×

Worth the effort: Repairing your credit score

By DAN ROBLEE

droblee@mininggazette.com

HANCOCK – If you’re looking to take out a mortgage, buy a new car, or take out a significant loan for any important purchase, you’re credit score will be key to how much you’ll actually end up paying, or whether you get that loan at all.

If you’re looking to improve your score before asking for a loan, there are solid strategies for doing so, but you’ll need to start as soon as possible, not just weeks or even a few months prior to heading to the bank.

“Fixing your credit, even under the best of circumstances, is a very slow process,” said River Valley Bank Calumet Branch Manager Brian Donnelly, who gave a presentation on understanding credit scores and the loan process at the Jutila Center in Hancock Wednesday.

The event was sponsored by the Keweenaw Young Professionals, and provided plenty of good information for even relatively astute borrowers, said Jessica Brassard, a co-founder of the organization.

“I’ve never finished learning, even if I think I know a lot about my credit – what I’ve done to damage it and to get it better,” Brassard said.

The first thing to understand, Donnelly explained, is that your credit score is the single most important factor in any decision on a loan. A bank may give some consideration to their past relationship with a potential borrower, along with their ability to pay. Collateral, of course, is key to a decision. But loan officers can’t make gut decisions based just on those factors – they’re expected to follow strict guidelines and follow the credit score’s dictates.

Unfortunately, Donnelly said, there’s no way to know the exact formulas each of the three credit bureaus use to determine credit scores, which they regard as tightly-held trade secrets.

“That’s the value of their business,” he said. “Their model is like Coke’s secret formula or their 11 herbs and spices.”

While the credit bureaus aren’t likely to tell you how a particular action will affect your score, there are several strategies that should help with all of them, Donnelly said.

One key, he said, is to keep revolving debt – debt such as credit cards that can be re-used as soon as you pay them off – below 35 percent of your available credit line at any given time. It doesn’t matter so much whether you’re carrying a $300 balance or a $3,000 balance, he said, just as long as it’s under 35 percent of what’s available.

In general, Donnelly said, he recommends keeping at least three lines of credit active on your reports, such as credit card, mortgage and car loan, or two credit cards and a car loan. Credit cards you never use don’t help, so use them responsibly, then pay the bills monthly before interest can accrue.

If you’re trying to repair poor credit and have difficulty establishing any new credit, there are solutions, though they might cost you with higher interest rates or fees.

Banks offer secured credit cards, where you deposit money and essentially borrow from yourself, paying the bank for the privilege, and certificate of deposit secured loans, another means of essentially borrowing from yourself.

“A secured loan is the worst loan you’re ever going to get, but it’s a proactive step you can take to fix your credit report,” he said.

The most difficult thing, Donnelly said, is dealing with bad credit on a report, particularly medical debt that often accrues at the same time a person is unable to work. He recommended trying to negotiate with creditors, particularly medical creditors, and to try to pay off old debts one at a time in lump sums rather than on slow payment plans.

“Any activity on collections is a negative tick,” he explained, “because it’s activity on an account with a negative bearing. If a collection is four years old and you make a payment, it reactivates that.”

Neither bad debt nor bankruptcies necessarily roll off your report in a set number of years as is often believed, he said, but bad debt will affect you less over time as creditors give up on collection. A bad debt within the last three to five years might cost you 80 points on your report, for example, while an older debt might only cost you one or two points.

Bankruptcy, he said, is rarely a solution to credit woes, but it can be a means to get on with your life.

Donnelly also pointed out a couple of red flags to avoid – carrying more than a few retail credit cards, normally applied for specifically to make a purchase, and applying for several different credit lines in a short period. Shopping for similar credit lines within a few days is largely forgiven, he said, but applying for a new card every week or month will look bad.

Essentially, Donnelly said, establishing the best credit score possible takes time and work, especially if you’re rebuilding from a bad situation.

But in the long run, it’s worth the effort.

“A good credit score is critical to a good lifestyle,” he said. “It affects the price you actually end up paying for a house, a car, insurance, the most expensive things we pay for.”

