How Do I Improve My Credit Score?

My husband and I have a lot of debt that we are trying to handle without filing bankruptcy or using a debt settlement agency because we are trying to improve our credit.However, We have a lot of credit card debt. two of them have been charged off, two have been turned over to collections, one has been closed but it has not been turned over to a collection agency and one is open but we are a little behind on it. Can we improve our credit if we get caught up on the open credit card and the closed credit card and make payments on time while at the same time we make payment arrangements to pay as much as we can afford on the others?

Mrs Kim Johnson

In order to figure out which accounts to pay and clear up the fastest to increase your credit score, it may be helpful to know exactly how the FICO score is calculated.

• 35% of the score is determined by payment history: payment information, late payments, adverse public records and collection items as well as number of accounts paid as agreed.
• 30% is amounts owed: in comparison to the credit that is available.
• 15% is the length of your credit history: Older accounts that you have paid and kept open reflect better.
• 10% is new credit: recently acquired credit, credit inquiries and reestablishment of positive credit following past credit problems.
• 10% is based on the types of credit used (mortgage, loans, credit cards).

As you can see, the largest factor in calculating your FICO score is your payment history, which includes your collection accounts and the charged off accounts, and possibly the account that is closed (not sure if that still has a balance) as well any late payments you may have on your open credit card.

In order to increase your credit score, you will need to clean up these accounts and establish a good payment history by making your payments on time and not missing any.

Here are some steps  you will need to take in order to increase your credit score:

1. Call the companies with the charge offs. An account that has been charged off means that the creditor has declared the account as a loss and usually occurs after less than minimum payments have been made for 180 days. Some people think this means that the account is closed and cancelled but the creditor can still pursue collection and you are still responsible for the debt. Contact the account holder and try to negotiate a settlement amount and if possible, pay them off in full. You may also be able to negotiate a removal of the charge off from your credit report when the account is paid in full. Either way, it looks better to have a “charged off paid” or “charged off settled” than just “charged off”.
2. Contact the collection agencies and negotiate the amounts owed as well. If you cannot get a pay off amount that works for you, set up a payment plan and work on paying these off.
3. Pay your minimum monthly payment on the open account at least until you clear up the other accounts. This keeps your account in good standing until you can possibly pay more, similar to the Snowball Method. Because of the new issues on your credit report, it may be difficult for you to get another reasonable credit card or financing for a while so you want to do your best to keep this account open and in good standing.

Hope this helps, and good luck!