Photo: wallyg

Painting: The Story of the Recorded Word, Edward Laning

Forget making changes to your credit card usage – it’s what you don’t do that can increase your credit score (or at least keep it from going south).

Just as you can’t buy happiness, you can’t buy a high credit score – the only way to get one is to demonstrate financial responsibility. “Creditors don’t care about how many millions you may have in your investment account, it’s how you use your credit,” says Maxine Sweet, vice president, public education for Experian.

Steer clear of these 10 things experts say can mangle your score.

1. Thou Shalt Not Avoid Using Credit. If you don’t use credit, you won’t have much of a credit score. “A credit score is an important tool companies use to protect themselves,” Sweet says. The lower the score, the higher the risk, and this can affect whether or not a loan is approved.

2. Thou Shalt Not Miss Payments. Paying a bill late will hurt your credit, but missing a payment will damage it even more. “If you do so, you can’t make it up,” Sweet says. In other words, making two payments in the next billing cycle will not remove the blemish from your credit history. Whether or not you pay your bills on time determines 33% of your score.

3. Thou Shalt Not Limit Loan Types. Despite what your bank account may think, a car payment and a mortgage may not be enough. Also managing an installment debt, such as a credit card, is a good indicator of credit savviness. There are five elements to the credit score model and revolving credit, which allows consumers to charge and owe different amounts each month, is one of them. “It’s 10% of the score,” says Gail Cunningham, vice president of public relations for National Foundation for Credit Counseling.

4. Thou Shalt Not Close Unused Credit Card Accounts. Actually, just use caution, says Sweet. A factor in credit score models is your utilization, which is your debt vs. how much is available. For instance, if you owe $4,800 on a card with a $5,000 limit, you’re using most of your available credit and this “utilization” will have a negative impact on your score. Counting toward 30 percent, your utilization is the second highest factor in your credit score. You should charge no more than 30% of your available credit, recommends Cunningham.

5. Thou Shalt Not Be A Credit Tease. Don’t run up charges all over town or apply for several cards at once while looking for the best rewards program. Recent inquiries means that you have accessed your credit and this can affect your score negatively. “This signals that you’re desperate for credit and don’t have enough cash available for your purchases,” says Cunningham. She adds that if you are shopping for a major purchase, such as a mortgage or car loan, the inquiries will usually roll together into one.

6. Thou Shalt Not Rob Peter To Pay Paul. Don’t charge anything unless you know how and when you are going to pay it back. One of the benefits of credit is the ability to spread out payments on a big purchase, not to delay paying with hopes that the money will come in – from somewhere. If you need to use a credit card for convenience, use a prepaid card or a secured card that enables you to make payments to your own line of credit.

7. Thou Shalt Not Get On The Call List. When a debt turns into a collection account, it’s an indication that you got yourself in hot water. Once a collection agency jumps into the arena, it becomes the owner of the debt, which will show on your credit history. Trying to make payments to the original debtor will not make the collection agency or the negative mark on your credit go away.

8. Thou Shalt Not Forget The Little Things. That library fine you didn’t pay or the health club contract you signed but didn’t honor can show up on your credit report. Any debtor has the right to report unpaid bills to the credit bureaus, and many of them exercise that right.

9. Thou Shalt Not Negotiate. On paying less than what you owe, that is. If you cannot repay a debt in full and a creditor agrees to settle for less than you owe, you haven’t won the battle. The transaction will be reported as a settled account and this will hurt your credit score. Instead of negotiating to lower the overall amount of the debt, ask to have your interest rate or monthly payment lowered so that you can continue to pay the debt off in full.

10. Thou Shalt Not Give Up. If you have late payments, missed payments, defaulted loans, and similar credit mess-ups in-between, don’t give up and think that your credit history is ruined. Although offenses like these generally stay on your credit history for seven years, the recovery clock doesn’t start ticking until you have one full month of paying all of your debts on time, says Sweet.

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Most Americans have debt.  Mortgages aside,  43% of US households spend more than they earn in a year.  It is no wonder that the median household has a balance of over $2,000 on their credit cards.  The average balance is over $8,000, but that is skewed by a small number of less-than-thrifty individuals.

