I spend most of my work week either selling homes, listing homes or helping people repair their credit in order get them into a position to buy a house. I also do financial consulting on the side. So if you follow me on Medium, you will notice I am usually joking around and writing humorous articles. But this time I thought I would actually lay out some helpful advice.
I learned about credit the hard way as many of us did that came from my generation. In school, they taught us how to make a good apple turnover, but not how to balance a checkbook. I turned eighteen, ran up a bunch of credit, and didn’t pay it off. What was the worst that could happen? Throw in a couple of bad marriages and I was prime bad credit candidate number one.
Luckily for me, and my children, I got my act together and figured out some tricks to make repairing credit easier than we think it is. Like anything else, there is a method to it. It is still a lot easier to ruin credit than it is to fix it, though.
There is a rumor that all debt falls off your credit after seven years and while some debts do fall off (and some don’t), one debt in particular never goes away. So please make sure your children know this before they get way more student loans than they need. Student loans do not ever fall off of your credit. It is extremely rare to have them forgiven. They are a government backed loan and as we all know the government is going to get theirs. Nonpayment of student loans will keep you from buying a house, even if your student loan is 35 years old. So first and foremost, pay your taxes and your student loans.
Reduce your debt to income ratio by only having one or two credit cards. Make the minimum monthly payment on all of these credit cards except for the one you owe the least amount of money on. Pay as much as you can on that one alone, the minimum only on all of the others, until it is paid off and then do the same for the next smallest one. This is called the snowball method.
You can pay them off according to the smallest amount or the highest interest rate. The highest interest-rate would be preferable, but if you don’t have access to that information or don’t want to spend the time to find it then just pay off the smallest amount first.
If you don’t have any open credit cards and still have a bad or low credit score, take $300 and go open a secured credit card with your bank. Do not open a secured credit card with a lender that is offering you a 47% interest rate!
Once you have opened your secured credit card, go make a purchase of $100 or so and then wait for the bill to come in. Once the bill comes in pay above what is due but do not pay it off. You want to make at least three monthly payments so it can reflect well on your credit score. You want to pay above the minimum payment to knock off some of the interest.
Do this every month until it is paid off. Please be aware that at the beginning, right after opening this new account, your credit score may dip before rising. This is normal. After that, you will see a steady rise as long as you make your payments on time.
Think of the due date as the date you will lose points on your credit rating. Make sure that your payment gets there way before then. Allow for the mailman to be late or the post to get stuck in a pile on someone’s desk. In a perfect world, you would pay the bill online immediately upon receipt, but we all know that just is not feasible with debts and children and other bills. So just make sure you pay it before the due date.
I could write ten more articles on how to pay off collections, how to dispute collections, etc. I will keep this brief and just say use the snowball method mentioned above and pay off the most recent debt first and then refine that group to pay off the smallest balance.
Paying off old debt is not fun, but seeing that credit score rise is. And in today’s world, good credit will get you a lot further than just a nicer pair of shoes. Be diligent and you will reap the rewards sooner than you think.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decision