Worth the effort: Repairing your credit score

By DAN ROBLEE

droblee@mininggazette.com

HANCOCK – If you’re looking to take out a mortgage, buy a new car, or take out a significant loan for any important purchase, you’re credit score will be key to how much you’ll actually end up paying, or whether you get that loan at all.

If you’re looking to improve your score before asking for a loan, there are solid strategies for doing so, but you’ll need to start as soon as possible, not just weeks or even a few months prior to heading to the bank.

“Fixing your credit, even under the best of circumstances, is a very slow process,” said River Valley Bank Calumet Branch Manager Brian Donnelly, who gave a presentation on understanding credit scores and the loan process at the Jutila Center in Hancock Wednesday.

The event was sponsored by the Keweenaw Young Professionals, and provided plenty of good information for even relatively astute borrowers, said Jessica Brassard, a co-founder of the organization.

“I’ve never finished learning, even if I think I know a lot about my credit – what I’ve done to damage it and to get it better,” Brassard said.

The first thing to understand, Donnelly explained, is that your credit score is the single most important factor in any decision on a loan. A bank may give some consideration to their past relationship with a potential borrower, along with their ability to pay. Collateral, of course, is key to a decision. But loan officers can’t make gut decisions based just on those factors – they’re expected to follow strict guidelines and follow the credit score’s dictates.

Unfortunately, Donnelly said, there’s no way to know the exact formulas each of the three credit bureaus use to determine credit scores, which they regard as tightly-held trade secrets.

“That’s the value of their business,” he said. “Their model is like Coke’s secret formula or their 11 herbs and spices.”

While the credit bureaus aren’t likely to tell you how a particular action will affect your score, there are several strategies that should help with all of them, Donnelly said.

One key, he said, is to keep revolving debt – debt such as credit cards that can be re-used as soon as you pay them off – below 35 percent of your available credit line at any given time. It doesn’t matter so much whether you’re carrying a $300 balance or a $3,000 balance, he said, just as long as it’s under 35 percent of what’s available.

In general, Donnelly said, he recommends keeping at least three lines of credit active on your reports, such as credit card, mortgage and car loan, or two credit cards and a car loan. Credit cards you never use don’t help, so use them responsibly, then pay the bills monthly before interest can accrue.

If you’re trying to repair poor credit and have difficulty establishing any new credit, there are solutions, though they might cost you with higher interest rates or fees.

Banks offer secured credit cards, where you deposit money and essentially borrow from yourself, paying the bank for the privilege, and certificate of deposit secured loans, another means of essentially borrowing from yourself.

“A secured loan is the worst loan you’re ever going to get, but it’s a proactive step you can take to fix your credit report,” he said.

The most difficult thing, Donnelly said, is dealing with bad credit on a report, particularly medical debt that often accrues at the same time a person is unable to work. He recommended trying to negotiate with creditors, particularly medical creditors, and to try to pay off old debts one at a time in lump sums rather than on slow payment plans.

“Any activity on collections is a negative tick,” he explained, “because it’s activity on an account with a negative bearing. If a collection is four years old and you make a payment, it reactivates that.”

Neither bad debt nor bankruptcies necessarily roll off your report in a set number of years as is often believed, he said, but bad debt will affect you less over time as creditors give up on collection. A bad debt within the last three to five years might cost you 80 points on your report, for example, while an older debt might only cost you one or two points.

Bankruptcy, he said, is rarely a solution to credit woes, but it can be a means to get on with your life.

Donnelly also pointed out a couple of red flags to avoid – carrying more than a few retail credit cards, normally applied for specifically to make a purchase, and applying for several different credit lines in a short period. Shopping for similar credit lines within a few days is largely forgiven, he said, but applying for a new card every week or month will look bad.

Essentially, Donnelly said, establishing the best credit score possible takes time and work, especially if you’re rebuilding from a bad situation.

But in the long run, it’s worth the effort.

“A good credit score is critical to a good lifestyle,” he said. “It affects the price you actually end up paying for a house, a car, insurance, the most expensive things we pay for.”