The US government also spends more than it earns.  Whether this is an extension of its electorate or the setting of a bad example, the country as a whole is in worse shape than the sum of its parts.

We could go on about the trillions of dollars in debt, but numbers that large can feel really abstract. So,  let’s take the nation’s spending down to the household scale.  The median household pulls in $50,233 per year, the federal government around $3 trillion.  Some basic arithmetic will put them in scale.

Now let’s look at our lenders.  The majority of the Uncle Sam household debt is owed to the people of the United States.  We can let this slide for now and focus on the foreign lenders, who represent one quarter of the total debt.

Below are the top seven foreign lenders, visualized as credit cards, while the image at the top shows the total of  foreign lending.  All numbers have been brought down to the U.S. median household scale.  Just imagine your household with these balances and you will have a better perspective on just how large these debts really are.

Credit cards are hailed as convenient tools, a way to build credit and earn points or rebates. However, there is another side to credit card spending, experienced by many who pay less then their balance month after month and one that can lead to a downward spiral that is difficult to rebound from.

Generations X and Y, those aged from 14-42 are being hit the hardest. Unlike their Baby Boomer parents, they are more likely to start off their working careers already in debt. While student loans and other education related debt make up a great chunk of that for many, credit card debt is also quite high and on the rise for young people-some high-school students even have their own credit cards, something unheard of a generation ago.

So with all that money going to iPhones, PSPs, and the latest designer duds, is this generation just plain spoiled? Not so fast grandpa. Many in this generation are broke-or close to it-but the blame came be placed squarely on starting out in debt and having to struggle with high-interest rates, not on extravagant living.

According to personal finance counselor Sophia Jackson, credit card debt is an epidemic among the under-30 crowd. College students average $2,200 in balances on their plastic, says Bankrate.com. Graduate students have more than double that amount, and high interest rates translate into hefty monthly payments and long-term balances for many.

The bottom line is that most teens and young adults just don’t have the life experience needed to comprehend the implications of paying back their loans or debts when they take them on. And let’s get real for a minute, how can a 19-year-old student be expected to grok the reality of paying back thousands of dollars in college expenses when he’s buying books, food and clothes, excited about the upcoming semester, sports and college life? The numbers don’t have much basis in reality, and it’s a natural assumption to think you’ll be able to pay off the balances as soon as you graduate and land a high-paying job. Combine this with the fact that college teaches you nothing about personal finance and you’re facing a financial mess right at the start of your adult life.

Many will pay minimum payments on their loans for years, either not realizing how much is going to interest just to service the debt or simply not having anything extra to throw at the principal. With young credit, new credit or no credit, interest rates are often in the high double digits, lowering the chance of fast repayment.

Ironically, low credit scores from high debt-to-income ratios, high credit card balances and missed or late payments can affect your job and income potential. Many employers do routine credit screenings and background checks on applicants; security clearances are also in jeopardy for those with bad credit.

A weak economy further impacts your ability to repay loans. When high-paying jobs are scarce, many find themselves jobless for short periods or working lower-paying jobs than they expected. Without lifetime savings or investments, the younger generation falls into the trap of adding on more credit card debt or, at best, is only able to pay minimums on current debt and not get ahead of their bills.

Sounds pretty grim. But there is hope. The best solution is for Generation X to avoid new debt and pay off old debt as aggressively as possible, and for Generation Y to avoid the debt trap at all costs. It would be wise to put off credit card use at least until entering the workforce and becoming more familiar with personal finance, basic budgeting and personal accounting.

The young who are able to invest for retirement, rather than simply service their debts, will be in the best position for financial success. Invest what you can now, even as little as $100 a month will likely return huge dividends when you retire.

A basic understanding of personal finance, debt management, budget management and accounting will go a long way toward helping you avoid the debt trap. Learn how to manage your money and you may even leave a legacy for those generations to come.

