To RAISE your CREDIT Score DO NOT Pay your BILLS!

This page is going to show you why, if you are trying to improve and raise your credit/credit score, you DO NOT want to pay your past due bills.

Why you Should NOT Pay Past Due Bills to Improve Credit Score

The natural and normal thought process is that if you owe past due bills and it is hurting your credit and contributing to a low credit score (under 700) that you should pay your past due bills and that will fix your credit.

While paying past due bills WILL increase your credit score, SLIGHTLY, it will not improve your credit score anywhere NEAR as much as not paying past due bills.

creditkarma.com dashboard.

Why Paying Past Due Bills can Hurt your Credit Score

When you have past due bills hurting your credit score, your credit report will reflect this past due bill and details about the past due bill, such as how long you have owed the bill and how long you have been past due.

If you pay the bill to improve your credit score, the past due item will STAY on your credit report. While the report WILL show that the item has been paid, it will still, also show all the negative information such as how long it had been past due.

Better than Paying Past Due Bills

A MUCH better approach is to have the item removed from your credit report entirely.

Think about this for a second. Which do you think is better:

  1. You credit report reflects an item that has been past due for 2 years but then was paid.
  2. The item is not on your credit report at all.

How to Have Negative, Past Due Items Removed from your Credit Report

You can do this yourself, but it is a lot easier and more effective to hire a professional to remove items from your credit report. In 2011 my credit score was around 550, a low enough score that I couldn’t even borrow time.

I hired a credit repair service called creditrepair.com. I am purposely not linking to it so your don’t think I am mentioning them to make affiliate commissions. Simple select it with your mouse and copy it to your clipboard (CTRL + C).

Their credit repair service cost $39 per month until you are satisfied with your score.

Now this may seem risky to some, because of the open ended-ness of it, but there is no way a legit credit repair company is going to know exactly how long it is going to take to get your credit score where you want it to be. In my case, it took 8 months to raise my credit score to about 700. This is the golden number you want to shoot for to be approved for most loans and credit cards and get a decent interest rate. The ideal number is 750 or above.

Credit Inquiries Hurt your Credit Rating as Well

Not only did creditrepair.com remove most of the negatively reported, past due items on my credit report, they also removed all credit inquiries.

In case you don’t know what that is and think it is harmless, a credit inquiry shows up on your credit report any time you apply for credit in some capacity. This includes things like:

  • Applying for credit card.
  • Applying for a loan.
  • Filling out an apartment rental application.
  • Pretty much any situation where you are going to end up owing someone money on a regular/monthly basis.

Credit inquiries actually hurt your credit score because if you have more than a couple of credit inquiries it makes potential credit lenders think …

  • why is the person all of a sudden so desperate for money?
  • why is this person not being approved by other lenders? (if you were approved you would only show one or two inquiries on your credit report).

How Credit Repair is Performed

What credit repair companies do to repair your credit score is nothing mysterious or magical and it is something you could do for yourself.

You could also paint your own house but I would prefer to hire a professional because …

  1. A professional has lots of past experience.
  2. A professional will do a better job than you.
  3. A professional will get the job done faster.

All the credit repair companies do to raise your credit score is they take advantage of a credit law that says that if a consumer disputes the validity of an item on his/her credit report, the credit reporting agencies (Experian, Equifax, Transunion) must, by law, investigate the validity of the negatively reported item. see fair credit reporting act.

The way they do that is they send a letter to the creditor (the one who has caused your credit report to show the negative item related to that creditor) asking for proof or verification of the validity of the bill. The creditor, by law, has 30 days to fulfill this. If they do not, no matter what the reason, by law, the credit reporting agencies MUST remove that item from your credit report.

This Will Remove Negative Items from your Credit Report EVEN If they are Legit and Valid

Now most people think that if they legitimately owe the bill that is showing up negatively on their credit report that the creditor will have, and provide, the proof requested by the credit reporting agencies.

NOT TRUE.

Here is why.

There are lots of reasons why the creditor can’t/won’t fulfill the proof of the validity of your debt within 30 days that actually, have nothing to do with whether your debt is valid or not.

For many companies, the bureaucracy of the company acts like moles-asses that slows down getting anything done. For many companies, 30 days is just not enough time. They don’t provide the proof of your debt within the 30 days so it gets removed from your report.

In addition, even if they do provide the proof, the credit repair company (again. remember, I can’t vouch for the validity or efficacy of any credit repair agencies other than the one I used) will repeatedly deny the validity of the debt UNTIL, for whatever reason, the creditor does not supply the required proof within 30 days.

This is part of the reason it took   8 months to get the job done. I am sure they probably milked a few months to make more money but $39 (per month) x 8 (months) = $312. That is pretty cheap to raise your credit score 100 points or more (about 150, in my case).

Does Paying Off a Past Due Debt Raise your Credit Score?

Absolutely! Paying off a past due bill DOES NOT raise your credit score ANYWHERE NEAR AS MUCH as having the negative item removed completely.

Remember, if you pay off the past due bill, the negative entry will still remain on your credit report as a negative item. It merely becomes a LESS negative item because it will show it has been paid but it will still show the fact that you were in arrears for as long as you were.

Having the negative items completely removed makes your credit report not show ANYTHING at all about that debt which much better, in terms of how much you can raise your credit score.

What to do After your Credit has Been Repaired?

Keep in mind, that if you keep doing what you have been doing your going to keep getting the same result meaning, it is up to you, once your credit score has been raised/repaired, to ensure you pay your bills quickly to KEEP raising your credit score and/or keep it raised. If you go back to your old behavior that gave you the bad credit score, you are just going to develop a bad credit score all over again.

Other Critical Actions to Raise your Credit Report Score.

During my interactions with creditrepair.com and becoming a member of creditkarma, which really is 100% free, I learned a lot of things about credit score. Here are some proactive options to raise your score even more, once your credit report score has been repaired:

  1. Get a credit card and use it regularly. Once you raise your credit score to about 700 or above you will get approved for most credit cards. Get one that has the best rate of interest and pays you percent back rewards. My favorite is the Amazon credit card (at the time of this writing they use Chase credit services) because you get 1% – 2% credit towards anything on Amazon. Meaning for every $1,000 you pay bills with/borrow via the credit card, you can get $10 – $20 worth of anything you want on Amazon. Use the credit card to pay ALL of your bills.
  2. When the credit card bill comes in the mail, pay it in full IMMEDIATELY!
  3. If you get a loan for a large ticket item, such as a car, do NOT pay it off quickly. This was another line of erroneous thinking a previously engaged in. Seems logical that if you pay off a car loan real fast it is going to look real good on your credit report – right? wrong! One of the most impactful elements of your credit report is the length of good payments. In other words, if you pay of the car loan in a year you only show a year of good payments on a major loan. Stretch that out over the full 60 months is going to do a LOT of good for your credit score in the future. If you want to pay it off early to avoid all the interest then pay off 90% of the loan the first year and then stretch out the last 10% you owe.

For a lot of great, honest information about your credit score and improving it, I recommend the credit karma blog. Lots of great articles about improving and maintaining your credit score.

Credit Score Improvements Conclusion

I hope I have provide you with some valuable information and insights into credit and credit repair. These days, having a good credit score can save you thousands of dollars over time, because of the lower interest rates good credit score offers you AND the fact that you can afford a much better life style/more toys with the dollar stretching benefit credit provides.

Just remember not to abuse your newly created good credit score it your credit score will just end up right back in the shitter, where it is now.