Category Archives: Building & Rebuilding Credit

Credit scores measure late payments in multiple ways

This post originally appeared May 31, 2018 on as “Late payment? 4 ways it impacts your credit score

By Barry Paperno

Dear Speaking of Credit,
My credit score was in good shape till one or two weeks ago – 705 points on Equifax and 740 on TransUnion. However, I had one late car payment and my score dropped 40 points!

I am hoping to close on a home with a FICO score goal of 720 points in six or seven months.

Assuming I keep all other payments the same and keep my credit utilization below 10 percent, can I recover my credit score back to 720 in seven months? – Nader

Dear Nader,
Though we don’t know for sure if this was your first late payment, considering that your scores have remained above the average FICO score (over 700 points) despite this recent mishap, we’ll assume that any prior minor delinquencies will have occurred at least a couple of years ago or so.

You are about to learn why knowing the entire history of all past and present late payments can be essential when trying to determine the major negative influences on your current and future scores before setting out on your score rebuilding journey.

When attempting to understand what it will take for your score to recover, it always helps to not only know what has hurt your score, but also knowing how it got there can often provide a roadmap that will eventually help you undo much of the damage and enable you to better prioritize those rebuilding efforts.

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Payment in full or debt settlement? A critical credit decision.

This post originally appeared April 26, 2018 on as “Paying off in full vs. settling maxed-out card debt

By Barry Paperno

Dear Speaking of Credit,
I just got lump sum of cash from parents to pay off some credit cards I have maxed out. Should I try and settle with credit card companies, or should I pay in full?

Reason I ask is because my credit has gone down almost 200 points to 498 over a two-year period. Would it hurt even more if I settle debt? – Octaviano

Dear Octaviano,
I’m afraid that, yes, in some situations settling a debt could set your score recovery efforts back a bit.

However, doing so could save you a lot of money that could be put to good use elsewhere.

So let’s look at how these two considerations may sway your decision of whether to pay in full or settle:

  • Cost savings
  • Score recovery

Fortunately for once, we can leave the amount you owe out of this discussion, since both paying in full and settling will eliminate your card debt.

Both options will also get rid of any lingering score damage caused by having card accounts with such a high credit utilization – the amount you have borrowed compared to your credit limits.

Credit utilization is the second most important factor in credit scoring, after making on-time payments.

Now let’s look then at how a negative payment history – recent history, especially – might be affected by either an in-full payoff or a settlement.

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Many cards at a young an age can make for score challenges

This post originally appeared April 12, 2018 on as “Too many new cards hurt my score. Should I cancel them?

By Barry Paperno

Dear Speaking of Credit:
I ran into an issue this past year by opening up too many lines of credit. Previously, I had a pretty decent score for being only 25 years old.

I have a few cards that are not carrying any balance, and I’ve had them for more than six years now. The problem is, this past year I opened too many lines of credit and I think it hurt my score.

I went from an average credit age of around four years to now around two, and there probably were too many hard inquiries.

My score dropped around 35 points, and I’m not sure what I can do to raise it. I am only using around 20 percent of total credit, too.

Would it help to pay off and cancel some of these newer accounts? Or should I just ride the bullet and hope for the best. – Jordan

Dear Jordan,
Good for you at having amassed such an impressive credit history at such a young age. Unfortunately, you now seem to be seeing why credit experts always recommend opening new accounts only when necessary.

Despite not knowing your credit score, just knowing you have been able to obtain multiple new accounts with so little prior history tells us your score must have been a good one – over 700 – before the drop.

And even after having dropped 35 points, your credit score might still qualify you for even more new credit.

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3 best ways to build & rebuild your FICO credit score

This post originally appeared March 22, 2018 on as “Can decades of excellent credit disappear from my report?

By Barry Paperno

Dear Speaking of Credit,
I’m 57. I’ve had credit since I was 18. Car loans. Mortgage. Credit cards. Personal loans. Business loans. Always had excellent credit.

About 10 years ago I paid everything in full. Stopped using credit cards, and pay cash for everything. I have no debt.

I recently went to get a new vehicle and they said I have a zero score. They then showed me my credit reports, and all three had nothing on them. It was like my entire credit history had been erased.

So now I’m debt free, need a loan, and no one will touch me. What happened to 40 years of credit? How do I fix this as quickly as possible?

I see offers of secured cards – but is that the best route, and is it safe? I would greatly appreciate any info or help you could give me on this subject. Even my home loan paid off early is gone. Very perplexing. Thank you. – Robert

Dear Robert,
Perplexing is as good a way as any to describe the feeling of waking up one day to find that 40 years of credit history have gone missing.

And though it might feel like your credit just suddenly disappeared when you weren’t looking, what you’re witnessing is the most likely result of a gradual process in which “old” information is removed from credit bureau files little by little over time.

To help you work your way out of this jam, let’s take a look at how long cards and loans remain on credit reports, how long they continue to affect credit scores once paid off and closed, and lastly, what you can do to once again be able to obtain financing when you need it.

But there’s a catch. The remedies to your dilemma all require returning to that world of creditors and credit bureaus you left behind more than 10 years ago.

There’s simply no other way, since few lenders will loan to you without some track record. So, if you’re willing to jump back in the water, read on.

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Was paying off a defaulted card balance a good idea?