Mint Tip: Pay your credit cards in full each month:
The average American carries $8,500 in credit card debt. At a minimum payment of $100/mo, it takes 6.7 years, and $4,257 in finance charges before you’re in the clear.

Here are the raw stats:

Every business reports your financial management activities to the three major credit bureaus—Experian, TransUnion, Equifax. Your financial activities dictate your FICO (Fair Isaac Corporation) score, ranging from 300 (worst) to 850 (best), and this is what lenders, landlords and employers use to determine your credit risk. The lower the score the more likely you’ll be considered a risk. It also dictates interest rates. A low score can mean thousands more in interest payments, as you can see in this table:

Here’s how FICO scores affect rates based on a 3-year auto loan for $15,000.*

*from myfico.com

Your credit history can haunt you for the rest of your life so it’s a good idea to follow this easy three-step-plan to build, maintain and (if you must) repair your credit.

#1 Build Your Credit

Open Checking/Savings Accounts: You can open an account for as little as $10 at some banks. The ability to maintain your accounts will show lenders that you can reliably handle money. Opening an account is particularly beneficial for those who haven’t already established credit. Bounced checks mess up your credit report, so use that check-writing feature wisely!

Apply for a credit card: Part of your debt planning should include determining what type of credit cards you should sign up for. Get a credit card with low interest rates (not just intro rates), no annual fees, and a generous grace period. Try not to carry a balance so you don’t end up paying interest. Retailer cards are easy to get but have high interest and worse penalties, so only get one if you’re able to pay in full each month. Secured cards require a deposit, which becomes your limit. Be careful about missed payments as they come out of that deposit. Be aware that secured cards also have high interest rates.

Don’t get lots of credit at once: When you get credit, it goes on your report so if you open many accounts at once, they drag down scores and worry lenders. Even applications stay on your report for two years. If you need more than one card, wait six months before opening another. Wise financial management practices dictate that you use your first card responsibly, especially during the first six months; doing so will allow you to get better rates on future cards.

Piggyback on someone’s credit: If family members with established credit add you to their credit cards, your credit will reflect upon theirs. Conversely, so-so or bad credit from your family members may be something you’ll inherit as well, if you sign on as additional members and users of their credit cards.   Also, if they co-sign a loan with you and you default, you’ll be impacting their credit, so be careful. 

#2 Maintain Your Credit

Get Your Credit Report: Use annualcreditreport.com to get all three reports once a year for free. If you find mistakes, immediately contact the credit agencies since discrepancies stay until you take care of them. If your report is bad due to debt, start working on repairing your report. Avoid companies that offer to fix your credit:  many are reputed to be rip-offs and have been reported to use illegal practices. The only way to improve credit is to pay debts and dispute false charges.

Mint Tip: If there are unauthorized charges and you suspect identity theft, immediately visit the Federal Trade Commission Identity Theft Site.

Get Your Credit Score: Although you can receive credit reports for free, it’s not typically the case with credit scores. Credit scores cost $15.95 at annualcreditreport.com or myfico.com. Cheaper sites calculate their own scores, and are often inaccurate. Just like credit reports, you have three scores. Check all of them if you’re making a major purchase. You don’t want to get caught off guard if the lender checks one that you weren’t able to review beforehand.  Recently, a new service called CreditKarma.com was launched to provide free credit scores to the public. The downside?  You’ll have to supply your personal information to this new company before you’re able to review your scores.

Don’t close old accounts: Once you’ve paid off your credit card accounts, don’t close them off!  Older accounts will show that you have long-lasting credit history, and this will indicate that you have financial stability. If you close your available credit, it’ll raise your debt-to-credit ratio. 

#3 Repair Your Credit

Pay in full every month: If you carry a balance, you’ll pay interest. If you’re unable to pay in full, pay at least the minimum on all debts. Paying at least the minimum will improve your credit history and score, which will give you leverage for lowering your interest rates.

Pay on time: Late payments mess up your report for years. It can also raise interest rates. Any late payments you make on any one bill will affect the interest rates you have across all your credit accounts. If you have trouble remembering due dates, have Mint remind you when bills are due and set up auto-bill pay online through your bank.

