Best Colorado Mortgage Rate

Don't clean up your credit prior to applying for a mortgage

Increase your credit limits

Shoot for high limits, low balances

Do not buy or lease an automobile before closing

Never miss a payment

Pay down your credit card balances

If you pay your balance off in full each month … you could still have trouble

If you have a negative item on your credit report

Auto and mortgage credit inquiries made within a 14-day timeframe count as one inquiry

Make sure negative items on your credit report are dated correctly

If you have had credit problems

Stay away from department store credit cards and the like

Have someone add you as an "authorized user" to boost your credit score

3 or more significant relationships

Long term credit relationships

Have few installment loans or fixed payments

Don't close unused credit cards

Don't let credit cards collect dust

Change from "charge off" to "included in bankruptcy"

Transfer balance from one credit card to another

If you think you might need to pay your credit card late

Check your credit report for errors

Get your free credit report

Divorce and protecting your credit score

Write a short explanation on your credit report

Avoid finance companies

Make sure the creditor reports to the credit bureaus

Add information to your report

Pay for deletion

Ask the creditor to delete 30-day late item

Re-open closed accounts

Charge on old accounts

Paying more than the minimum payment

 

 

Don't clean up your credit prior to applying for a mortgage

Yes, you understood me correctly. Don't clean up your credit prior to getting a mortgage. You see, activity (even if it's good activity), can be harmful to your credit. The credit bureaus use these complicated mathematical algorithms to determine credit scores. Because computers can't think (yet), they see activity as just what it is—activity. Credit scores don't like to see activity because activity means that you are changing things, which is potentially dangerous. "Recent activity on a negative account" is the technical term for paying off bad debts, and the negative impact on your credit score can be dramatic. This is because the change makes the "date of last activity" become "recent" instead of "4 years old," for example.

I have only had two negative items on my credit. One was a mistake by my automobile finance company which was later removed from my credit because the bill had in fact been paid on time. The other negative item on my credit was a true unpaid bill. I rented a house with a bunch of guys in college (two decades ago), and I was foolish enough to put the electric bill in my name. When we all moved off to other places, I paid my part of the electric bill. The other guys didn't pay their part. I didn't pay the bill on principle. "I paid my part," I thought to myself. But that was a dumb thing to do. It went on my credit as a negative item. Eventually, I wound up paying the whole bill.

If you find yourself in a similar situation, don't do anything. Lenders are particularly concerned with your last two years of credit history. Don't reach into your distant past and try to clean up your credit history. It will actually wind up hurting your credit score because it will count as recent activity on a negative account. What you should do is close on your home loan and then clean up your negative credit issue after closing. As long as you don't plan on getting another mortgage within two years, cleaning up the negative mark on your credit will help the next time you go to get a mortgage. Sometimes a lender will want a borrower to pay off a bad debt with the loan proceeds at the time of closing. In this case funds will be disbursed at the closing table to pay off late debts. If a borrower has a tax lien, for example, this is the way a lender will want it to be handled. But never try to patch up your credit problems while you are in the mortgage application process.

Increase your credit limits

Call your credit card company and ask them to increase your credit line. This will improve your debt ratios, which will positively impact your credit score. Let's say that you have total credit card limits of $20,000 with total balances of $8,000. Ideally, your total debt ratio should be below 30%. Consider calling your credit card companies and ask them to raise your credit limit. This is standard procedure in the credit card business, and they can usually do it right over the phone. In this case, if the total credit limits could be raised to $30,000, the debt ratio would decrease from 40% to 27%, positively affecting your credit score.

Shoot for high limits, low balances

Higher credit limits can positively affect your score. Higher than average credit lines means that lenders consider you trustworthy or low risk. High limits are good for credit scores, particularly when they are accompanied by low or zero balances.

Do not buy or lease an automobile before closing

Don't buy or lease a new set of wheels!  Lenders look carefully at your debt-to-income ratio. A large payment such as a car lease or purchase can greatly impact those ratios and prevent you from qualifying for a home loan.

Never miss a payment

Let's say that your credit score is 670. This is a solid credit score, sufficient to qualify you for a good rate on a home loan. Let's also say that you have been making your payments on time for the last couple of years on all of your accounts. Your car breaks down, and you come up short his month, so you get 30 days behind on your credit card. Missing just this one payment could drop your credit score 25 to 60 points. That is a huge drop in credit score. If you want a healthy credit score, never pay late.

In the above example, if you did miss a credit card payment or two and your credit score dropped from 670 to 610, for example, your creditworthiness would plummet from "good" to "sub-prime." A 610 credit score means that you will have more difficulty obtaining a home mortgage, and you will pay a higher interest rate. A credit score under 620 is considered sub-prime.

