Credit Repair Guide

If you’re here, it’s because you have bad credit you want to repair or you want to improve your credit score. In a weakened economy, with many lenders tightening their requirements, more and more people want to know where to get credit score reports, how to read credit reports, what their credit score means, and how to improve their credit score.

Why is a good credit score important?

Good credit scores are essential for any kind of loan you may wish to obtain, whether a home loan, auto loan or credit card. However, lenders aren’t the only companies that check your credit score. If you are a renter, any potential landlords will also usually check your credit report to make sure they can rely on you to pay your rent on time. Also, many employers check credit scores, as they are an indicator of your fiscal responsibility and reliability. Therefore, it’s important to work on maintaining a good credit record or improving your record if it has been damaged. In any economic climate, a good credit score is essential.

Not only will you be offered more credit if you have and maintain a good credit score, but you will find better terms offered to you by lenders. While you may be able to obtain a loan if you have bad or damaged credit, you will likely find yourself paying higher fees and interest, which will cost you more in the long run.

When to consider credit repair

If you are planning on getting a new car or buying a home, the time to consider credit repair is well in advance. Credit scores don’t improve in a short amount of time. Of course, the best strategy is to always have your credit score in mind and make sure your use of credit is responsible and payments are on time. If it’s too late for that, it’s never too late to start working towards improving your credit score – just keep in mind that it won’t happen overnight, or in a couple of months.

Fortunately you can take advantage of credit repair if you have some inaccurate, misleading or erroneous credit showing on your report. You will need to file a dispute about the inaccurate credit to the credit bureaus; they will have a certain amount of time to either verify the accuracy of the information or remove it from your report.

The first thing you need to do when you start credit repair whether you are doing it on your own or if you are using a professional, is to get a new credit report from each of the three major credit bureaus, TransUnion, Experian and Equifax. You can get a free report every year from Annual Credit Report – this will include a report from all three major credit bureaus.

Check out additional articles on credit repair.

Steps to credit repair

The first thing to do is review your credit report for errors and get any errors removed. The reporting agencies have been known to make errors! You may have to file disputes or contact any company that has file information on your report in error. Getting errors off the report is the first step, and it’s a pretty easy one for you to do yourself. Look for duplicate accounts, outdated items, wrong names and inaccurate balances.

If you have any past due accounts, work at bringing them up to date. If you are having problems making the payments, contact your creditors and inquire about setting up a payment plan. Your credit repair efforts will not be effective if you are still showing late payments. It is also important to pay off any of the debts that you can so that they can be eliminated completely.

Do not close out your credit card accounts. If you have numerous credit cards, just put them away and stop using them – do not close them. Unfortunately, closing your credit card accounts actually works against you be decreasing the amount of available credit. Department store credit cards are not considered as valuable as other types of credit, so it will not hurt to close those and it will help you resist the temptation to spend money you don’t have.

Currently, many of the major credit card companies are reducing credit limits or closing accounts with no balance. Consider keeping a small balance on cards you want left open – don’t pay them off completely. Having a balance will not hurt you, as long as you pay at least the minimum due on time every month.

Do not apply for any more credit while you are attempting credit repair. Every inquiry counts against you and you will have more success with your credit repair if you avoid getting more credit until you have completed your credit repair. After your report is cleaned up and your score is higher, you will be able to get better terms, so it’s better to wait to apply after you’ve done your credit repair work.

Debt Consolidation and Management

Should you consolidate your debt? If you have multiple loans and credit cards and you’re finding it difficult to make timely payments on all of them, you should consider consolidating your debt to one account. The advantage is that instead of multiple payments, you only have one.  If you have a low credit score, it may be difficult to obtain a debt consolidation loan with really good terms, but credit card terms are not typically very good, either. Regardless, the goal is reducing the number of open balances so you can work on improving your credit score, so find the best possible deal you can qualify for and take it. Once your credit score is improved, you can work on getting better terms. Alternatively, if you have a card that has a lower balance and interest rate, consider moving your balances to that account, especially if there are incentives offered for doing so.

If you can get a line of credit on your home, that is the best option, as the interest is deductible on your taxes and you can typically get better terms. Just make certain, whatever option you take, that you make the payments on time. If you have consolidated your debt to a line of credit, your bank can foreclose on your home. Keep in mind that the goal is always to improve your credit score and consolidating your debt is working towards that goal.

Credit Counseling

Sometimes, people just need to admit they’re in over their head – and seek out help. If you’re drowning in a sea of debt and have collection agencies calling you, a credit counselor can be just the lifeline you need.

