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Credit Card Debt Relief: 6 Strategies – MintLife Blog

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$1 trillion in credit card debt, there must be a sustainable option to lessen the stress of carrying large debts month over month, year over year. Credit card debt relief is a way to not only get out of seemingly endless debt but also to perhaps bring about a little bit of mental—and ultimately, financial—peace.

Rather than just assuming you can entirely write your debt off with little impact otherwise, it’s important to know the various credit card debt relief options that are available and the different impacts each approach will have on your credit and financial health over the long term.

Keep reading to learn six credit card debt relief strategies, or use the links below to navigate the article.

How to Pursue Credit Card Debt Relief

Seeking credit card debt relief can be an ideal option for those experiencing hardship from life’s unexpected happenings, whether that’s medical bills, a sudden loss of income, or debt that has become excessively difficult to manage. Before deciding on a course of action, it’s important to know the differences between each approach.

Here are six strategies to consider for credit card debt relief:

1. Do-It-Yourself

Credit card debt relief may be able to be reached through a resolute commitment to aggressively paying down debts as quickly as possible. Do-it-yourself options to credit card debt relief require discipline and may not offer the degree of immediate debt relief desired.

If you have a particularly good credit score, you may be able to negotiate a lower interest rate on your cards through individual credit card companies to lessen the burden of debt.

While you’re not necessarily entitled to a lower interest rate, explaining your hardship and mentioning the length of time you’ve been with the credit card company could help secure a better deal, making debt repayment more manageable.

You might also consider taking a new approach to paying down debt by:

  1. The debt snowball approach — paying off the credit card with the smallest interest rate first while making minimum payments on other debts.
  2. The debt avalanche method, which allows for accelerated debt repayment as you put extra money towards the debt with the highest interest rate, while paying the minimum on all other outstanding debts.

The snowball method costs more but can boost confidence in being able to fully tackle paying off one card before moving onto the next.

2. Consolidation

Consolidating debt means combining all outstanding debts you owe to different lenders into a new loan.

Credit card consolidation, while not a method that outright eliminates debt, can be a strategy to help you pay down debt faster. With this option, you’ll only be making one payment a month instead of several— potentially making it easier to keep track of what you owe.

By taking out a low-interest rate loan through a lending institution, you may be able to pay off the majority, if not all, of your high-interest credit card debt.

Another option for consolidation is to do a balance transfer from a high-interest credit card to a credit card with a lower or no interest rate to lessen the burden of interest charges. It’s important to note that this option may come with a fee and doesn’t simply get rid of debt, but it could make the credit card debt relatively easier to pay down.

3. Credit Counseling

Seeking credit counseling, which is usually a free service provided through nonprofit organizations and independent financial agencies, may help lead you in the right direction to achieve credit card debt relief.

  • How it works

Trained counselors can guide you through repayment planning by reviewing your budget, analyzing your debt, and offering recommendations to help find a sustainable debt relief solution.

Counselors simply offer suggestions, making the service free unless you opt to use their help in pursuing a course of action, such as enrolling in a debt management program.

4. Debt Management Program

If you decide to sign up for a debt management program (DMP) through a credit counseling agency, you’ll make a single monthly payment to the agency, and the agency will in turn pay your creditors. With this option, you’ll likely be able to pay off your debts within three to five years, as outlined in your specific debt management plan.

  • Considerations

By enrolling in a debt management plan, you won’t be able to obtain new credit until your debts are paid off. In fact, the credit counseling agency will close your active credit accounts while you complete the plan.

Closing your credit card accounts could negatively impact your credit score in the short-term, but by making regular monthly payments (that you can actually afford), debt management programs may help you find credit card debt relief over time.

5. Debt Settlement

Debt settlement means negotiating with your creditors to pay less on your debt than the amount you actually owe. This agreement is typically arranged by a third party—a debt settlement company—that acts as an intermediary between you and your credit card companies.

  • How it works

In this scenario, you cease making payments directly to the credit card companies and instead pay the debt settlement company, which in turn offers a lump sum payment to appease the creditors.

