Get Current
Perhaps the most important thing you can do when you're tuning up your credit is to get current on all of your bills. If you are behind on any payments, new lenders will wonder how you can pay them if you're already missing payments elsewhere.
Payment History
Your payment history is one of the most important pieces of the creditscoring puzzle. Payment history describes whether or not you pay your bills on time. If you pay late, how late do you pay? This is extremely important information for potential lenders. In fact, the FICO credit score is designed to predict whether or not you will pay late. Why do they care so much about your payment history? If you pay late, you become more likely to default.
As 35 percent of your FICO credit score, your payment history is the most heavily weighted factor (followed by amounts owed at 30 percent). It measures a number of characteristics in your payment history:
How many past-due items you have in your reports
How much behind you are (how many dollars)
How far behind you are (how many days past due)
How recent your payment problems are
If there is a bankruptcy — if you have completely defaulted
It is important to know that more-recent items are more important to your credit score. If you had a few late payments three years ago, it won't help your credit. However, those three-year-old payments will not hurt you as much as a more recent blemish. Therefore, the longer you pay your bills on time, the more your scores improve. Keep paying bills on time over the years, and you will most certainly see improvements in your credit.
Work It Out
If you are currently behind on a credit account, see if your lender will work things out with you. Ideally, you want them to stop reporting you as delinquent. If you can work out a payment plan that is acceptable to them, they may report that you are paying as agreed. This can be a win-win situation for all parties involved. Remember that the creditor does not want you to go bankrupt, they just want their money back. How do you set up such an arrangement? Make them an offer. Either call or write, and state that you would like to pay a certain dollar amount each month to satisfy your debt. All they can do is say yes or no. If you don't get a favorable response, you can always try again. Be persistent; you might find that different customerservice representatives view things differently.
How late is a late payment?
Lenders have varying definitions of late. Your agreement probably states that payments must be received by a certain time on a certain day. If you are a few days late, it may not matter. Paying more than thirty days late is a really bad idea.
Staying Current Made Easy
Because your recent activity is so important, it is essential that you don't fall behind. You don't want to see your progress wiped out by a simple mistake. With that in mind, you should take steps to make sure that simple mistakes don't happen. The easiest way to prevent mistakes is to automate your life. Set up a link between your credit accounts and your bank account. Typically, all you have to do is send a voided check to your creditor to get this done. Then, they can go get the money you owe them every month. You don't have to sit down and write a check, you don't have to hunt down a stamp, and you don't have to watch the calendar for due dates.