Pay down your credit card balances

This may be the best strategy for improving your credit score. Of course, it requires having a bunch of extra cash lying around. The obvious frustration is: "If I had the money to pay off my credit card, I would have already done it!" I feel your pain, but there are still a few angles to investigate before saying, "I just don't have the money!" First of all, if you are thinking about buying a home, you have likely saved up a small down payment. Depending upon your credit score and exact financial situation, it might be better to use some of your down payment to pay off or pay down your credit card balances and look into a higher loan-to-value loan.

Use your down payment money to pay down your credit card balance:

Let's walk through an example. Say that you want to buy a home for $189,000, and you have saved up $17,000 for the down payment. You also have one credit card with a limit of $4,000 on which you have a balance of $3,000. Let's also pretend that your credit score is a 609. This situation is a slam dunk. Take $3,000 out of your down payment money and pay off your credit card. Have your mortgage broker "rescore" your credit. You will see an immediate and dramatic positive effect on your credit score. Best of all, you will find yourself North of the all-important 620 credit score mark. Borrowers with credit scores above 620 get good rates while borrowers with credit scores below 620 are considered high risk or "sub-prime." You are left with $14,000 for down payment and closing costs. Remember that paying down your credit cards 90-100% can positively affect your credit score to the tune of 60 to 100 points. This one action alone can take a person from "poor" credit status to "excellent" credit status. Also remember that putting less down probably won't mean a higher interest rate.

Borrow the funds to pay off the card and pay back the money after closing:

Another option is to borrow $3,000 from mom and dad and pay off the credit card to temporarily boost your credit score. Once your loan closes, pay your parents back with your credit card using a credit card convenience check, or have the credit card company direct deposit the funds into your account. Remember to ask about "balance transfer specials" which often include cash advance offers (direct deposit to your checking account). If you call and ask what specials are available, you are sure to get better terms than if you just call up and say, "Could you please deposit $3,000 into my personal checking account?"

Apply for another credit card

Caution: this applies to a certain group of people. Applying for a new credit card can have an adverse effect on your credit, so read this section carefully before you run out and do anything rash.

If your total debt ratio exceeds 30% on revolving accounts, you might consider applying for additional credit. Let's say that you have two credit cards, each with $5,000 limits. You have a balance of $3,400 on the first card and $4,600 on the second card. That means that your debt ratio is 80% ($3,400 + $4,600 = $8,000 / total credit limits of $10,000). An 80% debt ratio is a score killer. An 80% debt ratio makes a borrower look "maxed out" to the scoring system. If your existing credit card companies will not increase your credit limits enough to sufficiently reduce your debt ratios, the easiest quick fix is to apply for a third credit card.

If you found yourself in this situation, you would need to add $17,000 to your total credit limits. The first thing to do is to call both of your existing credit card companies and ask them to raise your limits. If you have made your payments on time, they should raise your limits with no problems. However, you'll still be a long way from total credit limits of $27,000, which is your goal to achieve a total debt ratio of less than 30%. You'll have to apply for a new credit card, which will result in an "inquiry" on your credit report. Applying for new credit and having new inquiries on your credit report actually reduces your credit score. But more importantly, looking "maxed out" with an 80% debt ratio is even more harmful to your credit score. The net result of applying for an additional credit card and doing a balance transfer in this situation should result in an increased credit score. Remember that many experts believe that your total debt ratio for revolving accounts (credit cards) should be no greater than 30%. The debt ratio on any individual account or credit card should be no greater than 50%. In the example above, part of each of the above balances should be moved to the new credit card in order to achieve the optimal debt ratio on each card of less than 50% and a total debt ratio of less than 30%.

Amount owed accounts for 30% of your credit score, whereas applying for new credit accounts for 10% of your credit score. Applying for new credit will reduce your credit score, but lowering your amount owed as a percent of total credit limits will increase your credit score. This tactic should work if done properly, but I advise you to do so at your own risk. There are potential pitfalls. For example, if you apply for a new credit card and it is approved but with a lower total credit limit than you needed, the plan falls apart. In fact, your credit score will be reduced because you applied for new credit, but your amount owed percentage will still be too high because you weren't granted sufficient credit limits to accomplish your objective. If you have good credit and don't need access to a huge credit line in order to achieve a lower debt ratio by transferring balances, this tactic should result in a net increase in your credit score. However, if you are unsure about applying for a new credit card and getting approved for the credit limit that you need, you should consider not taking any action and leaving your credit score as is.

Do the best that you can:

The last strategy is to pay as much as you can over your minimum payment every month. You would be surprised at how this alone will boost your credit score even though you aren't paying off the entire balance. Every little bit helps. If you have a balance of $2,200 on a credit card and you reduce that balance by $750 over 12 months, your credit score could benefit to the tune of 20-40 points. Remember that "20 points" is the magical jumping block in credit scores. That means that 609 is the same as 619, but 620 is a rung up. 681 is the same as 695, but 700 is a different ball game altogether. The credit scoring system lumps scores together in increments of 20. That means that if your score is a 617, paying a little bit over your monthly minimum payment could be extremely important. It could bump you into the next group of credit worthiness and move you from a "high-risk" borrower to a "no-problem-we're-happy-to-lend-you-money" borrower.