  • Considerations

This avenue is typically a poor choice for credit card debt relief because as you stop making payments to your creditors, your credit score will not only deteriorate, but credit card companies can also come after you with penalty fees and even legal action for failing to make payments. There could also be tax implications if a large amount of debt is forgiven, because the IRS may consider cancelled or forgiven debt as taxable income.

6. Bankruptcy

Bankruptcy should be reserved as a last resort in extreme cases of credit card debt hardship, as it has serious implications on your credit score.

  • The two most common types of bankruptcy are:
  1. Chapter 7 which forgives your debts on the condition that you liquidate some of your assets to pay creditors.
  2. Chapter 13 in which you enter into a court-arranged debt repayment plan that lasts three to five years, after which your debts are dismissed.

Chapter 7 bankruptcy is the only true way to avoid paying your debts, as it essentially wipes out outstanding debt entirely and offers a clean slate. Creditors still receive some means of repayment, whether in assets or through the repayment plan, and bankruptcy can offer a way out of otherwise inescapable debt.

Effects of Credit Debt Relief on Your Credit

Depending on which approach you pursue to achieve credit card debt relief, effects on your credit could range from nonexistent to severe damage. Since credit utilization (the amount of outstanding balances you have compared to your credit limit) makes up 30 percent of your credit score, carrying high credit card debt month after month is likely to have a damaging effect on your score.

The self-managed approach to reducing debt may not necessarily hurt your credit, so long as you continue to make regular payments. Credit card consolidation may help you tackle debt faster, possibly leading to a better score in the long run. Credit counseling won’t have a direct impact on your credit unless you decide to act on the advice given, such as signing up for a debt management plan. Depending on the parameters of the specific debt management program you sign up for, DMPs could have either a positive or negative effect on your credit.

On the more extreme end, opting for debt settlement through a third-party has the potential to hurt your credit when you stop making regular payments to credit card companies. Similarly, filing for bankruptcy could critically weaken your creditworthiness and should only be a last resort option, as a Chapter 7 filing stays on your credit report for ten years, while a Chapter 13 will remain for seven years.

The Bottom Line

The best approach to credit card debt relief depends entirely on the individual level of hardship you have in paying back credit card debts. It’s essential to consider the different options to reducing the strain of credit card debt that will work for your lifestyle. Whether you opt to take the do-it-yourself route or find yourself filing for bankruptcy, taking a committed approach to minimizing your debt could lend itself to better financial health in the long run.

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Are you tired of having credit card bills? Do you wish you could get out of debt once and for all?

If you want get out of debt permanently, first consider this: Debt is not a financial problem. Hard to believe, but true.

Debt is actually a personal problem that masquerades in financial clothing. That is why so many people have persistent problems with debt. They look outward for financial solutions, when the true solution is found by looking inward.

Planning a Permanent Debt Solution

Defining your debt problem correctly is critical to solving it.

That is where most debtors run into trouble. They mistakenly define debt as a financial problem and develop financial solutions. That is why their debt returns shortly after paying it off. They fail to identify the root cause of debt, opening the door to repeating the vicious cycle.

For a debt solution to be effective your plan of attack needs to be based on principles that actually work. Unfortunately, when you just pay off your balances you relieve the pain, but the underlying condition that put you in debt in the first place still lurks under the surface, ready to return.

Let’s face it, the real causes of overspending are your personal habits and attitudes. In other words, the true solution is personal — not financial. That is a key, and understanding this principle is what will make or break your success in slaying the debt monster for good.

Masking The Problem

When you get a headache what is the logical response? You reach to the medicine cabinet for immediate pain relief. Unfortunately, the various pills do nothing to cure the underlying disease: they merely treat the symptom. The cause could be excessive stress, brain cancer, dehydration, eye strain, or any number of other issues. By taking a pill you’ve treated the symptom — not the underlying cause.

The same is true with debt. Everyone knows they need to make more and spend less to solve their debt problems. So they pursue financially driven solutions to relieve financial symptoms. It seems logical on the surface.

