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Question
Hello Mr. Abramsky,

Thank you for taking the time to answer my questions.  :)

 I am trying to repair my credit, but trying to repair my credit seems impossible.  I have talked to at least 3 different credit repair agents and I got 3 different answers.  It seems when it comes to trying to improve credit, there is no straight answer. Ugh!!!!

Anywho, with all my frustrations, my questions are:

1) How long does it take for a new credit card to make a positive affect on your credit score?

2) Can an installment loan have a positive effect on your credit score? (Of course with on time payments)

3) Does paying your monthly bills on time really have an affect on your credit score?

4) What are some things that would help improve credit score?


Thank you so much

Answer
Hello Connie,

I'll just dive into the questions right away.

1) How long does it take for a new credit card to make a positive affect on your credit score?
I'll give you the long answer.

15% of your credit score is calculated from the average length of your open and active accounts. So lets say that you had 2 credit cards before this new one. Card #1 has been opened for 36 months and card #2 has been opened for 12 months. So we add up the total age of both accounts (36+12) and divide by the number of accounts (2) to get the average length of history (24 months). Now, you opened a new credit card (credit card #3) which reported to the credit bureaus after a month of activity, so your average length of history is now (36+12+1)/3= 16.3 months.

Your credit score will initially go down due to the decrease in your average length of credit history from 24 months to 16.3 months.

In this example, it would take another 8 months to get your average length of history back to 24 months. Because in 8 months the breakdown would look like this; card #1 (44 months), card #2 (20 months), card #3 (9 months). (44+20+9)/3= 24.3 months.

There is another variable here called NEW CREDIT. This accounts for 10% of your credit score ans is commonly grouped together with inquiries. But, New credit is set up to lower your credit score every time you accumulate a new account. This is done so that you cannot go out and open too many accounts at once. Lenders want you to build your credit slowly and know that when a consumer applies for too many accounts at once they may be in financial trouble. It usually takes approximately 6 months to recover the points lost after acquiring new credit.

So, in this scenario, it would take at least 9 months for the new credit card to make a positive impact on the credit score. Given that the consumer paid on-time every month and kept a low utilization rate.

2) Can an installment loan have a positive effect on your credit score? (Of course with on time payments)  
Absolutely! Installment loans are a vital part of the credit scoring model. In fact, one of the factors used to calculate the scores is called "Credit Variation". Lenders want to make sure that you know how to manage different types of accounts (installment and revolving), so having both types of accounts helps to increase your credit scores. But just remember that installment loans figure into the average length of credit history too.

3) Does paying your monthly bills on time really have an affect on your credit score?
Paying your bills on time is the single most important factor in the credit scoring model. It accounts for 35% of your credit score. The last 6 months of payment history carries the highest importance, followed by the last 2 years payment history, and then the last 7 years. So when starting to repair your credit, make sure that you can string together 6 straight months of perfect payment history.

4) What are some things that would help improve credit score?
1. Paying your bills on time.
2. Keeping your credit card balances low. (Under 30% of the credit limit)
3. Don't apply for credit more than once every 6 months.
4. Lengthen you average account age by not opening too many new accounts or have someone add you as an authorized user to an old seasoned account.
5. Challenge any and all errors on your credit report with the credit bureaus.
6. Keep control of your credit by not co-signing on any loans unless you will be the one making the payments. Don't put your credit history in the hands of someone else.


Good Luck!!

Michael Abramsky
Senior Credit Consultant
http://www.creditfirm.net

Credit Repair

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Michael Abramsky

Expertise

I can answer questions for U.S. consumers that have issues with their credit reports, improving their credit scores, and dealing with debt collectors. I have extensive knowledge of the FCRA, FDCPA, FCBA, HIPAA, as well as the CDIA's Metro-2 and eOscar credit reporting systems. I am not an Attorney and do not offer Legal advise.

Experience

As a Senior Credit Consultant for CreditFirm.net I help clients leverage consumer protection laws and rebuild their credit to improve their credit scores.

Education/Credentials
Loyola University Chicago Villanova University CSSBB

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