Hey all! Michelle is back for the 3rd installment of How to Fix Your Credit the Bad Ass Way! This week she’s giving us some pointers on Credit Cards & Installment Loans (why you need a credit card, and how to use it responsibly!) But also the next step in the process of fixing that bad credit! If you need to catch up! Here’s Part One and Part Two!
Now that you have successfully sent your letters, certified with a return signature requested, you should be receiving the green signature card back, probably with a stamped signature on it. Save these! You may need them if the process goes past simple negotiations. The collection agencies now have 30 days to get you what you requested – proof! It’s a waiting game!
So while we’re waiting for those pesky letters to arrive in our mailboxes, let’s talk a little bit about credit cards and loans and how they can HELP your credit score! Then we’ll get back to the letters and our next steps!
I knew nothing about credit when I was younger especially how it is calculated. I was raised to not have debt – not to pull credit, unless it is absolutely necessary. Learning that when you drive a vehicle off the lot it goes down in value I have always had the mindset that cash is a more cost efficient way of paying for things, which it is, but when it comes to your credit paying cash for everything actually can harm your score.
Your score is compiled of a lot of different factors like the amount of time you’ve had a credit report, the amount of time you have been in a relationship with a creditor and your debt to credit ratio. It is always a good idea to have an installment loan and a revolving account on your credit at all times. The longer your history the better; creditors don’t like to see you switching from different credit card companies every few months so balance transfers are not always good idea – paying for one credit card debt with another one won’t do you any justice. Did you know your credit score is 30% revolving debt (credit cards!)? I did not know this and I was very against credit cards. As I said before I got into some trouble with one but I knew in order for my score to climb, I needed one – it was absolutely necessary.
Having that self-control!
For those of you who don’t have a credit card and don’t want one think of it as a tool – a necessary credit tool. For those of you who do have one, you should be using it as a credit building tool and nothing more. It is a tool to bring up and/or maintain your score. Do not use it to buy that 70” TV you’ve always wanted to or that pair of Louboutins. Never spend anything on it that you don’t have the cash up front to pay for. When spending on credit only and I mean only, spend 1-15% of the credit limit on the card at one time. This allows you to have a safe margin if your credit is pulled unexpected and it prevents you from spending too much and getting in way over your head in debt. When creditors pull your credit, it will show what your high balance was. If they see you spent 98% of your credit limit, it doesn’t always look good on your end. Always, always pay it off in full at the end of the month.
If you have a low score, there are credit cards out there to help you boost it. Some are secured cards and others like Credit One Bank may supply you with one without being secured.
Just to go over the basics:
- Have at least one credit card (preferably one that will give you some benefits in return).
- Only spend between 1-15% of the total credit limit at all times.
- Always pay it off in full each month.
- Use it each month – if you have say 3 cards it’s okay to use Card #1 in Jan., Card #2 in Feb., Card #3 in Mar., Card #1 in April… as long as they are all being used at some point. (When left collecting dust the creditor will choose to close them on you, which also is can be a negative.)
If you don’t have an installment loan, there are ways to get one. Most of us have a number of student loans that we don’t even want to think about but it is actually a benefit for your credit…as long as they are being paid on time or deferred, etc. Even though they are gaining interest, my student loans are in deferment showing they are on time and “paid as agreed” which is a plus in the credit world. Mortgages, car loans, student loans, that RV loan are all installment loans and are necessary for your credit to look good. When you go into the bank, the bank is going to be more willing to hand someone money that shows they can make payments on time, hence the history of an installment loan. If you do not have the credit for an installment loan, try a backwards CD or backwards loan. The bank never loans you money but you start making payments on a “loan” for a specific amount of time while they report your payments to the three credit bureaus. When the loan is up your money, minus interest, is typically found in a savings account where you can withdrawal it.
So remember! If you want to boost your score you need to be responsible with credit. Get a credit card and use it wisely. No shopping sprees! Installment loans are another way to help boost it if you can get approved, or go for a backwards loan/CD.
So now that we’ve learned a little bit about how to get good credit from the start, let’s get back to those letters. After 30 days you should either be receiving validation and proof of debt, or (lucky you!) You don’t get anything back!
So, did they properly validate your debt? If it is yours and they sent you confirmation, and by this I mean solid proof that it is your debt, I choose to just negotiate at this point. You can try to fight it further but it’s more wasted money in mail fees and more time it sits there on your report. So, if they did successfully validate your debt you can start into the negotiation process. Your goal is pay for deletion. A lot of debt collectors will tell you they cannot remove it, which is completely false. They put it on there – they can remove it. You can call at this point, or send a letter, whichever you are more comfortable with. Your first priority is to see if they will remove it from your report, if you pay the amount owed. If they are unwilling to remove this debt, it is already a negative so taking a settlement won’t make any difference. If you are able to get them to negotiate to what you want, or what you are willing to accept, request they send you the terms you both agreed upon in writing in the mail. Do not pay a dime until you receive this paper. Once you have received it and checked it over, you can send them the payment. The clock does not restart on your debt for another 7 years if you pay it off, it will continue on as normal from the date of first delinquency.
Remember when you spent $800 on a pair of Louboutin’s missed a few payments, got paid up and then missed another one? That 2nd date (February) is your Date of First Delinquency. We got that debt verified by the creditor and it’s about at the end of the Statute of Limitations (6 years in Michigan) Because after 7 years, things fall off your credit report. If in your negotiations, you get them to delete it prior, then yay you! But if not, it will still fall off after that 7th year.
Another key note on Date of First Delinquency:
The date of delinquency does not change. If you defaulted on a loan or credit card in 2010, and it gets sold to another company in 2014, regardless of when it got sold or who has the debt at the present time, that will no longer be reported on your credit report as of 2017. But remember, depending on your state’s laws, they may still have time to file a judgement against the you. In Illinois they have another 3 years to pursue the debt after it falls off your credit. Judgements can stay on your credit report longer than the actual delinquent account, so keep that in mind! And check your state’s laws about the statute of limitations!
If you did not receive a letter back within the 30-day time span, this is good news! Next step – the credit bureaus. You will want to write each one a letter about the collection agency not responding to your debt validation request and you are requesting removal of the item. You will have 3 letters total for each debt – one for Experian, one for TransUnion, and one for Equifax. This is where it may get a little costly at the post office. Be sure to send all of them certified with a return signature, like before. The credit bureaus also have 30 days to respond to your request. So once you send them a letter it’s a waiting game again. Most of the time you will get a response back to your letters in the form of a letter but sometimes you won’t get a response at all. This is where the credit monitoring website comes in handy. Pulling your report monthly allows you to see if they have updated your report as you have requested.
Need an example for the letter to send to the Credit Bureaus? Credit Bureau Sample Letter
Come back next week for the FINAL installment of How To Fix Your Credit the Bad Ass Way!
Are you liking this series? Would you like more of the same? Leave a comment below and let me know!!