Whether you choose to consolidate your credit card debt to lower interest rates or you choose any of the quick-payoff strategies (inheritance, gift, sell an asset, bankruptcy, home equity line of credit, or refinancing), the reality is you are treating the symptom and not creating a lasting cure.

Your financial problems are merely the accumulated reflection of the many small financial mistakes you are making on a daily basis — often without knowing any better. That’s why teaching a debtor to spend less and earn more is like telling someone to lose weight by eating less and exercising more. Everyone already knows that is the answer. The difficult part is not knowing what to do, but actually getting it done. The solution lies in your daily habits and attitudes.

[Related Article: 3 People Who Dug Out of Deep Debt]

Money Breakthroughs

I first discovered this approach to debt recovery in my work as a money coach. I started out making the same mistakes as everyone else. I thought debt problems were financial, so I coached my clients to financial solutions. The lackluster results proved it was the wrong approach.

The breakthrough came when I noticed my wealthy clients had mirror opposite attitudes and behaviors compared to my get-out-of-debt clients. For example:

  • My wealthy clients viewed their financial situation from a position of self-responsibility, whereas my debt clients were victims of their finances.
  • My wealthy clients planned their finances, but my debt clients had no plan.
  • My wealthy clients organized their plans around delayed gratification, whereas my debt clients pursued instant gratification.
  • My wealthy clients associated their self-worth with intrinsic values, while my debt clients associated self-worth with extrinsic stuff.

These are just 4 examples from a long list of opposing traits. They are guidelines or tendencies that generally hold true. While there may be personal variation, on the whole the patterns were unmistakable. These mirror opposite attitudes produced mirror opposite financial results in life.

[Related Article: 7 Ways to Avoid a Debt Relapse]

Amazingly,when I applied these principles, coaching habitudes instead of specific financial actions, the debt problems solved themselves over time.

This is obvious when you think about it. Your daily financial decisions result from your habits and attitudes that drive those decisions. For example, consider the following choices and their obvious financial implications:

  • Do you buy fancy coffees throughout the day or do you make a pot of your favorite coffee in the morning and bring it with you?
  • Do you lease a new car every few years or maintain your reliable used car?
  • Do you dine out frequently or cook healthy meals at home?
  • Are you a minimalist or do you desire the latest designer fashions?
  • Do you shop to get what you need or do you shop for pleasure and recreation?

When you focus on financial solutions, you treat the symptom instead of the cause. When you focus on your attitudes and habits, you focus on the cause, and the symptom takes care of itself automatically without any self-discipline.

Let me be clear — this isn’t a quick fix. The results you produce from this approach will occur gradually over time. Just as it took time to accumulate the debt, it takes time to unwind it when you work with root causes.

However, the solutions are as permanent as the new attitudes and habits you adopt — and that makes all the difference.

The truth is the financial results of your life aren’t dependent upon how much money you make. Instead, they depend on how well you manage the money you already have. This article series will show you the easiest way to adopt wealthy habits and attitudes and be smarter with your money so that you can get out of debt — permanently.

[Related Article: 5 Ways to Get Out of Debt: Which Will Work for You?]

Todd Tresidder is a financial coach and consumer advocate. His unconventional take on worn financial topics has appeared in the Wall Street Journal, Investor’s Business Daily, Smart Money magazine, Yahoo Finance, and more. He’s authored 5 financial education books including How Much Money Do I Need To Retire?, Variable Annuity Pros and Cons, and the 4% Rule and Safe Withdrawal Rates In Retirement. 

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Compensation may impact how and where products appear on this site, including the order in which they may appear within listing categories.

While Crediful does not feature every company, financial product, or offer available, we are proud that the information, reviews, guides, and other tools found on our site are entirely objective and available to you free of charge.

Our #1 priority is you, our reader. We will never ever recommend a product or service that we wouldn’t use ourselves. Our reviews are based on independent research.

What does this mean for you? It’s simple: we will never steer you in the wrong direction just because a company offers to pay us.