If you pay your balance off in full each month … you could still have trouble

Remember that even if you pay your balance off in full every month, the balance can negatively affect your credit score depending upon when the score was calculated. Let's take a small business person, for example. I know a guy who owns a flower shop. He buys his entire inventory on a credit card because he gets paid airline miles for every dollar spent. Let's pretend that he has one credit card that he uses for business with a limit of $100,000. If our flower shop owner routinely runs up $80,000 each month on his business credit card and then turns around and pays off the entire balance, his credit score could be negatively impacted. If his credit report shows a balance of $80,000 when his credit report is pulled to apply for a loan, his debt ratio will be 80%. The credit score comes back and says, "This guy is maxed out. Danger! Danger!" Well, it doesn't say that exactly, but his credit score will sure scream it loud enough. Even if this guy pays all his bills on time and has a blemish-free credit report, his debt ratio on revolving accounts would be devastating to his credit score.

A savvy mortgage broker can help get his credit "rescored," but it takes additional money and time and hassle. If you engage in a similar habit of running up your credit cards and then paying the balances in full, don't worry about it unless you are planning on applying for credit. Pay off your balances in full two months before you plan on shopping for a home loan or any type of loan, giving your credit score ample time to recuperate.

Quick tip: Call your credit card company and find out what date they report to the bureaus. If you know the date that your credit card company reports to the credit bureaus, pay your balance in full a few days before that date. With your balance paid in full, your credit report will show a zero balance on the account. This is a little bit risky because you have to rely on the information given to you by the customer representative as being correct. If the gal who answers the phone at the credit card call center gives you bad information or if the higher ups suddenly change their reporting date, this strategy won't work. The safest course of action is to pay your balance down to zero a couple of months before applying for a home loan.

If you have a negative item on your credit report

The best thing that you can do in this case is to pay your bills on time every month. Put your negative items in the past, literally. Each month that you move away from a negative item (last negative item 6 months ago, 7 months ago, etc.) the better your credit score. If you have a credit score of 600, for example, you could move out of the "sub-prime" category in as little as 3 months of paying all your bills on time. It could take as long as 6 or 12 months, but your credit score can improve dramatically in certain cases over a relatively short period of time. Going from a credit score of 600 to 620 in only 3 months is very feasible.

Auto and mortgage credit inquiries made within a 14-day timeframe count as one inquiry

Credit scoring models have now been adjusted to count multiple auto and mortgage inquiries within a 14-day period as a single request. This change was made to accommodate "shoppers." In the past, diligent price shoppers were penalized for shopping the market. Car dealerships, for example, need to see your credit score to see what sort of deal you qualify for. In other words, they have to pull your credit to give you a firm monthly payment and other terms. The new change let's you give permission to BMW, Mercedes, Volvo and Lexus to pull your credit so that you can compare apples to apples. As long as the inquiries are made within a 14-day timeframe, they will count as one inquiry.

FICO is continually upgrading its credit scoring model. Newer versions of the model allow multiple inquiries within a 30-day time period to be counted as a single inquiry. The newest FICO model allows inquiries within a 45-day timeframe to be counted as a single inquiry. The problem is that a lot of lenders haven't upgraded to the newest FICO software because of the cost of integrating that software into their current systems. A lot of lenders use the old FICO scoring system, so to be on the safe side, get all of your shopping done within a 14-day window.

Make sure negative items on your credit report are dated correctly

If you have a negative item on your credit report, make sure that the date is correct. The older the date, the less it affects your credit. There is a statute of limitations in every state for delinquent debt. This is the timeframe that a creditor can file a lawsuit against a debtor. This period starts when a debtor becomes delinquent and is often referred to as the Date of Last Activity (DOLA). Collections agencies like to bump up the date to the date that they received the report, overlooking the actual date of last activity. This resets the clock on the statute of limitations. This is called re-aging an account. It's illegal, but it's done all the time.

Making the date of delinquency more recent hurts your credit. A recent delinquency can have a dramatic effect on credit score whereas an older delinquency might have a minor effect on credit score. Make sure that the date on your negative item is correct. If it isn't, you can dispute the date with the credit bureaus. Remember: DO NOT contact the creditor. Contacting the creditor may result in resetting the Date of Last Activity (DOLA). Dispute the Date of Last Activity with the credit bureaus instead. It is also a good idea to write the credit bureaus instead of calling. The credit bureaus record all conversations, so if you get flustered and say the wrong thing it will be on the record, so to speak.

