is the ability to obtain goods and services without full payment, based
on trust that the obligation will be paid in full in the future. It is
the oil that greases your financial gears.
Having good credit is
critical if you’re thinking of buying a car, home or in some cases, even
applying for a job. Fortunately, in the wake of the financial meltdown
of 2008, Maryland passed legislation in 2011 that restricts employers
from using credit reports to deny a job to an applicant, terminate an
employee or set conditions of employment.
However, bad credit can adversely affect other aspects of your life. In this column, I’ll address ways you can repair your credit history
and lift your credit score – the snapshot of your financial life.
Your credit score
is calculated by the Fair Isaac Corporation - hence the term FICO – and
can be anywhere between 300 and 850. Most scores fall between 600 and
800, with excellent credit scoring 740 and higher. The good credit
reading falls between 700 and 739, a fair credit rating is between 660
and 699, while anything between 620 and 659 is considered uncertain. If
your credit score falls under 620, you are considered “sub-prime”, a
poor credit risk and will be penalized with higher interest rates or not
given credit at all.
When calculating your credit score, payment
history is the most important variable. Creditors want to see a
history of on-time payments. If you are late on payments, it hurts
your score. If you are more than 180 days late on payments, this debt
will be considered a “charge-off” and may be referred to a collection
agency. This will stay on your credit history for seven years. Don’t
let it get to this point. Get rid of all past-due accounts of 180 days
The second most important factor in calculating your
credit score is your debt to credit ratio. The higher the credit
balance, the lower your credit score. The lesson here is not to “max
out” your cards. Use only 30% of your available credit line. The ideal
amount would be 10% of available credit.
Don’t leave this score to chance! Get your credit report
and see what’s in it and what might hurt your chances of buying a car
or a home. You are entitled to one free credit report a year from each
of the three credit reporting agencies; Equifax
You can create your own free credit monitoring service by ordering one
report now, then four months from now order another report from a second
credit reporting agency, then in another four months, order your third
free report. You can now see what’s hurting your score, take steps to
repair it and see your progress on a regular basis.
incorrect information. Are there accounts listed that aren’t yours?
Are there payments that have been reported as late when they weren’t?
You can dispute the erroneous information online, by phone or by mail.
In this information age, disputing online is faster. If you challenge
the information by phone, make sure you get the name of the person
you’re talking to. Take detailed notes of the conversation, including
date and time of your call, and if possible, get a transaction or case
number. If you choose to dispute by mail, make sure you use certified
mail and be prepared to wait 30-45 days for a response.
look for ways to lift your score. The best way to start is by paying
your bills on time. Mark your calendar, set up e-mail alerts or arrange
for automatic bank payments.
Next, tackle your outstanding
balances. The emotional satisfaction of reducing debt cannot be
overstated. Are you worried about high interest rates? Start paying
off the debt that has the highest annual percentage rate. Do you worry
over the highest balance? Then tackle the credit with the largest
outstanding balance. Or would you like to see quick progress and reduce
the number of credit accounts? Then pay off the lowest balance first.
There is no “one-size-fits-all” strategy. Use whatever strategy feels
best for you and a plan you can stick with over time.
need to re-establish your credit, apply for one of the major credit
cards such as Visa or MasterCard, and pay off the entire balance
monthly. If you can’t get a Visa or MasterCard, consider a credit card
from a retail store. They carry a higher interest rate, but will help
you build your credit history if you pay monthly balances in full. A secured credit card
that requires a cash deposit as your credit line may be another
option. In this instance, you put up the money and draw on it, adding
more money when needed, but do your homework. Look for a card that
doesn't charge an application fee. Every secured card charges an annual
fee, so look for the lowest. Read the fine print. Some cards charge
fees than can eat up the entire deposit before the card is ever used.
If you still find yourself overwhelmed, consider talking with a credit counseling service. The Consumer Credit Counseling Service of Maryland and Delaware
(CCCS) is a non-profit organization dedicated to helping solve
financial problems via confidential budget counseling, debt management
and educational seminars. Beware of credit repair services that offer
promises they can’t keep. Maryland regulates these services and has
strict guidelines such as they must be licensed, can’t charge upfront
fees and must offer written contract and disclosure documents. If you
do sign a contract with them, you have the right to cancel the contract
anytime prior to midnight of the third business day after the date of
should be your last resort as it carries long-term implications. It
stays on your credit record for a minimum of seven years, it is part of
the public record and you must pay filing and possibly attorney fees.
up your credit and get your future back! Take one step at a time, and
you'll get there. The important thing is to START NOW. Here's some
to get you started.