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Teenagers tend to have few financial obligations. They may need to work a part-time job to earn spending money, but generally, no one is expecting them to put food on the table or manage important assets. It’s usually understood that high schoolers don’t yet have the life experience or maturity for those kinds of responsibilities.

And yet, we allow them to take out tens and even hundreds of thousands in student loan debt before they turn 18. That’s a financial obligation on par with buying a home, entrusted to kids who can’t even rent a car. Unfortunately, it’s a reality for most young people looking to get a degree.

That’s why every student needs to be prepared for the harsh reality of borrowing so much money. The more prepared you are to pay back those loans as soon as possible, the less likely you’ll be struggling financially in your adult years. A strong repayment approach can mean the difference between a debt-free life in your 20s and a lingering debt burden in your 30s – and thousands in owed interest. Using a loan calculator with amortization schedule will show you how much your payments need to be in order to pay down the loan in a given time frame.

If you’re about to take out student loans or already have them, here’s what you need to know.

Know What Kind of Loans You Have

Student loans often get lumped into one group, but they can vary widely. The two main types are private loans and federal loans. Like their namesake, federal loans are offered by the federal government. A private loan is a loan offered by a private bank or credit union. Most students have federal loans or a mix of both federal and private.

Federal loans are considered a better option than private loans because they have more repayment and forgiveness options. They also tend to have lower interest rates.

Private loans often require a cosigner, someone who will take on the responsibility of paying off the loan if you default or can’t make payments. Most students have their parents act as the cosigner.

Write down what kind of loan you have, the account number, the interest rate and the amount you originally borrowed.

Know How Much You’re Borrowing

Many students sign up for student loans assuming they’ll be able to pay them off easily after graduation. Most don’t realize how much they’re borrowing until they’ve graduated and the loan comes due.

The best thing you can do for your future self is to look at how much you’ve borrowed so far, how much you’re taking out currently and how much you’ll need for the duration of your time in school.

In 2012, Indiana University started sending out letters to current students explaining how much they owed and how much they would have to pay each month after graduating. Those letters proved to be very effective, reducing how much students borrowed by more than 10%. Three years later, the Indiana General Assembly passed a bill mandating that all state schools release similar letters to their students.

Knowing how much you’ve borrowed will make you more aware of your financial reality, and motivate you to find alternate ways of paying for school. You may try to take more classes per semester and graduate early or apply for more scholarships and grants. Even working a few hours a week in the student library or behind the front desk at your dorm can make a significant difference.

Most students borrow the maximum amount they’re allowed, but that’s not always necessary. Do a projection of how much your expenses will be this semester, including rent, groceries, transportation, utilities, parking, books and other fees. If you end up needing less than you anticipated, tell your loan provider that you’d like to take out less. If you need the same, then stick with that amount.

Looking at your loans on a semester-by-semester basis can help you borrow more or less depending on your circumstances. Create a budget each semester and stick to it, so you can be confident in the amount you’ve chosen to borrow.

Know Your Interest Rate

Every loan has its own interest rate which depends on the kind of loan, when you borrowed and other factors. Interest rates for federal student loans are determined by the government, but private lenders are allowed to charge as much as they want. Currently, federal interest rates for undergraduate loans are 5.05% and graduate degree loans are 6.6%. In 2017, the average variable interest rate for a private student loan was 7.81% and the fixed-rate average was 9.66%.

Know You Can Pay Back Your Loans Early

If you have federal loans, you can start repaying them while still in college. If you borrow too much or find a lucrative part-time job, you can use some of your income to pay back your loans. Doing that now will mean lower payments after you graduate.

If you have private student loans that don’t allow early payments, you can still save money in a savings account and put that toward your loans once they become eligible for repayment.

Know If Your Parents Took Out Student Loans for You

It’s not uncommon for parents to take out loans either from the federal government or a private lender. Some parents do so without telling their kids, because they want to help fund their education. Even if your parents don’t expect repayment, it’s always good to have an idea of how much they’ve sacrificed to get you there.