The Fair Credit Reporting Act (FCRA) Section 605(c)(1) clearly states: "The 7-year period…shall begin…upon the expiration of the 180-day period BEGINNING ON THE DATE OF THE COMMENCEMENT of the delinquency, charge to profit and loss, or similar action." Click here to get a .pdf file of The Fair Credit Reporting Act (FCRA). Interpreting this "legalese," creditors and collections agencies can't just change the "date of commencement" to whatever suits their fancy.

If you have had credit problems

It's a good idea to re-establish credit history if you have had credit woes in your past. Opening new accounts responsibly and paying them on time will raise your FICO score over the long term. Open new accounts, pay them on time, and check your Equifax score every 3 to 6 months at www.equifax.com. Credit scores consider the time since your last delinquency. Aim to build up a track record of at least 24 months of timely payment history.

Stay away from department store credit cards and the like

For whatever reason, the credit scoring system looks less favorably on store charge cards than it does on major credit cards. Don't add these types of cards to your credit portfolio, but don't close existing accounts either. If an existing gas card or Home Depot card has a long and strong credit history, it will positively impact your score. If you feel compelled to close accounts, close the ones with the shortest credit history and the lowest credit limits. And the next time you are asked, "Would you like to save 10% by opening a …," kindly decline the offer. Your credit score will thank you.

Have someone add you as an "authorized user" to boost your credit score

Being an authorized user on a well-managed account with a long payment history could boost your credit rating. But remember that if the account goes unpaid, your credit score will be adversely affected. If your credit score needs help—and mom and dad are willing to add you as an authorized user—your credit score could benefit greatly as long as mom and dad have a long and timely payment history.

This is sort of a secret weapon for boosting credit scores. Even though you never opened the account and you aren't responsible for payment, the card will carry just as much weight on your credit report as if you opened it yourself. If your parents have had the card for 10 years and have used the card and paid the bills on time, you just got a heck of a deal. You get to piggyback on someone else's good credit history. Also tell mom and dad that you don't have to receive a physical card; they can have the actual card mailed to them.

This loophole will go away, though. FICO has identified this loophole and plans to change its scoring model to not count authorized users. However, a lot of lenders (maybe most) don't use the newest version of the FICO scoring system. They use old models because of the costs of integrating the newest FICO version into their own proprietary systems. That means that this loophole could still work for quite some time. FICO announced the change in June 2007, but it could take years for lenders to upgrade to the newest FICO scoring system.

3 or more significant relationships

Try to establish three or more significant relationships with lenders—a home loan, a car loan, and a major credit card, for example. It takes multiple strong credit relationships to build a solid credit score.

Long term credit relationships

Aim to establish credit history with your credit card companies for 5 years or more. The longer your credit history, the better. Established accounts paid on time will increase your credit score.

Have few installment loans or fixed payments

Too many installment loans will hurt your credit score. Having three car loans, a boat loan, a Sea-doo loan, a home loan, and a motorcycle loan is definitely not as good as having only one home loan and one or two auto loans. The proportion of installment loans still owing (balance to original loan amount) affects your credit score. Of course, if all of those items are almost paid off, that's a different story.

Don't close unused credit cards

The scoring model uses a debt to total credit ratio when evaluating credit scores. It is the opinion of many experts that your total credit card debt relative to your total credit limits should not exceed 30%. That means that closing unused credit cards lowers your total credit limits, potentially having an adverse affect on your credit score.

Example:

You have five credit cards. Your credit limits total $30,000 for all five cards. And the total of the balances on all cards is $7,500. You decide to close three of your credit cards because you aren't using them, and you don't want to be tempted to use them again. As a result, your total credit limits drop to $12,000. Your debt ratio just went from 25% to 63%, exceeding the optimal 30% ratio. As if it can't get any worse, you have also shortened your total credit history by closing accounts that had years of payment history—a double whammy. What would this do to a person's credit score? This is one of the worst things a person can do to their credit score. A move like this can take a person from having spotless credit to the A-minus category in the mortgage world. That means higher rates. Unfortunately, a lot of people with blemish-free credit do just this sort of thing in anticipation of applying for a home loan, thinking that it will better their credit score. It's just this type of thing that should make a borrower realize why working with a good mortgage broker is so important. If a borrower comes to me for pre-approval, I do a complete financial evaluation, including educating the borrower about credit scores so that the borrower doesn't make this type of error.

Don't let credit cards collect dust

Your credit score takes into account how long it has been since you used certain accounts. This means that having an idle card for 10 years won't necessarily raise your score, even if you've never been late. Because the credit scoring formula is a secret, we don't know how often you should use accounts, but suffice to say, don't let them get stale.

Change from "charge off" to "included in bankruptcy"

If there is an item on your credit report listed as "charged off" when it should have been included in your bankruptcy, this is something that absolutely needs to be fixed. It takes a bit of legwork on your part, but it can be fixed by petitioning the credit bureaus and proving to them that the item should have been "included in bankruptcy." If the negative item is allowed to remain as "charged off," then you get a double whammy. You have a bankruptcy and an additional charge off. If it's included in the bankruptcy, it only counts once.

