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Better Late Than Never: Improving Credit Score Advice
Hello! So, it's a little late in life (30) but I figure with cases like this maybe the quote "better late than never" comes into play. My score is a 545 (which is apparently 25 points higher than last year, though I don't feel like I did anything to proactively increase that?) and the dollar amount of debt to my name is $2,700 (broken down below). I'm in the position where realistically, and fortunately, I could pay this off all by the end of the year. I have some questions about what route I should take, however, considering a few factors and all with the end goal being to increase my credit score to it's highest potential. I've done a lot of reading and research but alas I still have questions. Any advice would be greatly appreciated. Some things to note first, which may or may not help, and then I'll follow up with my questions.
1) Of the 2,700 debt I have, $1,700 comes from student loans (two, one at $400 and another at $1300) opened in 2010; $800 from an apartment complex mid-last year whom I received notification as why I was charged this but I digress; and finally $180 from a utility company.
2) I have no credit cards whatsoever, I've lived off a simple prepaid debit card for a long long while now.

So with this in mind, and knowing I'm overall wanting to increase my score month over month with a (hopefully) significant increase by the end of the year - what is my best course of action? Questions numbered for ease.
1) My research tells me that student loan debt does not fall off, so even though the 7 year mark is coming up, that doesn't mean much to me. Am I better off reaching out to the company and seeking a settlement and paying it off all at once by the end of the year? Or set up a payment plan?
2) Same question for the utility/apartment complex debt, also should this one take precedence over the student loan given that I'll likely be moving in a year?
3) Should I wait til all of this is cleared up before looking into a secured credit card or should I start that process sooner rather than later?
4) Lastly, if by the end of the year I can make it so there is $0 owed across the aforementioned board, how much of a point increase could I expect?

One last thing, but not entirely related to debt. Bank accounts, should I wait until I've improved my credit rating before looking into signing up for one or is there no correlation at all? How much will my score affect trying to open an account?

Thank you in advance for a) reading and b) your advice.

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Hopefully this helps

It’s good that you’ve decided to work toward getting your credit in order. In doing so, and starting to research solutions, you’re already on your way. 

And you’re right; it’s never too late. I was near the same age as you when I first started to make serious attempts at going down the path of rebuilding. I warn you, it’s SLOW going, but eventually, if you stay the course, you’ll get there. I was at about 580 when I first started trying to rebuild. I had a bunch of accounts closed for non-payment on me, couldn’t get a new credit card, and I owed about $5,000 on my cards alone. Student loans were much more (I still have one, which is nearly paid off). Eight years later to today, I have five cads I use regularly (and pay in full every month), more than $30,000 in available credit, and credit scores in the range of 780 to 800.

I’m a little confused by some of your questions, so bear with me here. Are these debts that you owe past-due amounts? Or are your accounts all considered “current” by the lender?

If any of these accounts are past due, ABSOLUTELY get in touch with the creditors so that you can come to some kind of arrangement. Your credit won’t be going anywhere until you do. If any of your creditors refuse to work out some sort of payment plan in order to bring your status to “current,” then that’s the creditor you should try to pay off first. But DON’T fail to pay your minimum payments on your other accounts!!! 

If/when all of your accounts are brought current, make at least the minimum payment on ALL of the accounts. Period, no exceptions. Apart from that, I would prioritize more money toward the account that has the highest interest. So minimum pay the lower interest accounts, and pay as much as you can each month toward the highest. 

Once your highest interest account is paid down, start applying the money you were paying toward it, and lump it into your next-highest interest account .. and so on. This is how you’ll pay down your debts and pay the least possible amount of interest. The interest you end up having to pay, the longer and harder it’s going to be to get free of your debts.

While you’re pursuing paying all this down, you might try (only once) to get a secured credit card. Length of credit history factors in to your credit health. So the earlier you’re able to get started the better. I wish I’d thought to do this when I first started rebuilding. If you try for a secured card and for some reason you’re turned down, don’t try again for at least a year or two.

Again, personally I didn’t go the secured card route (I didn’t think to, honestly). I just chose to avoid all credit for a good 3 years or so until my credit score improved a bit. At that point I was able to get a couple of store cards with very low credit limits. My Old Navy card had a limit of $80. Yes, eighty … it’s not a typo. After about another year or so I was able to get my first unsecured Visa from Capital One. That limit was pretty low as well (250 I believe it was).