Other parents take out student loans and expect their children to repay them, as well as any individual bonds they borrowed. As a student you won’t have access to your parents’ loan information, so you have to ask them for the specifics. If you know you’ll eventually be on the hook for any debt your parents took out, you need as much information about the loans as possible.

Ask Your Parents if Any of Their Financial Information Will Change

How much grant and scholarship money you’re eligible for is often dependent on your financial need. Your parents’ income is the single most important factor in determining that eligibility.

If your parents’ income doesn’t fluctuate, you’ll generally receive the same amount every year. If your parents get divorced or your single parent remarries, then your FAFSA could look quite different for the coming year. When my friend’s dad lost his job, she immediately qualified for more need-based grants the following semester.

Know When Your Loans are Due

Even if you’re a freshman in college, it’s important to know when your student loans will come due. Federal loans give you a six-month grace period after graduation, so you don’t have to start repayment until the fall if you graduate in the spring. Private loans have their own system determining when the first payment is due, which varies from lender to lender.

If you’re a senior in college and plan to graduate this year, it’s not a bad idea to look up when your first bill is due. You don’t want to graduate May 15 and find out you owe $500 on June 1. Knowing when that first payment will hit can save you months of worry, and help you create a repayment plan in anticipation.

Know That Student Loan Debt is Real Money

When you first take out student loans, it’s easy to feel like the amount you borrow is just a number. You won’t be forced to deal with it for years, so that $50,000 total doesn’t actually feel like $50,000 dollars. For a teen used to making minimum wage at a coffee shop, that amount is hard to wrap your head around.

But make no mistake, that money is very real – and you will have to pay it back eventually. Acknowledging the reality of your situation can help inform the decisions you make about applying for grants and scholarships, working a side job and managing expenses throughout the year.

Talk to a friend or family member who graduated college with student debt and ask them about their experience. They may be able to shed some light on the reality of living with debt after graduation.

Where to Find Help

The financial aid office at your university can help you suss out where your loans are coming from, how much you’ve borrowed and how to contact your lenders. Once you know who your lenders are, you can reach out to them for more specific information.

You can find a list of the loans you’ve taken out by checking your credit report, which you can do via AnnualCreditReport.com. There are three credit bureaus that publish credit histories, so you’ll want to check all three if it’s your first time looking at your report.

Some lenders may fail to report student loans on your credit, so don’t rely on that exclusively. However, if your credit report shows student loans or other loans that don’t look familiar, contact that lender. It’s possible for lenders to report student loans to the wrong person if you have a similar name or social security number.

If you know you’ve taken out student loans and don’t see them on your credit report, that doesn’t absolve you of the debt. Mistakes made by the lender will still affect you, so be vigilant.

The views and opinions expressed in this content are those of the author and do not necessarily reflect the opinion or view of Intuit Inc, Mint or any affiliated organization. This blog post does not constitute, and should not be considered a substitute for legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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Zina Kumok is a freelance writer specializing in personal finance. A former reporter, she has covered murder trials, the Final Four and everything in between. She has been featured in Lifehacker, DailyWorth and Time. Read about how she paid off $28,000 worth of student loans in three years at Conscious Coins. More from Zina Kumok

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It’s a question that many people have on their minds as they begin to seriously consider their finances: how do I raise my credit score, or how do I fix my credit? Though credit scores may seem shrouded in mystery – how they’re calculated, which ones are used – consumer credit scores tend to follow a few common principles.

In this post, we’re explaining some simple tricks to raise your credit score. 

Raising your credit score can take time. After all, credit scores are a measure of how trustworthy of a borrower you’ve been over the years. The good news? You can get started on these credit tips today. 

Let’s start with the basics of how to improve your credit score.

How to raise your credit score

Raising your credit score is important, but you might not have a solid idea of what exactly your credit score is. Don’t worry; it’s not as complicated as you might think.

Your credit score is basically a measure of how reliably you pay back money that you’ve borrowed.

There are two main models that credit reporting bureaus use to measure your credit:

  • FICO
  • VantageScore

The three bureaus that do the reporting are:

  • Experian
  • Equifax
  • Transunion

Each of these bureaus receives information from various financial institutions you’re involved with, and that information is what determines your credit score.