Worth the effort: Repairing your credit score

By DAN ROBLEE

droblee@mininggazette.com

HANCOCK – If you’re looking to take out a mortgage, buy a new car, or take out a significant loan for any important purchase, you’re credit score will be key to how much you’ll actually end up paying, or whether you get that loan at all.

If you’re looking to improve your score before asking for a loan, there are solid strategies for doing so, but you’ll need to start as soon as possible, not just weeks or even a few months prior to heading to the bank.

“Fixing your credit, even under the best of circumstances, is a very slow process,” said River Valley Bank Calumet Branch Manager Brian Donnelly, who gave a presentation on understanding credit scores and the loan process at the Jutila Center in Hancock Wednesday.

The event was sponsored by the Keweenaw Young Professionals, and provided plenty of good information for even relatively astute borrowers, said Jessica Brassard, a co-founder of the organization.

“I’ve never finished learning, even if I think I know a lot about my credit – what I’ve done to damage it and to get it better,” Brassard said.

The first thing to understand, Donnelly explained, is that your credit score is the single most important factor in any decision on a loan. A bank may give some consideration to their past relationship with a potential borrower, along with their ability to pay. Collateral, of course, is key to a decision. But loan officers can’t make gut decisions based just on those factors – they’re expected to follow strict guidelines and follow the credit score’s dictates.

Unfortunately, Donnelly said, there’s no way to know the exact formulas each of the three credit bureaus use to determine credit scores, which they regard as tightly-held trade secrets.

“That’s the value of their business,” he said. “Their model is like Coke’s secret formula or their 11 herbs and spices.”

While the credit bureaus aren’t likely to tell you how a particular action will affect your score, there are several strategies that should help with all of them, Donnelly said.

One key, he said, is to keep revolving debt – debt such as credit cards that can be re-used as soon as you pay them off – below 35 percent of your available credit line at any given time. It doesn’t matter so much whether you’re carrying a $300 balance or a $3,000 balance, he said, just as long as it’s under 35 percent of what’s available.

In general, Donnelly said, he recommends keeping at least three lines of credit active on your reports, such as credit card, mortgage and car loan, or two credit cards and a car loan. Credit cards you never use don’t help, so use them responsibly, then pay the bills monthly before interest can accrue.

If you’re trying to repair poor credit and have difficulty establishing any new credit, there are solutions, though they might cost you with higher interest rates or fees.

Banks offer secured credit cards, where you deposit money and essentially borrow from yourself, paying the bank for the privilege, and certificate of deposit secured loans, another means of essentially borrowing from yourself.

“A secured loan is the worst loan you’re ever going to get, but it’s a proactive step you can take to fix your credit report,” he said.

The most difficult thing, Donnelly said, is dealing with bad credit on a report, particularly medical debt that often accrues at the same time a person is unable to work. He recommended trying to negotiate with creditors, particularly medical creditors, and to try to pay off old debts one at a time in lump sums rather than on slow payment plans.

“Any activity on collections is a negative tick,” he explained, “because it’s activity on an account with a negative bearing. If a collection is four years old and you make a payment, it reactivates that.”

Neither bad debt nor bankruptcies necessarily roll off your report in a set number of years as is often believed, he said, but bad debt will affect you less over time as creditors give up on collection. A bad debt within the last three to five years might cost you 80 points on your report, for example, while an older debt might only cost you one or two points.

Bankruptcy, he said, is rarely a solution to credit woes, but it can be a means to get on with your life.

Donnelly also pointed out a couple of red flags to avoid – carrying more than a few retail credit cards, normally applied for specifically to make a purchase, and applying for several different credit lines in a short period. Shopping for similar credit lines within a few days is largely forgiven, he said, but applying for a new card every week or month will look bad.

Essentially, Donnelly said, establishing the best credit score possible takes time and work, especially if you’re rebuilding from a bad situation.

But in the long run, it’s worth the effort.

“A good credit score is critical to a good lifestyle,” he said. “It affects the price you actually end up paying for a house, a car, insurance, the most expensive things we pay for.”

Starting at $3.50/week.

Subscribe Today