by Damon Carr, For New Pittsburgh Courier
Whenever I discuss credit scores, it gets the people going. No financial topic garners more attention than increasing your credit score. So when I came across a meme on Facebook posted by my good friend Nita, I jumped on it. It was short, insightful, impactful, common sense advice that was so glaringly obvious, it was funny. It read: Things to do to increase your credit score! The answer was: PAY THEM PEOPLE!!
There you have it. Sound financial advice isn’t really that complicated. I ascribe to the K.I.S.S. model when it comes to doling out financial advice. Keep It Simple Stupid! That advice is as simple as it comes. But we didn’t stop there. The meme sparked some conversation that I’ll share here.
“People who share their credit scores on social media are tricks to me!”
Whoa! I wouldn’t go that far. I would say we’ve been tricked into believing that a credit score is a leading indicator of financial success. It’s not. A good credit score simply means you pay your bills on time. It does not take into account pillars of financial success—income, saving, investing, and assets owned. A credit score merely evaluates if you’re a person a lender can trust to pay them back their money.
“Make sure to get a ‘pay to delete’ letter first or the negative trade will stay on your credit as ‘paid collections’ which is why your credit score doesn’t go up like you thought it would. Be sure to get it in writing from them first before you pay, especially on a settlement. Note: (not all companies will agree to give you one especially if they’re taking a lowball settlement amount). Once you have a ‘pay to delete’ letter in writing it should take 30-45 days for the negative trade to fall off of your account. If it’s not removed, send that letter to the credit bureaus and they will remove it.”
The “pay to delete” letter is a new one for me. I never heard of it. It sounds reasonable. I’ll add when you pay a delinquent account, pay with either a cashier’s check or a money order. You don’t want to give them access to your personal account information for should they debit the full amount owed, what recourse do you have considering you legitimately owe the debt.
To provide some insight; last activity date reported for collection accounts on a credit report is the real trigger. The older the last activity date, the less of a negative impact it has on your credit score. When the last activity date is 7 years old, it falls off the credit report completely. When you make a payment to settle the account in collection—it makes the last activity date more current—causing a negative impact on your credit score and starting the 7-year clock all over again.
Based on that fact, a “pay and delete” letter as Maura suggested will be beneficial.
“I heard wealthy people file bankruptcy repeatedly!”
Think about that…. There’s a means test that you have to pass in order to be eligible for bankruptcy. If they pass the means test which is evidence of little means when factoring in income, debts, and assets, the question becomes, are they really wealthy?
Donald Trump is famous for filing bankruptcy. He filed bankruptcy on a casino he once owned. The Donald is a serial bankruptcy filer. He’s filed bankruptcy about 6 times. Here’s how wealthy people file bankruptcy.
They established corporations as its own unique entity. The business entity itself isn’t thriving so they’ll be able to file bankruptcy under it—not themselves personally.
“I’m sitting here wondering how things to boost your credit have anything to do with wealthy people and Donald Trump.”
The meme is a joke! It should be obvious that paying your bills on time is a big part of having a decent credit score. In fact 35 percent of your credit score is based on payment history.
A comment was made, regarding wealthy people filing bankruptcy repeatedly. Donald Trump is wealthy. He filed bankruptcy 6 times.
Since you’re curious about ideas to boost your credit score, I’ll provide some tips: Credit score is based on 5 factors:
35 percent ~ Payment history: Pay your bills on time!
30 percent ~ Credit Utilization: Don’t max out your credit—Pay it off…Keep balances low relative to limit.
15 percent ~ Length of history: Old debts carry more weight than new debt. Folks that still have those credit cards from college with balances, FICO loves you and so does that creditor. They make more on interest on credit cards than they make on investments in the stock market.
10 percent ~ New Debt ~ Shopping for credit or having a lot of inquiries from multiple lenders in a relatively short period of time gives new meaning to the phrase shop until you drop.
10 percent – Credit Mix ~ or type of credit you have. Credit cards, student loans, car loans, mortgages etc…Contrary to popular belief, you don’t need an assortment of debt to justify boosting your score. It only accounts for 10 percent of the total score. Most folks have way more than enough tradelines on their credit report to justify a decent credit mix.
“I was recently told that after a certain number (I think 760), there isn’t a difference in the interest rate you’re offered. Is that accurate, or only the best interest rates are offered to those with 850?”
The most commonly used credit score known as FICO, which stands for Fair Issac and Company credit scores, ranges from 300 to 850. You’re right, once you get into the mid 700 range, there’s no added benefit.
In closing, I don’t discuss ideas to boost credit score that often. I focus on sharing ideas on how to boost your wealth score (net worth). Increasing your wealth score is how you create financial independence. A high credit score earns you the privilege of taking on more debt—opposite of independence. You’ll pay a ton of interest boosting your credit score. You’ll earn a ton of interest boosting your wealth score!
(Damon Carr, Money Coach can be reached at 412-216-1013 or visit his website at www.damonmoneycoach.com)