You’ll generally have a better score if you’ve:

  • Consistently paid off loans.
  • Kept your credit usage low.
  • Stayed on top of all your financial responsibilities.

Both metrics range from 300 to 850, with most scores above 700 considered good to great. If your score is below that — or significantly below that — it can be difficult obtaining a loan at a good rate, or even obtain a loan at all.

Here’s what you can do to boost your score if you do find yourself with a lower rating than you’d like. 

1. Ask for (and receive) a credit limit increase

If you’ve been regularly making required payments on your credit card, you may want to try asking the credit card company for a credit limit increase.

What to consider before moving forward:

  • You wouldn’t necessarily want to do this to finance a purchase you otherwise wouldn’t have been able to make.
  • But if your monthly balance is relatively steady, you could decrease your utilization rate (a good thing) by increasing your credit limit.

For those who may not know, the credit utilization rate is the amount of credit available to you that you’re actually using. It’s basically your balance divided by your credit limit. So, if you increase your credit limit and keep the balance the same, the utilization rate will be lower. And that can translate into how to improve your credit score.

2. Pay your bills on time

One simple way to get started building solid credit is to start paying bills on time. Among the many different sources of data that major credit reporting bureaus use to assess your creditworthiness, whether you pay for regular expenses on time is pretty important. 

It’s not hard to see why: if you have a good track record regularly making rent payments, that probably means it’s more likely that you’ll be able to make regular payments on a loan. 

The trick, however, is that you may need to connect your bank account to one of the credit reporting agencies’ services. If you’re curious, call or visit the website for Experian, Transunion, or Equifax to see whether you can have your regular bill payments factored into each of these bureau’s tabulation of your score. 

*Pro-tip: if you have a hard time managing your bills:

  • Make a central list where you itemize each bill you have — rent, water, gas, electric, internet — and what day each one is meant to be paid.
  • Or, even easier, just download the Mint app, which can remind you about upcoming bills and keep track of the money you spend on bills each month. 

3. Show you can handle different kinds of debt

It’s probably not a good idea to run out and take on additional debt for the sake of it, but if you’re in need of a type of loan you haven’t used before (say, an auto loan for a new car, or a personal loan to consolidate credit card debt) consider taking it on and make regular payments on it; you may see a bump in your score.

Lenders want to see you can handle different types of debt, so adding another type of loan and paying it down could have a positive effect on your score.

Here’s an example. If you’ve been paying down student loans (generally, these fall into the “installment loan” category) but don’t yet have a credit card (generally, these fall into the “revolving credit” category), you could see a score increase just by opening that credit card account and paying off your balance regularly.

4. Open a new account and make on-time payments

If you need additional credit, opening a new account and handling it responsibly (making on-time payments on it, not borrowing more than you can afford) can have the effect of increasing your score.

Remember, though, that opening a new account you can’t handle (where you miss payments and/or take on more debt than you can afford) will likely have the opposite effect: a score decrease. So, it’s a good idea to proceed responsibly.

How to keep your credit score high

Once you’ve got your credit score near where you want it, it’s important to do your best to keep it in good standing. By keeping up the habits listed above, you can ensure that your credit stays relatively stable. However, it’s good to note that, in some cases, credit can fluctuate. 

Don’t be surprised if you see your credit score dip, then raise up again from time to time.

For example, maybe one month, you use a higher amount of your credit utilization due to a few unforeseen expenses. This isn’t the end of the world, and with continued responsible debt management and credit usage, your score should recover. 

In general, however, here’s what you can do to maintain a high credit score once you’ve got it. 

1. Close accounts with care and caution

“I have too many credit cards” is something you may have heard someone say or even thought to yourself. And for many, that may be the truth. But having several credit cards, in and of itself, won’t necessarily lower your score. 

