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1. Are you being contacted by 3rd party debt collectors?

It’s crucial to know how to handle debt collectors so you can show that you know your rights and choose the best way to take care of the situation. It is also crucial that you do not agree to make any payments up front. You will need to do these three things before you get to the point to where you may have to pay a debt collector.

1. Do not enter into any payment or verbal agreements.
2. Request validation of the alleged debt that they claim that you owe in writing.
3. Become familiar with the FDCPA ( Fair Debt Collection Practices Act )  FTC.gov

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2. Payoff any past due balances you owe.

This is one of the fastest ways to improve your credit score, at least a little bit. Past due balances weigh heavily on your credit score. By paying them off, you can see an increase to your credit score in as little as 30 days.

While paying off very small past-due balances may not have much of a positive effect, paying off a larger balance, or several smaller ones, can raise your score up by 20 or 30 points.

The creditor may be anxious to settle the account, and be willing to accept substantially less than the original amount due.

If you do attempt to negotiate a lower payoff amount, be sure that you get the terms of the settlement in writing before sending any money to the debt collector. You want to be sure that the creditor fully plans to accept the lower amount in a full settlement of the account. Confirmation should be provided to you in writing, spelling out the exact details of the settlement. If it is a fairly large settlement, you may want to enlist the help of a attorney to further assist you.There may be legal and or tax considerations in your particular state, as well as the possibility that the creditor may include language in your credit report such as “settled for less than the full amount due”, which won’t have as much of a positive impact on your credit score as if they were to simply report it as a “paid account”. An attorney will know how to make that happen.

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3. Pay down your credit card balances.

If you owe substantially more than 30% of your available revolving credit, paying these debts down is one of the best strategies to improve your credit score.You don’t necessarily have to drop your credit utilization all the way down to 30%. If you’re currently at 70%, dropping it down to 50% can provide a noticeable improvement in your credit score. For example, if you have a smaller line of credit starting at $500.00 you should use no more than 10%( $50.00) and no more than the max you can use 30% ($150). Any amount used over 30 % or $150 placing you in an area where you have high utilization on your credit card. Keeping the card at 10% or less usage keeps you in the low utilization ratio and has almost no impact to your score when its being report to the three major credit bureaus every 30 days.

It is crucial that you pay off you credit cards on time every month or before the due date. You may want to contact the credit card company to see which day of each month they report to credit bureaus, by doing this it will give you a heads up on paying off your credit cards before the due date.

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4. Payoff your smallest debts first.

Another aspect of credit utilization that we haven’t discussed yet is the number of accounts with open and active balances.

Beyond a certain point, it is not impossible to have too many accounts with balances on them.

However, even a relatively small number of open accounts can be problematic if every one of them has a balance due on it.

One of the best ways to improve your credit score is to eliminate your smallest debts.

For example, if you have eight current available credit lines, and seven of them have balances on them, you could improve your credit score by paying off the smallest accounts. That would reduce the number of accounts with open balances owed.

The fact that you have unused credit accounts is an indication that you are in better control your finances.Much like maxing out credit cards, maintaining too many accounts with balances is seen as a negative for credit scoring purposes.

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5. Pay down any installment loans you may have opened.

If you recently opened an installment loan, such as a new auto loan, this will have a negative impact on your credit score.

The reason this is true is because there is a lack of history on the account, so whether or not you can actually manage the new payment is something of an open question.

This is normally solved by time. For example, if you are one year into a five-year-old loan, it will have a better effect on your credit score than if you just opened the loan last month.

But you may be able accomplish something similar by paying down the loan.

For example, if the initial balance of the loan was $20,000, paying the loan down by $4,000 – or roughly one year’s worth of principal payments – can reduce the risk on that loan, and increase your credit score.

It’s not quite the same thing as a 12 month payment history, but the reduction in balance will still have a positive effect on credit score.

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6. Take out a new credit line but don’t use it!

This strategy doesn’t actually reduce your debt, but it can have a similar effect, at least as far your credit score is concerned.

If credit utilization is a problem – if your credit utilization ratio is well beyond 30% – one way you can improve this without paying down your credit lines is to take out a new credit line, but not use it.

The new credit line will increase the amount of credit you have available.

For example, if you currently have $20,000 in available credit, and over $14,000 borrowed on those credit lines, your credit utilization is 70%.

But if you add a new credit line for $10,000, your available credit instantly increases to $30,000.

The fact that you still owe only $14,000 means that your credit utilization ratio will immediately drop below 50%. That should increase your credit score.

One caveat here is if you have difficulty keeping yourself from using available credit lines.

Though the new credit line will improve your credit score in the short run, taking draws and making purchases against the new credit line will ultimately increase your debt, as well as your credit utilization ratio.

At that point you’ll be in a worse situation than you were originally because you will owe even more money.

Use this tactic only if you are sure you have the self-discipline to not use the new credit line.

If your credit situation has already reached the point of being uncomfortable and difficult to manage go to Nolo.com and search for a credit attorney.Credit problems tend to feed on themselves and only get worse with time. Take action while you’re still in control of your situation.