This post originally appeared January 25, 2018 on as “‘Q&A: What to do after defaulting on a credit card

By Barry Paperno

Dear Speaking of Credit,
I recently got defaulted from a Banana Republic credit card for missed payments. That has affected my credit score, and I am now trying to get back on track.

I recently paid off the remaining balance in full and am looking to cancel this card for good.

My question: Was paying off the remaining balance in full the best decision credit-wise? And what do you recommend for me moving forward? – Daniel

Dear Daniel,
Let’s start with the no-brainer answer to your first question of whether paying off the remaining balance was a good idea. Absolutely!

Despite those missed payments that hurt your credit score, you did right by paying off that card balance, since doing so can:

  • Stop additional interest and late charges.
  • Prevent a collection agency from entering the picture.
  • Start the “credit rebuilding clock” ticking.

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First credit card can lead to car loan approval in 6 months

This post originally appeared October 19, 2017 on as “‘Q&A: How to achieve a good credit score as a first-time cardholder

By Barry Paperno

Dear Speaking of Credit,
This is my first time owning a credit card and I want to know if it is possible for me to finance a car after six months of having the card, while keeping a good credit score. – Joseph

Dear Joseph,
Congratulations on your first credit card! Cards can be both a blessing and a curse. On the plus side, they can help your score tremendously with consistently on-time payments and low credit utilization – the amount you have borrowed compared to your credit limit. And yet just a single missed payment or maxed-out balance can send that score plunging.

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Best score-raising plans can also be easiest to implement

This post originally appeared August 3, 2017 on as “‘Q&A: Best strategy to raise my credit score beyond 750?

By Barry Paperno

Dear Speaking of Credit,
I currently have two credit cards ($5,000 credit limit on each). I’m looking to boost my credit score above the 750 mark, and I’m just a few points shy. I maintain less than a $100 balance combined across the two cards, and I know a low available credit/credit used ratio can help boost your credit score.

Should I apply for a third credit card or ask for a credit limit increase from one of my existing cards? If I ask for a credit increase, how much should I ask for? I am gainfully employed and make over $50,000 a year. I have $18,000 of student loans, but I’ve paid $5,000 off in the past four months. – Bronn

Dear Bronn,
You’ve provided us with a great reminder of how the best strategies for raising credit scores are often the easiest to implement. Particularly in a situation like yours, in which you’re already doing right by your score and have a good one to show for it.

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Adding a second card could help build your credit score

This post originally appeared July 27, 2017 on as “‘Q&A: Why a recent graduate should get a second credit card

By Barry Paperno

Dear Speaking of Credit,
I am 22 years old and have had a Chase Freedom credit card for about three years now. I always pay my balance on time and have never been late. I try to use the card as often as possible.

I recently graduated from college and am looking for ways to help increase my credit and set me off in the right direction. This past month I accumulated two hard inquiries on my credit for a car lease and for an apartment. I am going to be attending graduate school for the next two years.

I was thinking of applying for a second credit card, but I am not really sure what to do. I guess my questions would be whether I should get a second card, and if so, which card should I look into? – Vin

Dear Vin,
Congratulations on graduating college. Achieving both a diploma and a three-year credit track record by age 22 says you’re already headed in the right direction.

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Carry a balance, skip a payment to build credit? Never.

This post originally appeared July 20, 2017 on as “‘Q&A: Missing a card payment to build credit is terrible advice

By Barry Paperno

Dear Speaking of Credit,
I am 18 years old and have been approved for a card with a $500 limit. I spoke to an associate with my bank who told me that it would be a good idea to not pay the balance on my credit card for the first month. He said that because I have no credit history, and this is my first billing cycle ever, it would be a good idea to let the balance carry over and then pay it off at the beginning of the next billing cycle. He told me to not even make a minimum payment.

From that point on, he said that I should pay my balance off in full each month, which is what I was planning on doing from the beginning. His reasoning for this was to show the credit bureaus that I at one point had a balance, and then I paid it off, as opposed to always having a zero balance because I’ll pay off the card every month.

I was under the impression that letting a balance carry over would always be a bad idea. Is there any truth to what the associate told me? I only care about what will build the most credit. The interest doesn’t matter to me because I have a 0 percent APR for my first 12 billing cycles. I really appreciate the help. – Zeeshan

Dear Zeeshan,
If that isn’t the worst piece of credit advice I’ve heard in a long time, I don’t know what is. Good for you to be questioning it.

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Add a card or loan to a young credit report for a better score

This post originally appeared March 2, 2017 on as “‘A two-step plan for building young credit

By Barry Paperno

Dear Speaking of Credit,
Hello! So I have had a credit card for about seven months now and wasn’t exactly using it how I should have and now have a low credit score. Since I found this out, the card has been paid off.

I just opened another account thinking I can use both and keep them under 30 percent of their limit and pay them off monthly to help. Is this a good idea or not? I have already been approved for the new card and it is on its way. Afterward I read that having two cards with a low balance can actually hurt your credit. If so what should I do? Neither of them have fees and both have low interest. Thank you! – Alyssa

Dear Alyssa,
When saying you weren’t “exactly using it how I should have,” let’s assume you were 1) late on at least one card payment, and 2) running a high balance, as late payments and high credit utilization tend to go hand-in-hand. This is especially true when the credit file is thin and the length of history short.

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