Though closing credit card accounts or doing a balance transfer may seem like it would boost your credit score because it’s simplifying your life or making things more organized, it can sometimes have the opposite effect. That’s because when you close an account, two things happen:

  1. You lose the entire line of credit you had, which may decrease your utilization rate (see the 1st tip above).
  2. You’ll stop having that account continue factoring into the average age of your accounts.

Typically, scores want to see you’ve held several accounts open and in good standing for a long period of time.

Here’s a big caveat, though: there are still plenty of good reasons to close accounts, credit cards or otherwise:

  • Maybe you can’t afford the annual fee or the rewards just don’t make it worth it anymore.
  • Or maybe you’re struggling with credit card debt and want to consolidate it into a personal loan.

The important thing to remember is this: if there’s no good reason to close an account, it’s sometimes wiser to keep it open. 

If you do want to close an account, however, don’t worry; the ding to your credit will likely be minor, and it’s likely to recover with time after continued responsible use of the other lines of credit you do still have open. 

If you’re considering moving your balance, shop balance transfer credit card deals and personal loan offers from our partners.

2. Stay on top of your personal finances with Mint

Your credit score is just one metric that helps you measure your personal finances.

You should also keep tabs on other important aspects of your financial well-being, including:

  • Healthy credit
  • Well-kept budget.
  • Solid debt-to-income ratio
  • Steadily growing savings

Mint allows you to do that. By aggregating your financial information — including everything from investments to upcoming bills — into one convenient dashboard, you can have a bird’s-eye view of your financial health.

Knowing when rent, bill payments, credit card payments, and loan payments are due each month can help you raise your credit score and stay on top of it while also knowing how much you have leftover to budget for other areas. 

Remember, there’s no one magic bullet to build your credit score fast. The above credit tips are just some of the ways you might raise your credit score over time and keep it high. However, lasting, meaningful score increases come from showing consistently strong credit habits.

In other words, don’t forget the fundamentals: pay your bills on time, don’t take on more debt than you can afford and be careful about applying for too many accounts over a short period of time.

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Have you checked the mortgage interest rates lately?

If you’ve got excellent credit you can get mortgage loans with interest rates near or below 3.5%, assuming your income and collateral are also in good shape.

Add that to a still recovering real estate market and now might be the time to pull the trigger on a home loan.

The Mortgage Loan Application Process is Unique

First off, borrowing money to buy a house will likely represent the largest financial liability you’ll ever have.

Second, managing a mortgage is unlike the management of any of type of loan due to property taxes, insurance, and impounds.

Finally, unlike a credit card, auto loan, or any other type of credit application process, the mortgage loan application process is unique.

Normally when you apply for a credit card or auto loan, the lender will pull one of your credit reports accompanied by one of your credit scores. They’ll then use that information as a basis for their decision about your application.

They almost never attempt to pull your other two credit reports and scores.

Mortgage lenders, however, almost always pull all three of your credit reports and your three credit scores as part of their standard loan application process.

And, if you are applying with another person, the mortgage lender will pull all three of their credit reports and credit scores as well.

This unique process yields a great deal of information. The aggregate leaves the lender with six credit reports and six credit scores.

Normally, the mortgage lender will “use” the middle numeric scores as to base their decision. That might solve the credit score issue, but it doesn’t solve the credit report issue.

Six credit reports, especially belonging to older applicants, can be overwhelming.

What is a Residential Mortgage Credit Report?

Normally a non-mortgage lender will simply go directly to a credit bureau and pull a report. But, in the mortgage world there’s an intermediary party referred to as a mortgage reporting company.

These companies pull the applicant’s credit reports on behalf of the lender/mortgage broker and then consolidate the information into one easy to read file.

This report is called an “RMCR” or Residential Mortgage Credit Report.  They are also informally referred to as “Tri-merges.”

The information is merged, but more often it is done cosmetically, meaning your credit reports don’t really magically become combined with that of your co-applicant. Tri-merges are very easy to read as the mortgage reporting company will reorganize the information.

All of the scores go in one section. All of the positive information goes in one section– and yes all of the bad information goes in one section too.

Why Do Mortgage Lenders Need All Three Credit Reports?