Transfer balance from one credit card to another

Most experts believe that your debt ratio on one particular credit card should be no greater than 50%. Your total credit card debt ratio should be no greater than 30% (total balances / total credit limits). Let's pretend that you have two credit cards with total limits of $9,000. One card has a limit of $2,500; the other card has a limit of $6,500. You have one balance of $2,200 on the card that has the lower limit of $2,500. You have put the balance on this card because you got a great balance transfer offer in the mail. The problem is that you have a debt ratio of 88% on this particular card, which makes you look "maxed out" to the credit scoring system. The solution? Transfer part of the balance to your other credit card in order to stay below the 50% debt ratio optimal for an individual card.

If you think you might need to pay your credit card late

Call your credit card company first before the trouble starts. If you call ahead of time, they are more likely to treat you like a real person instead of a number. Explain to them what is going on in your life and why you are going to have trouble making your payment. They may offer you a revised payment, in which case you will be able to pay a lower payment on time, and you won't have the negative repercussions to your credit score that would have happened if you had been late on the original payment. As it's often said, it doesn't hurt to ask. Remember that a 30-day late notice reported by your credit card company to a credit bureau will stay on your credit report for seven years.

Check your credit report for errors

I once had a serious error on my credit report. I leased an SUV, and I turned in the car at the end of the lease term. At the end of the lease term there is always a "disposition fee" of a few hundred dollars. In this case, I also went way over my allotted mileage, so I had extra costs for that. I owed around $1,800 just to turn the automobile in, which I promptly paid—not only on time but the payment was made early. However, the car company didn't apply my $1,800 payment correctly, hence the debt showed up as being paid late. I called their customer service people, and I was told that they wouldn't have showed it as paid late if it had been paid on time. I protested, saying that I had my cancelled check to show as proof that the debt was indeed paid on time. They also told me that there was no supervisor to whom I could speak. In essence, they were trying to give me the run around.

The long and short of the deal was that I had to jump through a bunch of hoops just to talk to someone in charge. When I finally did talk to a supervisor, she was glad to remove the error, which required her to submit a change to the credit bureaus. The moral to this story is: check your credit report for errors! Fortunately, I caught this error before I needed to apply for a loan, so it never affected my chances of getting approved for a loan. Realize that this sort of thing happens to people every day and most of the time goes unnoticed until the victim goes to apply for a loan. 80% of credit reports contain mistakes. 25% of credit reports contain errors serious enough to deny consumers access to credit, so make sure you aren't in that unfortunate 25%.

Common credit report errors include:

• incorrect reporting of non-payment when the debt was actually paid (for example, your timely payment was misapplied to someone else's account)
• confusion of family members with the same name (Thomas Cane Jr.'s debt reported on Thomas Cane Sr.'s credit)
• identity theft
• account listed on your report that doesn't belong to you (the more common your name, the more likely this is to happen—for example, Joe Williams)
• listing the same negative item twice (for example, once by the original lender and later by a collection agency)
• failure to list an account that would demonstrate creditworthiness—some small, local lenders may not report to the bureaus (the car loan that you paid on time not reported by your bank so it doesn't show up as a positive on your report)
• closed accounts still listed as open
• incorrect balance
• misspelled names
• wrong social security number
• out of date address
• inaccurate birth dates
• item listed as "charged off" when it should have been included in a bankruptcy
• accounts incorrectly listed as "delinquent"
• bankruptcies or judgments that don't belong to you
• "hard" inquiries made without your permission
• late payments more than 7 years old, inquiries more than 2 years old, bankruptcies more than 10 years old
• accurate information reported twice (can make it look like you have twice as much debt as you have)
• on-time payments reported as late
• incorrect dates on negative items (the more recent the date, the more negatively the negative item will affect your credit score)
• your credit limit not reported making you look maxed out

Get your free credit report

You are entitled to one free credit report each year from each of the three major credit bureaus. That means that you can actually get three free credit reports each year. Go to www.annualcreditreport.com to receive your free credit report. You will be asked to check boxes for which credit reports you wish to receive—Equifax, Experian and/or TransUnion. My advice is to choose only one report at a time. If you stagger your requests by 4 months, you can effectively review your credit for free 3 times per year. Remember that only the credit report is free—the score costs extra. (Read: Which credit score should I buy?)

You are also eligible for a free credit report if:

• a company takes adverse action against you, such as denying your application for credit, insurance or employment and you ask for your report within 60 days of receiving notice of the action
• you’re unemployed and plan to look for a job within 60 days
• if you’re on welfare
• if your report is inaccurate because of fraud (including identity theft)
• if your report has been revised based upon an investigation you requested

Divorce and protecting your credit score

Divorce—at it's most basic level—is a property settlement, plain a simple. During this time, it is important to protect your credit score or work to establish credit if you don't have a solid track record of your own. If your credit file is "thin," apply for a credit card as soon as possible after the divorce in order to start building a credit history.