It’s going to take time for your score to recover. So don’t get discouraged if you don’t see massive improvements over the first year or two. Even three. The longer time goes on though, the less and less your negative credit history will factor into your score. And by the way, you’re slightly incorrect in regard to your student loan. The loan may not “fall off” … but the negative information WILL fall off after that information is more than 7 years old. One of my student loans almost went into collections, and had a 120+ days past due noted on it. Now, more than 7 years later, that account has no negative information listed whatsoever. It’s as if it never happened.

And there’s no correlation in any way between your bank accounts and your credit history. The only bank account you might have any trouble with would be any sort of line of credit. Note, if you try to get an overdraft option on your bank account, that could involve a line of credit. I would absolutely avoid this. Most banks have a dual checking and savings account setup … I would opt for this. And try to find a bank that will meet your needs for free (or as close to it as possible). If you look hard enough, you should be able to avoid paying all sorts of monthly fees. In this regard, BoA and Santander should be avoided. If they’re around you TD Bank has been pretty good to me. 

Lastly, here are some overall tips for improving your credit:


  • You shouldn't have any sort of derogatory items such as court judgements, tax liens or bankruptcies. If you do, you need to resolve those issues before your credit can start to recover. Once resolved, these items can and will have a negative bearing on your account for a long time. Bankruptcies for example will stick for up to 10 years, though the effect will lessen slowly as those years go by.
  • Make sure everything in your reports is accurate. If you find things that are wrong, it’s possible that your score can be adversely affected.
  • Pay at least the miminum on every bill, every month. This is the most important item, along with the previous ones. Pay more if you can to reduce your balances, but don't bust your day-to-day budget in order to do so. Pay what you can afford ... no more, no less.
  • Keep credit balances as low as you can afford (less than 10% across the board tends to be ideal). Depending on your own financial situation, this can be rather difficult. But besides having to pay interest, it's ok to slowly work your way toward lower balances. Do NOT pay more to your cards simply for the purposes of trying to increase your credit ranking.
  • If you don’t have a budget, MAKE ONE. TODAY. And once you have it, stick to it. It might take some time to get a feel for what’s realistic in terms of expenses. Work at it, and maintain it.
  • If you’ve zeroed out your credit balances, congrats! But avoid the inclination to quit using cards cold turkey, and 100%. Lots of people come out of debt saying “never again” and burn their credit cards in effigy. (more in next item …) DO use your cards going forward, but responsibly. Pay off your balance in full every month. Doing so will show over time that you’re capable of using and not abusing your credit, and over time, THAT’S what builds your credit to new heights.
  • If you’re living day-to-day with a balanced budget that’s solely cash/debit, then there’s no reason you can’t do the same whilst still using your credit card(s). If you’re worried about discipline, then you’d do well to ignore your credit limit (no, I’m not saying max out your cards). If your food and misc. expenses on your cash budget is $600 a month, but your credit card limit is up to $2,000 … your credit limit IN PRACTICE should be no more than … yup … $600. If your credit bill comes in at more than $600, then you know you busted your budget. 
  • Keep your accounts open (and current); especially your oldest. Having lots of new accounts doesn't help your score. If you keep those accounts open and current over the next several years, they will benefit you more and more.
  • Avoid applying for new credit or credit limit increases unless you really need to, as these requests often generate inquiries. Inquires count against your score for about two years. As your credit recovers, you'll be able to shop around for new credit without much of a hit on your score/reports. Personally, I try to wait at least two years before I consider any new forms of credit (whether it be a credit card or a loan).
  • There are lots of resources are out there. Read up, be patient, and stay the course. Rebuilding takes years, which proves to creditors that you are a good borrower in the long term. 

DO NOT trust any “service” that claims it can “fix your credit” in a month or two. Nonsense. Credit is all about demonstrating to creditors that you’re dependable now and forever as a borrower. So if you’re just recently recovering from bad debt, that’s fine, but it’s going to take some years (7 to 10) to prove your worthiness to lenders. 

Stay the course, and it'll happen. Good luck!

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