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Paying off collections

I know it doesn’t make sense that you are punished for doing the right things…but unfortunately we don’t live in a perfect world and you are not rewarded for doing the right thing.  A collection that is six years old and hasn’t reported for six years is only down your score 10 points.  When you pay it off, it will push forward the reporting date to today and will still be coded with a 9 coding which means it is a collection.  So doing the right thing can drop your score 40-50 points, rather than leaving it alone and only holding down the score 10 points.  When they tell you that they are going to put it as satisfied, good standing, and paid in full, none of this helps increase the score.  They use these strong adjectives to make you feel like you are going to increase your scores, rather than hurt it.  The best you can do is try to leverage your payment for a deletion letter.  Ask for the deletion letter before you pay to make sure that they will provide it.  If they can’t provide one ahead of time, let them know that if they don’t provide a letter of deletion you will negate your payment.   Unfortunately, only 30% of companies will provide letters of deletions and calling on them can cause your collection to update.

Cosigning on items

A lot of times the banks will let you know that cosigning isn’t that bad and they hold the original borrower more responsible.  That is false and you are just as liable for the debt as the original borrower.  So try not to take the risk cosigning for a family member, because it can end up costing you your credit score.  By far this is one of the biggest mistakes people make, trying to help someone out by cosigning.  If you do not stay on top of a bill that you are expected to pay can cause them to default and pursue judgements against you.  You can never fight the creditor to correct the credit due to negligence on the other party because you are supposed to be monitoring all of your accounts.

Divorce Decree

Unfortunately a divorce decree does not have to be honored by creditors or collection companies.  Even if the judge stated that your ex is responsible for the debt that does not protect your credit.  The best thing you can do is have your ex refinance all the items the judge gave them, to remove your name from the loan.  You can sue your ex if you start to see late payments and collections on your credit report, but you are not going to get very far suing someone who cannot pay their bills and your credit will be shot in the end.   If the person awarded the house does not have an income, there is no possible way for that one person to refinance the property into their name.

Financing a car at a dealership

Dealerships will shotgun your information out to the auto finance companies.  Sometimes going to one dealership can cause 20 inquiries on your credit report which can cost you upwards of a 42 points loss on your creditreport.  The best thing you can do is go to a credit union or bank and try to get prequalified for a loan.  This will only be one inquiry and you will be able to take the pre-qualification into any dealership and get the same car without having to ruin your credit.  Always try to negotiate the price before you tell them you are handling the financing yourself.  They will try to charge you more if they know that you are financing yourself, because they make money off of the financing as well.

Paying Cash for Everything

The old fashioned saying is, “If you don’t have the cash for it, don’t buy it!”  That saying is great and I do agree with it…the only problem is that the credit bureaus don’t understand that.   If you do not finance anything, you will never be able to achieve a credit score.  Instead you will come up with no score at all.  In order to have a good credit score, you have to live some debt and manage it correctly.   Also the best thing is to keep a good mix of accounts.  3 installment accounts and 3 credit cards is the best mix to have.  Installment accounts are considered home, auto, and student loans.  There are a lot of people who have paid cash their whole life and because of inflation they now need to borrow money.  This is probably the most frustrating thing about credit because these are the most well qualified people without a credit score.

Source: https://www.lendio.com/blog/small-business-tools/ways-to-help-your-credit/