What exactly will increase your credit score?

I have some bad credit which has my score in the 580's but I am needing to get up above 620 as quickly as possible because my wife and I are trying to buy a house. I am just not sure if setting up payment plans with my creditors will raise my credit score or if we should do something else?

Public Comments

1. Best case scenario, your credit score will raise by 5 points per month. Building a good credit score takes YEARS, not a few months. The only thing you can do is to continue to pay bills on time. If you set up a payment plan, it will show up that you "settled" the debt, which is a negative mark on your credit.
2. If you are trying to get a home loan, most lenders will require the old collections to be paid. The best way to do it is to negotiate a "Pay for Deletion" agreement with the collection agencies. This means that in exchange for payment, they agree to completely remove the account from the credit bureaus. They will no longer report the account. They will not want to do this, however they can. If they agree get it in writing BEFORE mailing them payment. Always pay by money order and never give them access to your checking account.
3. Pay everything you can on time. If you have high or over limit balances on credit cards, I would focus on paying those off first. My AMEX was close to my limit and I paid it down to almost a zero balance and my credit score improved 60 points within 2 weeks. Increasing your amount of "available credit" always helps as lenders assume you are over extended when your balances are close to your limits. Setting up a payment plan with a creditor will not change your credit score as far as I know, it will just make it easier for you to pay off the debt and then maybe they will clear it after you pay it off. Call your creditors. In the long run they just want some, if not all, of their money. They will normally work out a deal with you. I had a couple of cards from college that were way over limit and closed out and they offered to chop the balance in half and put me on a payment plan. I also had one card that cut the balance down and then after I pay 50% of the new balance within 12 months, they place the remaining balance on a new credit card(high interest) and issue me a new card that I have to pay down before I can use. This way it helps me re-build my credit because I get a major card(Visa, AMEX, etc) that helps me out. The quickest way besides paying off credit card balances is going to be cleaning up your collection accounts(if you have any) as quickly as possible. I had one for a silly electric bill that hadn't been paid and I contacted the company and paid it and it was removed from my credit report the next month. I also suggest signing up for a credit monitoring service to give you alerts on your report. I luckily have one through American Express called Credit Secure that monitors my report and sends me alerts when I have new inquiries, score changes and negative impacts. It also tracks my score monthly and shows me exactly what is in my 3 credit reports and what my balances are. It also provides update FICO scores for all 3 bureaus. The short answer to your question is just pay your bills on time. It will take time to re-build your credit. I have been at it for over a year now. My score was in the high 400s after I screwed myself by getting multiple credit cards in college, now I am almost breaking the 600 mark. You need a good payment history over at least 2 years to start seeing the biggest changes.
4. If you have bad debt and a poor credit score, I don't see how you will qualify for a mortgage. I'm assuming you have bad debt because you mentioned setting up payment plans with your creditors. Your best course of action is to completely pay off your debt before you even consider buying a house. As your debt level decreases, your credit score will increase.
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6. Paying off derogatory items will not improve your score. The damage is done and the items will remain on your credit report for the balance of the 7 year reporting period, whether paid or not. However, mortgage companies will require that you settle all derogatory items before you can be approved for a mortgage -- some require they be settled at least 6 months before you apply. If any of the derogatory items are single entry like medical and utility bills, you can try to negotiate a pay for delete -- you pay $x and they remove the item from your credit file. This does not work for regularly reported items like credit cards and installment loans. The collection agency can only remove what they report. The original creditor's charge off remains. Generally, if the debt is over 3 years old, offer 25%; 2 or 3 years old, offer 50%; less than 2, offer 75%. Lump sum gets the best deals. Payment plans must be very short term. Get any settlement agreement in writing BEFORE you pay a penny. Do not give the collector direct access to your bank account. While you are working on cleaning up your old debt, you need to establish good payment history. Get a credit card, if you don't currently have one. You might even need to get a secured card (you pay a deposit which is held as collateral agains the credit line). Use the card for small purchases and pay in full every month. In another year or two, your score will be higher and you might qualify for a mortgage. You will also need cash for a downpayment and closing costs.
7. Check your credit report!!! Look for mistakes that will bring your score down. I am in a similar situation, my score is 608 and I need 620 to buy my house. I found a lot of mistakes on my credit reports. It takes a lot of work to get things corrected but eventually it will go up once they are corrected. For instance, one credit card had a balance of $250, I paid $200 leaving a balance of $50. the credit report showed the balance was $50 and went UP TO $250 instead of the other way around. Dispute anything you can on your report... even if it might be right dispute it anyway. I disputed everything and if the reporting agencies dont get a response from your creditors, they will take the item off your report which will bring your score up a few points. **Don't dispute the good stuff!*** just the derogatory stuff.
8. Pay all your bills on time.. Pay and get all negative information deleted of your three reports. Keep credit card balances under 33% of limits.
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