The major mistake most people make is accepting a 30-day late because you were assessed a late payment. Late payment assessments come generally between 10 and 15 days after the due date, but a 30-day late is 30 days after the due date. If you have any on your credit report and you weren't actually 30 days late making the payment, challenge it and get it off.
A current 30-day late can cause you up to 100 point drop in your credit score!
People who have a moderate amount of credit outstanding and make payments on time can have a lower credit score because they have all or most of their balances too close to the high limit. A balance of $12,000 on a credit card with a high balance limit of $15,000 is too close, and will work against you. Sometimes it means pulling some money out of one source and paying down the balance on other accounts. At this time I must always point out that I am not suggesting you borrow your way out of debt. I am telling you that if you are seeking financing for any reason, it is best to rearrange your accounts if they are in the state I’ve discussed above, to help you get you a better score and ultimately a better interest rate.
I have seen borrowers with good credit scores coming out of a Chapter 13. The reason is that all accounts were brought current under the Chapter and not wiped out.How you treat your creditors carries a lot of weight. When you finish with a credit card or other creditors, be sure to close the account. The credit bureaus will look at open and unused accounts as potential credit for the borrower, and it will work against you.
Now for the main point: If you have a house, you can't have bad credit, unless there isn't a penny of equity in your house. Credit is expensive and bad credit is an unneeded additional expense. Clean up your credit and you will find the lower interest rates you will receive with good credit will be a financial windfall. I would take all of the equity out of my house to clean up my credit before I would live another day with huge interest rates on other outstanding obligations. Many will disagree, but that doesn't make me wrong and them right. Sit at my desk and read the emails from people who didn't act when they could, and you will see what I mean.
Once you take cash out of your house or other real estate or financial assets, you can change your credit in a matter of a few weeks to a few months. If you do not have any assets to tap, it isn't as easy. The road back for you is not to avoid the creditors, but to contact them and try to work something out that you can live with. Don't agree to something you can't make happen just to get them off your back. A dollar a month paid on time is far better than a hundred dollars that is promised and not paid.
Good credit is a blessing, which you can bestow upon yourself. Do not hesitate to do it. An unscientific but widely held belief, by me, is that people without credit problems sleep better than those with credit problems. They also look better and dress better, but do not necessarily have more hair.
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom. Roger is the President and founder of Manhattan West Mortgage.