Lower your debt-to-credit ratio: Your debt-to-credit-ratio is what you owe versus how much credit you have. If you owe $5,000 and have $10,000 in credit, your ratio is 50%. The lower the ratio, the better. Aim for a ratio that’s less than 30%. A quick way to lower it is to increase your credit line; but, don’t spend more just because you happen to acquire more credit.

Related Mint Tips:

Financial Planning Software
Financial Planner
Personal Finance Tool
Personal Financial Tracking

So, how do you choose?

First, know yourself: if you typically carry a balance, rewards cards are likely not right for you—you’ll pay more in interest than the value of the rewards you’ll be able to redeem. Debt planning is the key here. Also, if you are late on a payment, some credit card companies forfeit rewards, raise your interest rates and/or eliminate interest rate grace periods. But, if you pay your credit card balances off in full every month and on time, then rewards cards have a lot to offer you.

Here are 3 Important Steps to Reaping those Rewards:

1. Pick a card that delivers rewards you’ll use… and can redeem.

1. Review where your money Actually goes, not where you think it may go. Chances are that a card that rewards your loyalty with free or discounted gas and groceries and restaurant dining will save you more money than one that give you plane tickets. And what about cold, hard cash?
2. Check redemption rules carefully Before applying for a rewards card of any type. Some cards limit how much you can earn; require you to spend a certain amount before rewards kick in; or offer a tiered rewards system. You’ll need to know which purchases qualify for rewards, and under what conditions those terms can change, to accurately estimate what you’ll be able to earn in a year.
3. Caveat: Be particularly wary of frequent flyer cards if you rarely fly, fly only during holiday “blackout periods”, or fly on short notice. Award seats are becoming an endangered species…especially as the airlines’ merge.

2. Once you’ve determined the category of rewards you want, shop and compare the cards currently offered.

1. All costs. Consider interest rates, annual fees, grace periods. Watch introductory rates. A card that’s set at 3% for 12 months is better than one that starts at 1.5% then pops to 5% after 6 months. Some cards also charge a fee to redeem rewards. Diner Club, for example, charges a 95 cent fee for each 2,000 points redeemed.
2. Any fringe Benefits which have true value. Some cards offer more than cash back, points or miles. They offer AAA discounts, roadside assistance, concierge services, rental car insurance, special hotel rates, etc.
3. Check rewards expiration dates. Some rewards expire if you don’t redeem them within a certain amount of time. Additionally, most frequent flier cards apply blackout dates, seat restrictions, and expiration dates on miles. A few critical restrictions can significantly reduce the value of the rewards you’re hoping to receive.

If all of the above sounds like too much work, you’re not alone. Mint.com was specifically designed to make understanding where you really spend your money, and which credit card is really right for you easy and automatic. Mint compares your personal spending patterns and payment history to the interest rates and rewards offered by hundreds of US credit card companies.

3. After you get your card, remain a savvy rewards consumer

1. Be Alert to policy changes. By law, credit card companies have to notify you if they change interest rates, but not if they change rewards policies. Open those envelopes and read the fine print. If policies change, call and fight back…or repeat steps 1 and 2, above!
2. Be resistant to the temptation to spend more. Some card companies notify you when you’re approaching a rewards threshold or when you’ve just earned or redeemed an award, tempting you to spend more money than you should. Don’t let yourself be led astray (from your budget).
3. Price Check the rewards offered. You may find that the products in the rewards catalogue are not worth what you spend to receive them. Compare one card’s requirement that you spend $2,000 to earn 2,000 points to get a free iron vs. spending $1,250 on groceries, drugstores and gas to earn 6,000 points in your first year with a Citi card which would get you a $50 gift certificate to Target. You could buy a $15 iron, and still have $35 more to spend!

If you’re not certain of your typical monthly spending or what your cards currently charge in interest rates and fees and their grace periods, visit Mint.com, the online financial planner to find out in 5 minutes or less. Our Ways to Save page will provide you unbiased recommendations and quantify your potential savings and/or rewards.

