peace and harmony in the universe. But back in reality "we" will always allow debt and "we" will NEVER live on less than "we" make. Not individuals and not governments. I'm sorry if you don't like it, but if you think seriously that it can be changed, then I stand by my original comment. - alextiming, on 10/12/2007, -4/+3The FICO Battle: Ten Common Tactical Mistakes When Dealing With The Credit Score Blues
When people discover a problem with their credit score, they often act rashly, doing things that seem as though they would improve your credit, but actually damage a credit score. Before we get into the ten mistakes to avoid, let’s first look at what makes up one’s credit score, as defined by Fair Isaac (http://www.fairisaac.com/):
Although the exact formulas for calculating credit scores are closely guarded secrets, Fair Isaac has disclosed the following components and the approximate weighted contribution of each:
35%,- punctuality of payment in the past (only includes payments later than 30 days past due) 30% - the amount of debt, expressed as the ratio of current revolving debt (credit card balances, etc.) to total available revolving credit (credit limits) 15% - length of credit history 10% - types of credit used (installment, revolving, consumer finance) 10% - recent search for credit and/or amount of credit obtained recently
Mistake #1: Cancelling old credit cards. 15% of your credit score comes from the length of your credit history. Thus, cancelling your oldest credit card can often be a mistake. Also, if you have balances on other cards, cancelling an old credit card can also worsen your debt ratio, which makes up 30% of your score. If you don’t have other sources of credit that are older than seven years, you should not cancel your oldest credit card.
Mistake #2: Staying current on “most” of your cards. 35% of your score focuses on punctuality of payment, with only payments that are more than thirty days late affecting your score. If you’re going to be late on any cards, make up that payment before it’s thirty days late. Don’t keep up with all but one or two of your cards and let those go later and later; instead, juggle the cards a bit if you have to, but make sure you are not too late on any one card.
Mistake #3: Having too many open lines of credit. 10% of your score comes from the types of credit used. If you have a lot of sources of revolving credit (i.e., credit cards), you can be seen as a credit risk because you have the potential of racking up a lot of debt very quickly. Don’t open store credit cards just to get a discount, and if you have any recent store cards, cancel them once they’re paid off.
Mistake #4: Maxing out your cards. 30% of your score comes from the ratio of your credit card debt and your credit limits. Thus, if all of your cards are maxed out, your credit score is suffering even if you’re keeping up with the payments. Instead of charging and buying more and more, focus on paying down the cards with extra payments.
Mistake #5: Avoiding loans and debts. In the eyes of your credit report, no debt is effectively bad debt. If you’re a credit card teetotaler, you should still consider getting one and making an occasional purchase with it. I have a friend who has one credit card which is associated with his gas station chain of choice. He uses it just for gas purchases, racks up discounts on it, pays it off in full each month, and it helps him maintain a solid credit score in case he needs a loan.
Mistake #6: Requesting a credit limit reduction. Some people believe that they have too much credit and that they’re better off with a credit limit reduction. In fact, the only significant effect a limit reduction has on your credit score is a negative effect on your debt ratio. Only get a limit reduction if it has a huge psychological value for you; otherwise, it will hurt your credit score.
Mistake #7: Utilizing the first credit counseling service you hear about. Quite often, the ones that advertise the most are the ones that do the shoddiest job. Use the FTC’s advice (http://www.ftc.gov/bcp/conline/pubs/credit/fiscal.htm) and find a reputable credit counseling service in your area. Call several of them from the yellow pages and ask the questions from the FTC page to find ones that seem legitimate, then check with the Better Business Bureau before moving forward. Remember, your credit score will affect many of your financial moves for years, so don’t skimp out on your research if you’re thinking of using a counseling service.
Mistake #8: Declaring bankruptcy. Many people go forward with bankruptcy because they believe it’s the only way out. Instead of taking such a drastic measure, seek counseling first with one of the more legitimate sources mentioned above. Bankruptcy can really decimate your credit score for a very long time. Quite often, there are better solutions, such as negotiating with creditors and so forth.
