How to build credit score?

[Margaret]

I’m trying to repair my credit, and need advice how to build credit score.
I’m 28, my credit score is blow 660 and I’m paying off about 10 different things that went to collections when I was younger.

Most are hospital bills, and I’m making small payments on all of them currently.

I have three questions:

1) Does paying these hospital bills helps to raise fico score?

2) Is it best to pay them off completely one at a time or a little on each?

3) What is the best (i.e. cheapest) way to monitor my score periodically?

Thank You

[Tracy Winters]

Re: How to build credit score

Margaret,
First, you need to pay your debts. Not only from the moral point of view. If you don’t – they’ll probably sue you and get a judgment against you. You will end up paying the debt’s, interest, fines, legal fees and ruining your credit – which will cost you even more…

If these defaults are already on your credit report than Paying them off won’t improve your score. However, paid old debt also looks better to creditors that review your credit report.

Making small payments as part of a payment plan on already defaulted debts is a really bad way to pay back defaults. They can take your payments for a year then resell the account to a new collection agency, which could restart the collection process all over again.

What you need to do is save your money and settle the accounts in full for less, like 25% of the defaulted amount. Get all terms in writing first.

Bad debts will come off your credit report by themselves in 7 years automatically, unless you negotiate full payment for a complete removal of them from your credit report. Once again, before paying get all terms in writing first.

And you don’t need to waste money on a monitoring service. CreditKarma.com offers a free score estimator based on your TransUnion report. It’s not FICO but within 50 points of so. Good enough to check for your purposes.

You will need at least 24 months of consistent, on time payment history to see any improvement in your score. If you don’t have an open, active line of credit, get a credit card, even if you have to get a secured card. Use the card for regular purchases, wait for the statement, and pay the balance in full every month. This will build credit and avoid interest.

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