Mint asks: How did you find your last credit card? And did you make a good decision?

Further Reading on the Topic:

Online Financial Planner

Free Financial Planning

Online Financial Planning Tool

Online finance management articles are abound on the web. You can find them at MSN, CNN, or Yahoo Finance. Every major web portal and news site has a section on personal finance. You can check out Mint’s take on personal finance here.

But what exactly are these personal finance articles trying to do? Inform you? Entertain you? Educate you?

Here at Mint, one of our core focuses with these articles is to help you understand the basics of a sound financial lifestyle that can be accomplished with online finance management.

We are committed in building a great personal finance tool, but we are also committed in informing you of the many options you have in achieving financial independence — of these options, one of the simplest ways is to choose a sound financial lifestyle.

What then, is a sound financial lifestyle? Let’s take a look at what other people in the blogsphere thinks:

Jim from Blueprint for Financial Prosperity:

A sound financial lifestyle is making sure you can always provide for your family and not living beyond your means.

Madame X from My Open Wallet:

To me, a sound financial lifestyle is not about trying to get rich quick — it’s about trying to live within one’s means, and about working towards sensible financial goals. I’m doing it the slow and steady way, and trying to find a balance between enjoying life now and building financial security for later. I don’t make any claims to be extremely frugal, especially career-savvy, a brilliant investor, or any kind of entrepreneur. I could measure myself against some yardsticks and be considered a financial flop, but in other ways, I think I’m doing pretty well. I have made a good start on retirement savings, I’ve bought a home, and I manage to enjoy at least a smidgen of the cultural wealth New York City has to offer.

My goal is not to have to worry about money. I’m not quite there yet, and in some sense I suppose I will always worry about money. But there is a difference between caring about and managing your finances, and lying awake at night wondering how you’re going to pay your bills.

JD Roth from Get Rich Slowly:

A sound financial lifestyle is a sustainable financial lifestyle. That is, it’s lifestyle in which a person does not spend more money than they have. But I don’t mean to say that people should be misers.

It’s important to enjoy life. Money is a tool that can bring increased happiness. Too many people, however, use money they *do not have* to buy happiness now at the expensive of happiness in the future. Don’t be like them.

Trent from TheSimpleDollar.com:

A sound financial lifestyle is one that won’t collapse if the unexpected happens, which would include spending less than you earn and also having a well-stocked emergency fund.

Leo from Zenhabits.net:

To me, the words “sound financial lifestyle” evoke an image of stability, of spending within your means, of stress-free financial planning and maintenance, and of having a financial cushion in the bank so you aren’t living from paycheck-to-paycheck. That’s achieved, in my opinion, by being frugal, paying your bills on time (and automatically), eliminating debt and debt planning, increasing your income, and saving or investing as much as you can. If you can add to that an automated income stream, you’re golden!

FMF from FreeMoneyFinance.com:

Spend less than you earn, invest as much as you can and keep repeating year after year.

Jonathan from MyMoneyBlog.com:

A sound financial lifestyle would involve being able to balance work and life, while at the same time being able to save money for both short-term emergencies and long-term needs. This would help one to enjoy the life that they are working so hard to achieve.

Mapgirl from Mapgirl’s Fiscal Challenge:

To me, a sound financial lifestyle means putting money away with every check for retirement and for a rainy day. If you aren’t in a position to be able to save like that, then you are probably in a precarious financial position that needs shoring up.

Jeffrey from Personal Finance Advice:

To me, a sound financial lifestyle is using your money as a tool to achieve your life goals rather than having it control you. Many still believe that more money would buy them happiness, but the truth is that you need to find that happiness within yourself and the life you live.

Money can help you achieve more free time to pursue those life goals, but it won’t in itself buy the happiness many seek. Putting your financial house in order gives you the opportunity to pursue the life goals you have, and that, in my opinion, is the point when you have developed a sound financial lifestyle.

JLP from AllFinancialMatters.com:

To me a “sound financial lifestyle” is one in which current needs are balanced with long-term financial goals. Of course, this entails living within your means but it doesn’t mean saving ALL your money either. It’s important to enjoy today as long as you are endangering the future.