Mistake #9: Practicing credit card arbitrage (http://www.thesimpledollar.com/2006/11/08/introductory-credit-card-offers-as-profit-risks-and-rewards/). This game can seriously damage your credit score if you’re not an expert. Shy away unless you’re financially stable and know exactly what you’re doing; if you make a mis-step, your credit score could easily be demolished.
Mistake #10: Never checking your credit report. Most people who behave well with their credit just assume that their credit is fine, but sometimes incorrect things can show up on your report. Visit http://www.annualcreditreport.com/ to get the free report that the United States government guarantees you from the three major agencies. Don’t go to freecreditreport.com; it’s a rip-off (http://www.thesimpledollar.com/2007/01/03/freecreditreportcom-is-ripping-you-off/). - juniorcosmonaut, on 10/12/2007, -0/+3I actually used that freecreditreport.com monthly service for a while because i had reason to worry about identity theft and was also in the process of getting an auto loan, they charged $12.95/month to monitor your credit score - so anyways after using it for a few months without any major changes I called to cancel it and was then offered to have it for only $4.65/month, where was that offer before? They just try to keep you on the hook for as long as possible at the high rate and don't let you know you could get it cheaper unless you go to cancel it!
A-holes! - FastBu, on 10/12/2007, -2/+3@n8r0n
I'm not sure what you are referring to when you say "manual underwrite, " but a manually underwritten mortgage ABSOLUTELY needs a credit score. Manual underwrite refers to any and all loans underwritten with guidelines determined by a lender as opposed to guidelines set forth by fannie mae.- n8r0n, on 10/12/2007, -2/+2"Manual underwrite refers to any and all loans underwritten with guidelines determined by a lender as opposed to guidelines set forth by fannie mae. "
Yes, and the lender determines if they need to review the credit score or not. - FastBu, on 10/12/2007, -0/+3I don't know of any direct lenders who lend hundreds of thousands of dollars without assessing whether or not the client has any payment history. That being said, a manually underwritten loan still requires a credit score. I don't know if you own a home or have a mortgage, but it would be interesting to know where you could get one without a credit score.
- siszam, on 10/12/2007, -3/+2Fastbu, Churchill mortgage does manual underwriting. http://www.churchillmortgage.com/
- n8r0n, on 10/12/2007, -2/+2"Manual underwrite refers to any and all loans underwritten with guidelines determined by a lender as opposed to guidelines set forth by fannie mae. "
- Bi11D0, on 10/12/2007, -2/+7I love these kinds of diggs the most because it makes me realize just how many other people know about Ramsey and that I'm not the only FPU crazed person out there. I started listening to Dave Ramsey in March of 2004. My wife and I had maybe a couple hundred dollars in the bank. We both had student and car loans with 2-3 credit cards a piece and we'd only been married for maybe 6 months. In April of 04 we cut up the credit cards and started on the baby steps. In 2005 we enrolled in FPU and in the fall went and saw Dave live when he came to our hometown, Grand Rapids MI. We REALLY got even more "gazelle intense" in 2005 because we had a new goal in mind. On Saturday Oct 22nd when Dave came to the Delta Plex to do the Total Money Makeover LIVE event, it also was the day we paid off our last debt. WE WERE DEBT FREE !!! My wife and I are DINKS (dual income, no kids) and it took us 18 months to pay off alittle over $30,000 in debt. In 2006 we worked on baby step number 3, fully funding our emergency fund of 3-6 months of expenses and finally going on a honeymoon/vacation that we TOTALLY deserved. So for my wife's birthday (12/25) and Christmas present I took her on a cruise through the caribbean. We're 26/27 years old, 100% debt free, fully funded emergency fund, maxing out Roth IRA's and doing the 401K matching at work and it feels GREAT !!! I do lawn care for a living in MI and my wife is in sales. We're not rich by any means and those 18 months were awful but if you wanna be debt free it can be done. It just all depends on how bad you want it.