The first thing to do is to close out joint credit cards. Any joint accounts that do not carry a balance should be closed immediately. However, you can't completely "close out" an account as long as the account has a balance. Let's pretend that your spouse is obligated to pay a certain credit card debt in accordance with the divorce decree. If your spouse makes one late payment, it goes on your credit report, even though the account was technically closed. Just because the judge said you weren't responsible to pay on that account doesn't mean that the credit card company is going to let you off the hook. The best solution is to pay off credit card balances with the proceeds from the sale of your home or other major assets, if at all possible.

If you are unable to pay off the credit card balance at the time of divorce, consider separating the debt. Each of you can apply for your own credit card in your own name and transfer half the balance to each new card. If your spouse can't qualify for a credit card, see if one of their relatives will co-sign on their behalf. As soon as the separation occurs, however, it is important to have all lines of credit frozen so that neither spouse can run up charges. You can make the minimum payments until the divorce decree is hammered out when it has been determined who is responsible for the debt.

Should one of you be the account holder and the other a mere authorized user, it should be easy to have the authorized user removed. An authorized user is not responsible for the debt, although the credit of an authorized user can still be affected by the account, for the good or for the bad. Some credit card companies may require that the account holder make the call to have the name removed; others will remove it at the request of the authorized user.

It is better to have a joint account converted into an individual account than to apply for new credit altogether because the length of your credit history is a factor in calculating credit score. Your new credit card will be "new," whereas your "old" credit card will more positively affect your credit score because of its long-always-on-time payment history. If you have credit cards that do not have balances, ask your creditor to convert them to individual accounts. The creditor does not have to convert the accounts to individual accounts and may require you to make a new application for credit. If you cannot convert the accounts to individual accounts, close the accounts. Make sure that you make the request to close each account in writing and that each account is reported closed "by customer" to the credit bureaus.

If a former spouse's individual obligations (incurred after the divorce) pop up on your credit, dispute it with the credit bureaus. This happens more often than you would think. Check your credit for free at www.annualcreditreport.com just to make sure that none of your former spouse's information appears on your credit report.

When it comes to the house, usually one spouse wants to keep it. The question is: can they afford it? If the spouse's income, credit status, employment history, etc. are sufficient to qualify the person for an individual mortgage, then perhaps the wife and kids can stay in the house, so to speak. However, many times the spouse who wants to stay in the house is financially unqualified to do so. If the spouse is unqualified, then the home should be sold ASAP—prior to the finalization of the divorce, if possible. On the other hand, if the spouse is qualified (and you can reasonably trust your ex to refinance within 90 days), then it's great if everyone can walk away with as little pain as possible—and moving can be painful, particularly for kids during a divorce. Talk to a mortgage professional prior to inking the divorce decree. A knowledgeable mortgage broker can assess the situation and tell both parties if the house needs to be sold prior to the divorce or refinanced shortly after the divorce. I'm willing to provide this analysis for free to anyone who wants to give me a call. But don't refinance until the divorce is final. If your spouse refinances while you are still married then you could still be liable if your spouse defaults.

From a credit perspective, it's important to divorce your spouse financially, not just romantically. All debts should be paid off from the proceeds gained via the sale of assets (such as the equity in the house or antique furniture). If sufficient funds cannot be raised through the sale of assets, each spouse should refinance the debts that they'll be responsible for as soon as possible. Sometimes this isn't possible when more is owed on a house or car than the asset is worth. In that case, think about signing up for a credit monitoring service that will alert you to late payments and changes to your credit status.

Remember that creditors are not parties to your divorce decree, so they don't have to abide by it. Assume that your spouse will not honor the terms of the divorce decree and act accordingly to protect your credit. If your spouse is responsible for a particular debt after the divorce and suddenly ceases to make payments, the creditor will come after you. The creditor will go after each party with equal vigor just as if the two were still married.

One piece of advice not related to mortgages and credit scores: make sure that you change the beneficiaries on your will, mutual funds, pension plan, life insurance, and whatever other assets that you have. If you fail to do this, your spouse could get an unexpected windfall of money if you bite the bullet unexpectedly. It's important to dot those i's and cross those t's.

Write a short explanation on your credit report

Writing an explanation for why you were late on a payment will not raise your credit score. However, it could induce a lender to extend a new line of credit or raise an existing line of credit, which could help raise your score. If loss of employment, family issues or illness contributed to your credit problems, consider writing an explanation to the credit bureaus. The bureaus will include the short explanation (less than 100 words) beneath the delinquent account. As they always say, it can't hurt.

Avoid finance companies

These accounts look bad on a credit report. By eliminating finance company loans, you could raise your credit score by 20 - 30 points. Pay off your finance company loans and never again use a finance company.

