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There is a lot of advice about repairing your credit out there, and a lot of it is misleading. We've identified several commonly given pieces of advice that can seriously hurt your ability to improve your score if you listen to them:
1. Requesting collection agencies to cease ALL communication
Under the terms of the Consumer Fair Credit Reporting Act, you can request a collection agency to stop communicating with you via mail, phone, or at all, depending on what you write in your letter to them. However, if you tell them to cease ALL communications with you, their only choice is to then sue you, which can lead to all sorts of nasty stuff you don't want to get into. Simply state in your letter that you'd like them to communicate with you via mail only. I believe all discussions about delinquent money should never be by phone...
2. Disputing every negative item on your report
Some agencies (and individuals) recommend disputing every negative item on your credit report, whether it's legitimate or not. The logic is that the credit agency must prove it's legit within 30 days or it must come off your record, and these agencies will be so busy and inundated with such requests that they will simply fail to make the deadline. However, doing this may give you several accounts of "frivolous" disputes, making it very difficult to dispute true errors on your report in the future.
3. Cancelling credit card accounts
After paying your bills on time, the second biggest factor affecting your FICO credit score is the amount of debt you owe compared to the total credit limit you have. For instance, if you have three credit cards, all with a limit of $1000, and you have $500 debt on one of them, then your credit to debt ratio is 6 to 1. Pretty damn good, and your score would be high as a result. If you pay off an account and then cancel that card, your total amount of credit is reduced and your score will suffer. Don't have too many credit cards, but keep a reasonable number of credit card accounts open and unused to keep your debt to credit limit ratio high.
4. Paying your accounts in full
Your FICO score is a reasonable measure of the risk you may incur upon lenders, and thus it attempts to measure your ability to manage your bills. In other words, your score will improve if you keep a small amount of debt and pay more than the minimum each month; it shows you have character. :) If you pay off entire accounts all at once, your score will not improve much if at all because you have not necessarily shown any ability to "manage debt."
5. Piggybacking
This used to be a sort of "magic bullet" in repairing credit. Since your score improves by having small amounts of debt in comparison with your available credit limit, you used to be able to sign onto someone else's credit card as a co-user for a fee, and their credit limit (and good history) would be added to yours. They would charge a fee of course to do this, but your score could improve almost overnight. Seeing it for the loophole that it is, Fair Isaac Corporation (FICO) changed their formula to make this method useless just recently. Forget it.
So now you know what not to do, what to do? Order a free copy of your report from all three bureaus here, correct any negatives on it either by following the advice on this site or by hiring an inexpensive lawyer (I recommend Lexington Law), then do two things: pay ALL your bills on time, and pay down your debt while keeping several credit card accounts open. Your score will improve before you know it...
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