Most everyone understands that if you don't pay your bills on time, your credit score suffers. There is a com mon misperception, however, that if you pay off these accounts, all will be forgiven—since the lender has been paid, the credit score will return to what it was before the delinquency. But it doesn't work that way.
Delinquencies reduce your credit score because the credit-scoring genie views delinquent accounts as evidence of a weak commitment toward meeting your obligations. The evidence is not wiped away when you repay the accounts. The delinquencies are still there, impacting your score. The only thing that will wipe them away is the passage of time and a better payment record.
A similar misperception is that consolidating credit card accounts into a smaller number of cards will improve the credit score. It will not if the consolidation of balances significantly raises the ratio of balances to available credit lines on the remaining cards. While the credit-scoring genie does not like a lot of cards, he likes even less a high ratio of loan balances to maximum available lines, because it may indicate financial distress.
If consolidation has reduced your credit score for that reason, don't try to undo the damage by opening more accounts. The genie has an especially strong distaste for multiple new accounts in a short period of time. That can be another indicator of financial distress.
Table 2-1 on the next page shows the best and the worst of credit card usage as seen by the genie who scores credit.
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At least once in every person’s life comes a time when the need is great and the resources are few. It can be hard enough to make ends meet on a decent wage, but, when the times get tough and the money just is not there to meet the need, a person can easily despair.