Make sure the creditor reports to the credit bureaus

Some creditors only report delinquent or past due accounts to the credit bureaus. If trying to establish or rebuild credit, good remarks are essential. Before applying for new credit, be certain that the creditor consistently reports to the bureaus.

Add information to your report

Creditors like to see evidence of stability, so if any of the following information is not in your report, send it to the bureaus and ask that it be added: your current employment, your previous employment (especially if you've been at your current job fewer than two years), your current address, your telephone number (especially if it's unlisted), your date of birth and your checking account number. Again, the credit bureaus don't have to add these, but often they will. Adding correct personal information to your credit report won't raise your credit score, but it could induce a lender to extend credit to you if you are on the border, so to speak. As they say, it can't hurt.

Pay for deletion

One of the best ways to boost your credit score fast is a strategy known as pay for deletion. Here's how it works. A consumer has a debt that is sent to a collection agency. Sometimes these debts are just a few hundred dollars—or even less. A bad debt as small as $30 can have a dramatic impact on your credit score. Be it a small or large amount, the credit agency tries to collect the debt but fails. The consumer then goes to take out a home or car loan and finds out that they don't qualify for financing. The best way to solve this problem—and solve it quickly—is to pay for deletion.

The pay for deletion agreement is a settlement in which the consumer offers to pay the debt (or a percentage of the debt) in exchange for a deletion letter. The letter is submitted to the credit bureaus and the debt is removed from the consumer's credit profile. Effectively, a deletion letter changes the status of the debt from "delinquent" or "charged off" to "paid as agreed." It's as if the whole mess never happened.

It can be difficult, however, to get creditors to agree to a pay for deletion settlement. If the creditor is a small creditor like a jewelry store, for example, they might eagerly agree. But if the debt is owed to a large bank, you might be out of luck. A lot of creditors will not agree to pay for deletion terms because they deem it to be deceptive. By deleting a valid delinquency, the creditor is providing the credit bureaus updated information that results in an inaccurate credit profile. Because big companies rely on accurate credit scores in order to make sound business decisions, they are often hesitant to artificially bolster a person's score in order to make a few bucks. Some big companies will agree to a pay for deletion offer; others won't. Most small creditors will be happy to agree to pay for deletion terms. Credit bureaus will not alter accurate credit information, so to get the delinquency removed the creditor has to report the negative item as an error. Many creditors are unwilling to do this.

One important note of caution is that a letter of deletion from a collection agency is only of partial value. When a company employs a collections agency to resolve an unpaid debt, two blemishes appear on the consumer's credit score—one from the original creditor and one from the collections agency. If the deletion letter comes from a collections agency, only the collections mark will be removed. The only way to get both blemishes removed is for the deletion letter to come from the original creditor. The deletion letter should state that the debt was an error and both the original delinquency and subsequent collections record should be removed from the credit profile.

I wish that I could say that it never hurts to ask, but indeed it may be harmful to your credit score to even offer a pay for deletion settlement. Let's first go over the possible outcomes of negotiating a pay for deletion settlement, and then we'll address what the creditors and collections agencies are allowed to do by law (because sometimes they break the law). Here are the possible outcomes:

Outcome 1
You make an offer to the original creditor to pay the debt (or a percentage of the debt) in exchange for a deletion letter. The creditor agrees, you pay the debt and submit the deletion letter to the credit bureaus. Your credit profile is updated, and your credit score jumps dramatically.

Outcome 2
You make an offer to the collections agency to pay the debt (or a percentage of the debt) in exchange for a deletion letter. The collections agency agrees. You pay the debt and submit the deletion letter to the credit bureaus. The collection agency blemish is removed from your credit report, but the original delinquency still remains (because the deletion letter did not come from the original creditor). Your credit score improves, although not as much as it could have if the deletion letter had been from the original creditor. If the original debt is from a large institution that will likely be disagreeable to a pay for deletion offer, striking a pay for deletion deal with the collections agency may be the only option if the original debt is more than 2 years old. Negative items over 2 years old are of much less significance to credit score calculations than items less than 2 years old. If the collections mark is less than 2 years old but the original delinquency is more than 2 years old, obtaining a deletion letter from the collections agency may be enough to boost your credit score to where you need it to be, particularly if you are on the bad credit/good credit border. Remember that "20 points" is the magical jumping block in credit scores. That means that 609 is the same as 619, but 620 is a notch up. 681 is the same as 695, but 700 is a different ball game altogether. The credit scoring system lumps scores together in increments of 20, with 620 being the magical bad credit/good credit borderline. Borrowers with scores under 620 are considered "sub-prime."

Outcome 3
You make an offer to pay the debt (either to the collections agency or to the original creditor), but the offer is rejected. Your date of last activity is not updated. Your credit score remains unchanged.

