January 19th, 2009
Your Credit Score
Let’s suppose that your credit card payments are far behind. You are not using the accounts, and you are managing to pay enough to prevent getting hit with charges associated with poor credit. You have talked with your creditors and everything is made good. None of this will bolster your credit score towards the positive. It may make it seem like the best thing to do is wait the seven years for the credit report to refresh. However, trying to play the waiting game and hoping delinquent accounts to fall off the report is in general a bad idea. Credit scores tend to go down much more easily than go up, and all of this take place on longer time frames, meaning that patience is very important. All of that said, it is important to pay off all debts as quickly as you possibly can.
It is always the more favorable option to repay your debts than to wait things out. Being tempted to save and wait things out may seem like a good course of action, but when it comes to making a large purchase, such as for a car or house, debts that are not paid will disqualify you. Paying your debt late, even if the accounts are sent to collection agencies, will still demonstrate that you are going to pay off the mortgage, and is much better than not having paid off a debt.
Another thing to consider is the pain it will be once the decision is made to default permanently on the debts you owe. This makes you a target for property liens, bill collectors, lawsuits and so on. This could lead to loss of property and having your paycheck garnished. It is much better to pay off the debt that is owed, foregoing dealing with the harassment coming from collectors and the potential for litigation.
Repayment of debts should be done for the betterment of your credit score, and doing so whilst the account is open will appear much better to the credit bureaus. Timely repayment is more than a third of your credit score, the model for credit that is used by the most lenders. It is for this reason that payments made on time will greatly benefit you credit score. Trying ones best to make the full monthly payment will have nothing but positive results with your credit score.
The bottom line is that you entered an agreement to pay off your debt according to a schedule. Not following this schedule gives the lender the ability to report to the credit bureau and worse, take repayment from wages and property. If you have to miss a payment, then miss the payment but pay what you can when you can. Some people will let their debt sit and go on forever, and in seven years time they get off without the bad mark on their report. You will have to wait the same time to get the same result, but you will not risk property in the progress, and obtaining mortgages and loans down the road will be much easier for you.
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I was thinking of getting my free credit score on Credit Karma but I am a bit skeptical. You just don’t know who you can trust when giving out your social security number.
Has anyone out there tried getting their credit score using Credit Karma? And was it safe and successful?
CreditKarma is safe and secure from my experience. The free credit score it great, especially since myfico.com charges for this service. On a side note, I read today on calculatedrisk.com, that some high FICO customers were defaulting of their credit cards. I’ve also read that the 3 big credit agencies are developing FICO score equivelents of their own since they are tire of paying Fair Isaac so much money, while, all the while losing faith in FICO. Who knows for sure, but it sounds true to me. As for CreditKarma, this is a great service.
I went through the post and I must say that it is a very good post regarding credit score. Credit scores can help any individual going down much more rather than going up. A wise decision to maintain a clean credit history is paying off your debts as early as possible rather than stretching the term of it. I think, the post will be very much helpful for all your visitors.
I just tried out the Credit Karma score simulator. When I ran a scenario of paying off my credit card balances, it made my score go down. I don’t understand why it would go down. I’m at about 85% usage on my credit cards so it should increase my score of I paid my balances down below 20%. Why would my score go down if I paid all my credit cards off?
If I make all my payments on time will that help my credit score to improve? How much can I improve in a year?
While the score from Credit Karma may be a good *relative* indicator from month-to-month on how your credit worthiness changes, it is not a reliable indication of your *absolute* FICO score. For me, I carry no balances on my credit cards, have no mortgage, have had credit history for 35 years, have never been late on a payment in all that time, have a credit availability on 6 cards of over $160,000, and only score 748 on Credit Karma (merely good). Be careful about making decisions based on what Credit Karma is telling you.
Your point is valid in the sense that there are multiple scores. You seem to believe that there is only one “absolute” score. Truth is even FICO has many scores.One score from each bureau and then about 3-4 readily used models. So you may in fact have as many as 12 FICO scores. FICO also states that more than 30% of users see a score difference of 50 points based on the bureau used.
Believe it or not some of your “good habits” are really not that good for your credit score. For example, not having any credit card debt is not good for your score. People who have debt and show they can pay it get higher scores than people who have not demonstrated the ability to pay off debt. So, if you had a mortage and were faithful in paying it on time your score would actually be higher. Hard to believe that having debt can be a good thing but true!!!
Your point is not 100% accurate. Credit reports don’t differentiate between revolving debt and transaction debt (paid in full monthly). So simple using your credit cards it enough. You don’t have to carry a balance to show credit card utilization.
I recently tried to retrieve my credit score from Karma and was not able to access it. If I have never purchased anything and don’t have any credit under my name, would I not have a score at all?
If have never used credit, you probably don’t have a file at the bureaus and consequently no credit score. If you are looking to build credit. Try a secured credit card. Public Savings Bank has a relatively good secured credit card based on user reviews.