Michael from It’s Your Money:

A sound financial lifestyle means that everyday bills are nothing more than paper in, paper out. No stress, no worry, and all the “what ifs” have been handled as well as can be expected.

Nickel from FiveCentNickel.com:

A sound financial lifestyle to me involves spending less than you earn, saving and investing to build wealth, and taking steps to protect it.

Moneymonk from Money Living:

A sound financial lifestyle is avoiding consumer debt and living on less than you earn. The trick is to delay your gratification.

Kimber from NoLimitLadies.com:

The ideal financial lifestyle, for me, is having passive income equal to or higher than expenses

Prlinkbiz from NoLimitLadies.com:

Ditto what Kimber said, while adding that I would like to roll excess income back into more income producing assets, instead of saving it in the bank, creating more and more passive income.

Stephanie from Poorer Than You:

To me, a sound financial lifestyle is one that gives you flexibility in your life. When you’re not living paycheck to paycheck, you have no debt (or manageable debt), and have put aside money for the future, you can take what life throws at you.

Cap from StopBuyingCrap.com:

A sound financial lifestyle to me, is not about hoarding all your money, but simply allocating your money sensibly.

It is about spending less than you earn, saving and investing for the long term, being able to take care of your love ones, having the ability to do the things you want to do (such as pursuing higher education), and not letting money be the reason why you can’t do certain things.

What are the Common Themes in a Sound Financial Lifestyle?

As you can see, a sound financial lifestyle can mean many different things to many different people. However, there are some common themes that was repeated again and again:

1. Living within one’s means (10 mentions)
2. Saving and investing for the future (8 mentions)
3. Having an emergency fund (4 mentions)
4. Avoiding a paycheck-to-paycheck lifestyle (3 mentions)
5. Debt Planning: Avoiding high-interest consumer debt (3 mentions)

Why Should You Choose a Sound Financial Lifestyle?

1. To avoid stress (2 mentions)
2. To take care of your family (2 mentions)
3. To have a content life (8 mentions)

When you make a choice to live a sound financial life, you will have less stress in your life.

Consider this, according to a 2000 study by the Creighton University Center for Marriage and Family, money is one of the biggest obstacles to satisfaction in the lives of newly married couples.¹ And according to a research done by Thomas Garman, a professor at Virgin Tech, 34% of American’s work force says that financial stress sometimes hampers their work performance.²

Choosing a sound financial lifestyle will also give you and your loved ones more choices in life.

Imagine not pursuing higher education due to financial troubles from yourself, or from your family. As reported by the Lumina Foundation in a publication entitled: The Doors of Higher Education Remain Closed to Many Deserving Students; not having enough money is the leading factor in whether a student goes to college.³

Wouldn’t it be a shame to not be able to see your child have the same, or better opportunities as you have had, because of your past financial decisions in life? It is because of these very reasons — and many more — that you should considering choosing a sound financial lifestyle.

Take Action: Choose a Sound Financial Lifestyle

1. Spend less than you earn. Living within one’s means does not require an advance math degree. Budgeting, keeping track of your spending, reducing your expenses , and online finance management are some of the methods you can use to achieve this goal.
2. Save early and invest for you and your family’s future. Know that saving money while you’re young is easier, and that the simplest way to secure your financial future is to understand and utilize retirement accounts.
3. Create an emergency fund. Avoid financial pitfalls by having a financial parachute!
4. Switch from the paycheck mentality to the wealth building mentality. Realize that it is not entirely about how much you make but more so about how much you save.
5. Avoid high-interest consumer debt by using credit card wisely while you’re young. Have debt? Reduce it quickly by taking these five simple steps.

In the coming weeks and months, you will find on Mint’s blog a continual theme of financial articles with actionable tips — and one of our core focuses will always be on choosing a sound financial lifestyle. We promise it won’t be terribly boring and we hope you’ll come along for the ride!

Does a sound financial lifestyle have a different meaning to you? Please feel free to share.

