I am a Loan Officer and have to deny people for mortgages all the time due to bad credit. For the MOST part, bad credit is a result of people being careless, shortsighted or downright stupid.
I just denied a loan because this idiot forgot to make a $12 Target payment - went from a 645 down to 595 in one month for ONE 30 day late. OOOOOOPS! Sorry, you can’t get a HOUSE now!
Here are a few things that I’VE OBSERVED that the people with the BEST credit scores (above 780) have in common:
They have long standing tradelines of 60+ months. They don’t hop from account to account chasing a “better introductory APR”. They open quality accounts and they keep them open for years.
They pay above the minimum balance every month. Usually they pay their cards off every month, but if it’s a substantial purchase, they pay it off in less than six months.
They don’t have “bullshit” cards (Target, Macy’s, gas cards, Victoria Secrets, etc… pretty much anything will a low limit and a high interest rate).
They have well established cards: American Express, Visa, Mastercard, (I don’t see many Discover cards with these folks for some reason). These cards usually have credit limits between Ten and Thirty thousand dollars. The balances they carry (if at all) are less than 30% of the high credit limit.
They have 15 year mortgages.
They choose 3 or 4 year car loans (assuming they don’t pay for their cars with cash).
They don’t have any late payments (or if they do, it’s like one thirty day late from ten years ago or something)
They don’t have any bankruptcies, collections or judgments.
They don’t have any accounts closed due to dispute.
They TEND to be married and have stable, professional jobs.
That’s what I’VE observed.
Well, what do you do if you’ve already fucked up your credit? First of all, analyze your position. If you are trying to buy a house or a car, it’s NOT the time to start fucking with things EXCEPT under the direction of your lender. If you have a decent score, leave it alone. Here’s why: it would SEEM like the “right” thing to do when applying for credit is to do whatever you can to “fix” what you PERCEIVE to be a problem, right? WRONG. If you have a few collections that are old - even if they are small, stupid medical collections, LEAVE THEM ALONE. With COLLECTIONS, the algorithms pick up the DATE OF LAST ACTIVITY and count it against you! It’s retarded, but I see people tank their scores all the time by trying to pay shit off.
Another thing if you are trying to buy a house: DON’T go out and buy a car! Or furniture, or do ANYTHING that could alter your score until AFTER settlement on the house. I’ve seen plenty of people fuck themselves because they thought it was in the bag. Technically, ANY change to the credit profile will send the loan back to underwriting and could affect your approval. If the DTI (debt to income ratio) passes a certain threshold, the loan is dead.
A quick and easy way to add points to your score is to become an authorized used on someone ELSE’S credit card. (make sure the credit card has a low balance and a good payment history though!). If you add two or three established tradelines to your credit history, you can bump your score up by 50 or 60 points in less than a month.
You can also ask your loan officer to have your “non-traditional” tradelines added to your credit report (again, assuming that you’ve paid them ON TIME) These would include rental payments, utilities, cell phone payments, cable, etc… They CAN be scored and help put something positive on your credit report.
Another trick is to go on to the repository websites (equifax, experion, and transunion) and create an account and just log in and DISPUTE EVERYTHING on your report that’s negative. It’s free for two of them and I think either eqifax or experion charges something like $9.95 each time you do it. Do it once a month or so. Shit will start to drop off.
If your credit is MAJORLY fucked up and you are trying to clean it up, it’s true that you can pay your shit off for pennies on the dollar. The company doesn’t care, they’ve already written it off anyway so it’s actually a PROFIT for the current fiscal year for them so THAT’s your bargaining chip! These people are sharks and will act like they are doing you a favor - FUCK THEM, you are doing THEM a favor. So when you negotiate the payoff, NEGOTIATE THE REPORTING RIGHTS! That’s right, you can actually NEGOTIATE THAT SHIT RIGHT OFF YOUR REPORT! (assuming YOU don’t report yourself! LOL). Offer an extra few cents on the dollar for the reporting rights - they’ll jump right on it. They don’t care about your score, they care about THEIR MONEY!
In the gray area of credit repair EVERYTHING IS NEGOTIABLE. Remember that.
To reiterate what Prof X said, Take care of your credit. In this day and age it is being considered by potential employers, even potential SPOUSES! It is really becoming a measure of how responsible you are. My advice is to NOT use credit unless you absolutely have to. Establish it early by becoming an authorized user on one of your parents cards (you don’t even have to have a physical card given to you or even know the account number…) Stay away from getting too many smaller bullshit cards because those minimum payments add up and if you forget to pay one, you’ve just fucked yourself. If you are having trouble establishing credit, go to your bank and start a “secure credit account”. Basically, you put a few hundred bucks into an account and leave it there and THAT’S your “credit”. After a few months of a good payment history (i.e. paying it off every month), the bank SHOULD issue you a real credit card. This is a FAR better alternative than a department store card! It is at your bank, there is a human to talk to, etc… there are many advantages to this.
Another tip is to cultivate a good relationship with your banker! Seriously. It will pay dividends over the years.
Alright, that’s all I got for now. If I can think of anything else I’ll throw it out there. Great thread idea, Prof X!