- n8r0n, on 10/12/2007, -2/+6It is nice to see fellow diggers into Dave Ramsey as well, but it seems that those who love debt keep digging us down. Perhaps out of jelousy.
- dorthensensens, on 10/12/2007, -1/+3n8r0n, you're taking a lot of flack but I agree with you and practice the same ideology. Live below your means, pay off your highest interest debt. If that highest interest debt happens to be your mortgage, so be it.
- neeyo, on 10/12/2007, -1/+2"We're 26/27 years old, 100% debt free"
I am not bashing you by any means, but to correctly say "debt free" you must own your home (not rent) and have no mortgage. I don't think this has happened to you by age 26, but congrats on the other stuff. If only there were more people like you in the world.
- Bi11D0, on 10/12/2007, -3/+4n8r0n, thats why anyone that has anything to do with Ramsey in their replies I've been digging up. Gotta spread the message somehow
- krark, on 10/12/2007, -1/+1You can live without debt, but personal finance education doesn't teach people how to do it until they're already well in debt, and thus debt is seen as the norm in America. That's why Ramsey has so many followers - he's very effective at jumping in at that point and teaching people personal finance basics. If America had its priorities straight, Ramsey's messages would be taught over and over again in the public school system.
- biv2k, on 10/12/2007, -0/+2For those in the UK with debt - credit counseling companies typically charge a hefty amount for their services - typically 15%, and most of the lesser known companies do hideous jobs of composing financial statements. You can get credit counseling for *free* from the Consumer Credit Counselling Service http://www.cccs.co.uk/ - (Not advertising - It's a charity and I'm speaking from experience as the person who receives their offers). They do an excellent job.
- BOTW, on 10/12/2007, -1/+7I am down with living within your means, but many of the pro-Ramsey commenters reminds me of the fringe party supporters who are always yelling at people outside of my DC office. Stridency doesn't make for the most convincing arguments.
Please come to grip with the fact that sensible use of debt makes economic sense. Debt may not be for everyone, but use of leverage can drastically increase your earning power, without putting you on the road to financial ruin.- EasyEve, on 10/12/2007, -2/+0Okay the first paragraph, maybe I was too dumb to understand, but when I read the second one the Cali girl came out in me and I thought to myself:
"LIKE TOTALLY!!!"
;-)
- EasyEve, on 10/12/2007, -2/+0Okay the first paragraph, maybe I was too dumb to understand, but when I read the second one the Cali girl came out in me and I thought to myself:
- EasyEve, on 10/12/2007, -0/+1Okay so of all those on the list, the only one I really cared about was not canceling old cards.
Maybe I just have good credit?- krark, on 10/12/2007, -1/+1You're one of the more sensible people out there. A lot of people have no idea how to manage their finances.
- ryanjames, on 10/12/2007, -0/+1Are there any free credit reports out there for Canada?
- rpong1981, on 10/12/2007, -0/+0The Fair Issac Corporation (FICO) will be providing a Forum of which people can obtain information directly from the company which provides the mathmatical algorithm to calculate your FICO score. Look out for a Forum in the near future on their webpage
- Qtip, on 10/12/2007, -1/+0When you need more than just advice on what credit card is best, go to www.infinitecredit.com Sue the living crap out the collection agencies!
- donky4444, on 10/12/2007, -0/+0I went to go see Dave Ramsey in person today at the Deltaplex in Grand Rapids MI. What a rip off. They over sold tickets, people were sitting on the floor with no chairs. There was not enough parking in the parking lot of the Deltaplex so there were hundreds of cars parked in area business parking lots for blocks. When we took our first break they announced that anybody parked in an area business parking lot would be towed if they didn't move their cars. We asked workers and even a local police officer where we can park and we were told that there wasn't any place to park in the area that you wouldn't be towed from. We asked for refunds and they only said that they don't refund ticket sales. So there were hundreds of people that had to leave after hearing just 1 hour of Dave. Any good Christian person would have made sure that there was ample parking and seats at a location before holding an event there. This leaves a very bad taste in my mouth and I am sure that I am not the only one that feels they were conned out of the price of admission.
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