The Credit Challenge

There seems to be a cloud of mystery surrounding how credit scores work, and how you can boost your credit score as quickly as possible. There are many opinions available, but unfortunately, many are just not true. So, what is the most important factor in your credit score anyway?

Payment history is the most important part of a credit score.

According to myFico.com, “payment history” within you credit score includes:

• Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)
• Presence of adverse public records (bankruptcy, judgments, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)
• Severity of delinquency (how long past due)
• Amount past due on delinquent accounts or collection items
• Time since (recency of) past due items (delinquency), adverse public records (if any), or collection items (if any)
• Number of past due items on file
• Number of accounts paid as agreed

Most delinquencies on your credit aren’t reported to the credit bureaus until after they are 30 days late. This allows for a small grace period - which is supremely helpful to folks who aren’t adept at organization. Since you have this grace period, your credit score will not be damaged simply for being a few days late.

What’s valuable to know is that delinquencies which occurred within the past 2 years are of greater weight than older items. That means that if you see an item sent to collections, it might actually hurt you to pay it off during the loan process if it’s more than two years old.

Why? Because paying collections will decrease the credit score due to the date of last activity becoming recent. But if you do decide to pay off a collection, MAKE SURE that the creditor gives you a letter of deletion first.

If, however, you have any recent accounts with past-due amounts, paying them off immediately will help your credit score. Again, if you do decide to pay off a collection, MAKE SURE that the creditor gives you a letter of deletion first.

In credit repair, it is important not only to take notice of what you owe, but also the last active date of your accounts. Knowing this simple thing can keep you from causing your credit to bomb for paying off a collection account.