Healing a Wounded Credit Score
By TARA SIEGEL BERNARD Published: February 18, 2011 in The New York Times
Millions of consumers have fallen out of favor with the credit scoring gods.
Some lost their jobs or were just overwhelmed by mounting debt. Others got caught up in the real estate bubble or had major medical bills. Whatever the reason, the rising number of foreclosures, short sales, late credit card payments and the ultimate credit sin — bankruptcies — have left black marks on credit reports most everywhere.
So what can these people do to repair their credit?
The simple answer is to focus on the information that is used to generate the all-powerful FICO score — the measure used most frequently by traditional lenders to determine creditworthiness. Its scale runs from 300 points to 850 points; the higher the score, the better your credit standing. “FICO is still the 500-pound gorilla,” said John Ulzheimer, president of consumer education at SmartCredit.com. “In 2011, the best way to get credit from the mainstream lenders is to have a good FICO score.”
Consumers can hope that the banks will eventually consider alternatives to the traditional FICO score, which was developed by Fair Isaac Corporation and has been in wide use for about two decades. After all, as banks regain their appetite for lending, they will be looking for ways to differentiate between borrowers with the same scores, some of whom are temporarily struggling and others who chronically have trouble with money.
For now, though, the FICO score reigns. The best antidote to a poor score is time. Still, there are a half dozen ways to speed the process, or, at the least, avoid even more credit trouble.
What to Do
ASSESS YOUR SITUATION Before you even start to think about rehabilitating your credit, make sure that you can pay your bills on time and not do any more harm. If keeping up with your credit card bills is still an issue, then call the issuer, explain your situation and try to negotiate payments you can afford. Ask the issuer how that will be reported to the major three credit bureaus: Not paid as agreed, which can hurt your score? Or will the new terms say that you are now paying as agreed?
Read the rest of this article at The New York Times online.
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