Outcome 4
You make an offer to pay the debt (either to the collections agency or to the original creditor), but the offer is rejected. In this case your "date of last activity" is updated because of your recent offer. This drops your credit score even more.
Opinions vary as to whether or not simply talking to a creditor will update the date of last activity. Talking to your creditor shouldn't reset the clock. According to the law, the date of assignment pertaining to the delinquency does not change and should not be updated or "re-aged" by creditors or collections agencies. However, it's done all the time. If it does happen, the consumer can formally dispute the re-aging of the debt, but that process can take months. If you are in the process of applying for a home loan and your charged off debt is re-aged, your credit score will suffer—and you won't likely be able to get it fixed during the home loan application process. FCRA Section 605(c)(1) clearly states: "The 7-year period…shall begin…upon the expiration of the 180-day period BEGINNING ON THE DATE OF THE COMMENCEMENT of the delinquency, charge to profit and loss, or similar action." Click here to get a .pdf file of The Fair Credit Reporting Act (FCRA). Interpreting this "legalese," creditors and collections agencies can't just change the "date of commencement" to whatever suits their fancy. If the creditor does restart the clock by re-aging the debt, the consumer can be put in a tight spot if he or she is in the midst of the loan application process. Such action could drop a consumer's credit score by 50 points, for example, effectively putting the consumer's score in the toilet. If you need to approach a creditor with a pay for deletion offer, knowing your rights is important. If you let the creditor know that you understand your rights under FCRA Section 605(c)(1) and will take aggressive action should the creditor attempt to monkey with the date of last activity, the creditor is less likely to break the law.

One word of advice: the smaller the debt, the more likely the creditor will demand payment in full in exchange for a deletion letter. On the other hand, if the debt is thousands of dollars, for example, you may be able to swing a 50 cents on the dollar pay off in exchange for a deletion letter. You may even do better than 50 cents on the dollar.

If you pay a charged off account in full, the creditor is under no obligation to give you a pay for deletion letter unless you already struck a deal with them in writing. If you ask for a deletion letter after the fact, you may or may not get it.

Also remember that creditors list negative items on your credit report because it is their business practice. Do not take it personal and steer clear of moral arguments because they will fall on deaf ears. If you choose to pursue a pay for deletion strategy in order to boost your credit score, stick to the dry details during the negotiations. Leave your emotions out of it, boiling it down to "I'll do this if you'll do that."

If you do strike a deal with a creditor, make sure that the agreement is in writing. Verbal agreements are worthless. Moreover, the deletion letter must state that your account will be changed to "paid as agreed" or "account closed—paid as agreed." Any other listing will appear on your credit as a negative item. Only an agreement from the original creditor will truly wipe the slate clean. The letter should also stipulate that the subsequent collections agency mark should also be removed.

If your creditor does indeed agree, in writing, to a pay for deletion offer, the effect on your credit score can be dramatic and quick—20 to 50 points, for example. A knowledgeable mortgage broker can utilize credit rescoring, and your credit score will definitely improve—and sometimes dramatically. A deletion letter followed by rescoring could take a borrower from poor credit status to excellent credit status in a matter of days. 

Another important factor in deciding whether or not to make a pay for deletion offer is the age of the debt. Negative items more than 2 years old are of much less significance to your credit score than recent negative items. If the item is old, it may be a good idea to let sleeping dogs lye.

One last word of caution. An offer to repay a debt may reset the clock on the statute of limitations because it reaffirms the debt, depending upon the laws in your state (this is separate from your credit score). Bringing the date of last activity current allows the creditor and collections agent to reevaluate their options. They may choose to file a lawsuit and seek to garnish wages. They will take a look at your credit report and ask themselves questions such as: Does this person have a job? Do they have a home? Do they have assets? Remember that they can tell from your credit report if you have assets. Your auto loan will show a high balance, for example, of $21,000 and a current balance of $3,000, showing that the car is almost paid off. The equity in your home and other assets will show up too. If the debt is for a significant amount of money—say $2,000 or more—resetting the clock on the statute of limitations is very dangerous. If an amount is significant, the chance that a lawsuit will be pursued is greater than if the debt is paltry.

Click here to see a sample pay for deletion letter.

Ask the creditor to delete 30-day late item
It never hurts to ask. A creditor is more likely to delete a 30-day late occurrence than a 120-day late item. Ask and you may indeed receive.

Re-open closed accounts
According to Fair Isaac, closing accounts hurts credit score. Opening closed accounts will improve credit score, so that Sears card you thought you didn't need—well, you actually need it after all.

Charge on old accounts
Established credit history that isn't utilized doesn't contribute to credit score as much as it could. Do not let your credit cards collect dust. Tomorrow when you fill up your tank, put it on that Discover card that you haven't used in years. Your credit score will thank you.

Paying more than the minimum payment

There is no advantage to paying more than your minimum payment. The credit card companies can only report a negative occurrence to the credit bureaus if you fail to pay "as agreed," meaning you fail to uphold your end of the contract. If you pay your minimum payment, you are in compliance with the contract and all is well.