Further Reading on the Topic

Online Finance Management

Finance Software

Debt Planning

debt planning and expenses tracking are two things that we care about here at Mint. Learn more with great debt planning tips in our blog article index.

Whether you’re fixing the nasty credit history that your ex-hubby screwed up, debt planning for the future, or just digging yourself out of past credit mishaps, the to-dos to credit repair are abound on the internet.

Having said that, here are 20 things you definitely shouldn’t do while repairing your credit history, from the veterans of credit repair at Creditboards.com:

1. Don’t supply too much information. You may accidentally verify your negative items on your credit history, where it becomes impossible to remove later.
2. Don’t deal with collectors, a debt planner, or a credit reporting agency over the phone, unless you are extremely confident and have nerves of steel. A paper trail is important!
3. Don’t close accounts for the sake of closing accounts. Some of these accounts may be helping your credit history.
4. Don’t dispute an account without verifying and double-checking the account numbers. You may accidentally dispute or delete a wrong account.
5. Don’t dispute positive information (long history account, paid-on-time accounts, etc.). Those positive lines can accidentally get deleted from your credit history if you’re not careful.
6. Don’t sign anything sent to a collection agency. At shady collection agencies, signatures have a habit of jumping from one document to another.
7. Don’t ignore your state’s statute of limitation.
8. Don’t confuse statue of limitation with the reporting time limit on your accounts. Just because a debt has passed the time limit for a lawsuit does not mean the accounts will no longer be reported on your credit history.
9. Don’t attempt to dispute a negative entry in your credit history (that’s incorrectly positive on another report) by using the claim “This other reporting agency shows it as positive.” Credit reporting agencies share all negative information. If a negative is incorrectly positive, they will inform the other agencies of the inaccuracies!
10. Don’t send your bankruptcy paperwork (or any part of it) to credit reporting agencies!
11. Don’t add the 100-word “personal statement” to your credit files. They will generally do more harm than good.
12. Don’t give the collection agencies your banking account information or anything with your financial information on it (bank statements, post-dated checks). Shady collection agencies will have no qualms about withdrawing funds from your account — regardless if you have enough fund to cover the debt or not.
13. Don’t pay the collection agencies with a personal check. Use a money order.
14. Don’t send written communication to collection agency via regular first-class mail. Use certified return-receipt requests for all of your correspondence. You will need proof that you’ve sent or requested certain information.
15. Don’t send any payment in until you have a clear written agreement on what will occur after you make payments.
16. Don’t assume your credit scores and history will improve just by paying off a collection. As with the above tip, ensure that you have negotiated for the removal of the negative item in question before you pay a collection agency!
17. Don’t call a collection agency with your home phone number! If need be, use the many available VoIP services out there.
18. Don’t send a cease-and-desist letter to a collection agency unless you have done your homework. If you leave out important key words, and the account in question is still within the statue of limitations, you may be forcing a collection agency to sue you! Leaving room for further correspondence through mail may be a better option than a complete cease-and-desist letter.
19. Don’t take the word of a customer service representative from a collection agency or credit reporting agency as fact. Remember to always do your own research before taking a specific course of action.
20. Don’t give up and don’t get discouraged! Repairing a credit history from bad credit to excellent credit is entirely possible as long as you have the will, discipline, and patience.

Bonus Tip from Awesome Reader Misiti:

21. Never pay for a collection over the phone!

Mint’s Take Away:

Repairing your credit may seem like an incredibly difficult task filled with numerous caveats — but the important thing to note is that before you begin the process of debt planning and dealing with collection agency, you should carefully research your to-dos before you take any action. With some patience and a calm mind, you’ll be able to tackle the important task of repairing your credit. Check out the resources below to read more about collection agencies, if you have further concerns and questions on the topic.

Helpful Resources to Dealing with Collection Agencies:

• Collection Agency FAQ from Cardreport.com.
• Debt Collection Practices from Privacy Rights Clearinghouse.

Further Reading on the Topic:

Debt Planner

Tracking Spending Online

Debt Planning