There’s actually a very good reason mortgage lenders pull all three of your credit reports. First off, because of the amount of money being lent, the lender or funding source (Fannie Mae or Freddie Mac) requires that no credit stone be left unturned.

Credit reports, while considerably redundant, are rarely identical across the three credit reporting agencies. Pulling three reports all but guarantees the lender will see all of your financial liabilities, while pulling just one does not.

Additionally, you won’t have three identical credit scores.  Pulling all three of your scores (or all six if you have a co-applicant) is a conservative approach to risk assessment.

It gives the lender a choice to base their decision on the applicant’s highest score, lowest score, or middle score. The middle score approach has been around for roughly 15 years, give or take.

How the Additional Inquiries Affect Your Credit

Don’t worry about the inquiry times three.  Mortgage inquiries are among the least problematic to your scores and are considerably discounted by FICO’s scoring system.

In fact, the first 30 days on your credit file mortgage inquiries are ignored. That gives you the ability to shop around for the best rate without being worried about any negative score impact.

Happy house hunting!

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.

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All rights reserved. Intuit and QuickBooks are registered trademarks of Intuit Inc. Terms and conditions, features, support, pricing, and service options subject to change without notice.

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File this story under the “Why Can’t Credit Scoring Be Less Complicated.”

I received the following question from a Minter a couple of weeks ago and couldn’t wait to write an article answering his question.

“John, last week I went to a car dealership to buy a new truck. I went on the test drive, really liked the truck and asked the dealer if they could get me a better interest rate than by credit union, which was offering me a great rate for 48 months. When the manager showed me my credit report I noticed that the FICO score that was used was some sort of auto credit score. I asked the guy what that meant and he was clueless. What gives?”

The FICO Auto Industry Option

What gives is that most auto lenders that use FICO credit scores use a different variety of FICO score called the “FICO Auto Industry Option” score. Let’s call it the FICO Auto Score, for short.

FICO develops a variety of credit scores including these semi-customized scores referred to as Industry Option scores. These scores are used by lenders in the auto, credit card, and installment industries, which pretty much covers everyone.

Here’s How They Work

Stop thinking like a consumer and start thinking like a lender, just for a moment.

If you are an auto lender do you really care how an applicant is paying their mortgage loan or their credit card bills?

You probably do, but not nearly as much as you care about how they’re paying their auto loans.

Well, you’re not the only one who thinks that way. FICO has built an entire stable of these credit score variants specifically for different loan types.

There are auto specific scores, bankcard specific scores, mortgage specific scores, installment specific scores and personal finance specific scores…all on the market today.

The choice of which score to use is one made by the lender.

Because you’re asking about the FICO Auto score we’ll focus on that one. The FICO auto score calculates your base or generic FICO score, and then holds on to it in credit score limbo.

Then, using what’s technically referred to as a “scorecard overlay” the FICO auto score takes a second bite at the apple and re-evaluates the consumer’s credit report but this time focuses on attributes that are especially important for auto loan risk evaluations.

For example, do you have other auto loans on your credit report?

If so, are those loans paid on time or are you missing payments? These are specifics that tell an expanded story about how you’re likely to pay an auto loan rather than simply “any” loan.

How Different are the Two Scores?

Don’t get me wrong, your auto score isn’t going to be wildly different than your generic FICO score.

You’d be safe to assume that the two score varieties will be within plus or minus 15 to 20 points, but that can vary.  Of course this is all academic if you’ve got fantastic credit reports.

Those are going to yield a great credit score regardless of the score type.

This rule is going to hold true not only for FICO’s generic score, but also their industry specific scores.

And, it’s going to hold true for every other credit scoring system on the market, like the VantageScore credit score, which I wrote about for Mint here.

It’s also going to hold true for the free scores available from the variety of websites that give them away, like www.CreditSesame.com. The better your credit reports the better your scores, regardless.

Unlike sites that allow you to check your credit report for free, FICO’s industry specific scores are not available to consumers on any website for any price.

In order to get those you’ll just have to keep relying on the Finance and Insurance Manager at the local auto dealership.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.

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