The Kitchen Table

During tax refund time, lots of people start thinking about using that extra cash to help improve their credit. I have the answers to some of the top credit repair questions we receive from folks.

Is Paying off my loan early better than making payments?

The answer to that question is not necessarily, it's really a “catch-22”. The length of time you’ve had your accounts open is approximately—fifteen percent—of your score. While it may be good for your personal finances to payoff a loan early, it doesn’t really help your credit score over the long term. You see, an open account, in good standing does more to boost your credit score than a closed account. The reason for that is this, an open account shows that you are consistently good at handling credit wisely. Whereas a paid account only shows past good payment behavior and that becomes less and less predictive of future credit habits.

Will paying a delinquent account current restore my credit score?

The short answer to that question is, no. Most derogatory information such as late payments, collection accounts, charged-off accounts, tax liens, repossession, and judgments stay on your credit report for up to seven years. If you’ve filed for bankruptcy, that information can stay on your report for up to 10 years. Nearly—thirty-five percent—of your score is determined by whether a person pays his/her bills on time.

If you have had anything from missed payments to bankruptcy on your credit report, it’s important to remember that there are no quick fixes. Try not to focus on past mistakes, instead focus on consistent good payment behavior going forward. It’s simple advice, but it’s true: make at least the minimum payment every month on time and you will see your credit score climb.

Will opening a personal loan improve my credit score?

The type and mix of credit makes up about— ten percent —of a score. The healthier the mix of credit, the more your score will grow. An installment loan, such as a car loan, does help to show diversity of credit. Just by having a personal loan, with an on-time payment history, you will see your credit score gradually and steadily rise.

Remember, good credit is no accident – it’s a continuous process. Now you know the tips to make that process work for you!

*Employees of LPI Loans and our affiliates are not attorneys and LPI Loans DOES NOT provide any legal advice and users of this web site should consult with their own attorney for legal advice.