You made it! The tassel has been moved to the other side of the cap and the diploma is in the mail. And unlike the rest of your friends who moved back home, you, mon frère, landed a job and you’ve got your eye on a sweet studio apartment.
But there’s just one hitch–you can’t get the apartment because you just found out that your credit score is terrible–524 to be precise. In fact, those credit cards that came with that free t-shirt (Oops! you never got around to paying any of the bills!) have gone to collections.
What can you–the recent graduate–do to boost your credit score? While paying bills on time is a surefire way to get your numbers up (since it counts for 35% of your credit score), here are a few tips to understanding and raising your score.
Make sure it’s yours. If this is your first time pulling your free credit report from Annualcreditreport.com, the No. 1 thing you want to do is make sure all the information is yours and that it’s accurate, says Patricia Stallworth, author of Minding Your Money (BookPartners; $14.95). Look at the name, address, Social Security number, and creditors to make sure everything is correct. “If something is off, the first thing you need to do is make some notes and then go to the Website of the credit agency to dispute it,†says Stallworth. False information can also be a sign of identity theft, so don’t ignore these inaccuracies.
Negotiate with your creditor. Though you may not have as much room to negotiate with creditors as you would have pre-recession, there is no harm in trying. Call the creditors and ask if they will remove the blemish once the debt is paid in full, either through a payment plan or a lump sum payment. “If you negotiate with a creditor, get it in writing on their letterhead,†says Stallworth.
This will protect you if the creditor reneges on the deal. “That way, if you go to the credit bureau and say, ‘This is what the company said,’ at that point the [agency] has no choice but to take [the blemish] off because you have it in writing.†Remember, delinquencies stay on your credit report for seven years.
Write a letter. While you will not be able to boost your score immediately, demonstrating to potential creditors that you are now a responsible adult and that the days of wanton spending–and missed payments–are behind you may help lessen your “label†as a potential risk to creditors. Consider writing a letter describing why you incurred such debt (e.g., medical expenses, a traumatic life event, job loss, etc). While it will not boost your credit score, the letter can give creditors an understanding as to why you look like such a risky bet.
Get a hold of your situation. The problem with students and credit cards is that credit cards seem like free money. Mom and dad got it all wrong; money doesn’t grow on trees– it comes in plastic. “If it gets to the point where it’s in collections, understand that that’s a really bad mark on your credit score,†says Stallworth. Get a handle on your debt by writing down every card you have and its balance. Then put all your cards in order from highest to lowest interest rate, Stallworth advises.
Next, if any accounts are delinquent, your goal should be to establish a current pattern of paying down your overdue bills, says Mechel Glass, director of education at the Consumer Credit Counseling Service of Greater Atlanta. Start paying at least the minimum balance on all your cards. If you have any additional money left over, put it toward the credit card with the highest interest rate, adds Stallworth: “The biggest thing you can do to boost your credit score is pay on time. Most importantly, do not make any purchases using the cards.â€
If you’re in too deep, find a counselor. For most recent grads, student loan payments, rent, car payments, utilities, and the other necessities of life — not to mention a sporadic splurge — can make dealing with debt overwhelming. If that is the case, consider going to a counselor. A counselor can help you navigate your personal finance landscape and create a plan for how to incorporate better money management into your lifestyle. To find reputable counselors in your area visit Consumer Credit Counseling Services or AAA Fair Credit Foundation.
RESOURCES
Credabilityu.org
Boost Your Credit Score
National Foundation for Credit Counseling
Renita Burns is a staff writer at Black Enterprise.com.