A credit counselor cannot make your debt disappear or improve your credit score quickly. Avoid any service that makes these types of claims. With consumer credit counseling, you work with a counselor to decide how much you can afford to pay on your credit card bills each month.  Your counselor then works with your creditors to work out a debt management plan that fits with your ability to pay.  This new payment schedule often includes a lower interest rate, thus lowering your minimum monthly payment.

Being under a debt management plan makes your credit card payments easier to manage.  In most cases, your payments will be sent to your credit counselor rather than to each of your creditors.  Your credit counselor is responsible for distributing your payments to your creditors each month.  Even when you’re on a debt management plan, it is wise to monitor your credit card accounts to be sure that your payments are being applied.

One thing to watch out for with credit counseling is the way your credit accounts are reported on your credit report.  Even though you’re making your payments on time each month, you aren’t necessarily paying as you originally agreed.  Doing this can negatively impact your credit score.  Not only that, some creditors include remarks on your credit report that indicate you are under a debt management program.

The effects of credit counseling, though not as severe, are comparable to that of bankruptcy.  You may find it difficult to obtain new credit as long as you are on a debt management plan or even for a few years after while you solidify your repayment history.

Be advised that as long as you are on a debt management program you will not be able to use your credit cards.  You might also find it difficult, or even impossible, to obtain new credit during that time.  The inability to use credit isn’t such a bad thing, though.  It’s easier to pull yourself out of debt when you aren’t constantly renewing the debt.  Use the break from credit cards to learn better money management so that once you start using credit again you’ll have the habits that keep you out of debt.

Even though credit counseling has some disadvantages, that doesn’t disqualify it as an option for relieving pressure from debt.  If you are having trouble managing your credit card payments and you are in danger of falling behind on your payments, or even already behind, then credit counseling can keep your credit score from being too severely damaged.

We recommend the following services:

• Credit Repair Consultants, Inc.
• Credit Repair By the Experts- Veracity Credit Consultants

Expectations and Realities

Credit repair is not a magic cure for your credit woes; you will need to do some work. It is important at the outset of a credit repair effort to have a realistic perspective- don’t lower your expectations; just make the effort needed to meet your goal of better credit and fiscal responsbility.

• Get control of your existing obligations by building a realistic and practical budget.
• Learn how to manage your account balances properly to fully optimize your credit scores.
• Learn the effect each type of credit can have on your credit scores.

The more you know about your finances, the better off you will be. When the time comes to make a decision that will affect your monthly cash flow, it should be made in the context of good information. Read the articles at this site and our other finance sites, Credit Rehabilitation and Credit Check Facts, and learn how to budget, manage expenses, avoid credit pitfalls and take the steps necessary to make sure your finances and credit score remain healthy.

Credit scores measure credit risk. Lenders and creditors use the credit score to determine how much of a risk you are as a borrower or a creditor. You’d be surprised at how your actions as a creditor can affect your credit score. For example, did you know that closing out an account that still has a balance lowers your credit score? Indeed, it does. Read on to find out more behaviors that affect your credit score.

Pay your bills on time

The best thing you can do to improve your credit score is to pay your bills on time. Late payments have the biggest impact on your score. If you find that you cannot make a payment, make arrangements with your creditor or lender as soon as possible. In many cases, your creditor or lender can work with you to waive a monthly payment.

Many banks have online bill paying systems that allow you to send payments automatically. If your bank has such system, take advantage of it to avoid falling behind on your monthly bills.

Avoid max-outs

Having your credit account balances at or close to the limit is harmful to your credit score. Maxing out your credit cards makes it seem as if you are taking on too much debt. A good rule of thumb is to keep balances at or below 30% of the limit. That means, if you have a credit card with a $1,000 credit limit, you should keep your balance below $300.

Don’t close out that account just yet

A longer, well-managed credit history has a much better effect on your credit score than a short history, even if you paid all the bills on time. Try keeping your oldest credit account open as long as possible, especially if the relationship continues to be beneficial.

Never close out a credit card that still has a balance. This makes your credit limit drop to zero while your balance still remains. The effect is that it looks as if you have maxed out your credit card, and subsequently decreases your credit score.

Keep credit-based applications to a minimum

Avoid applying for credit cards unnecessarily, even if the store clerk says you can save 10% on your purchase. Each time you make a credit-based application, an inquiry is added to your credit report. Numerous inquiries lower your credit score. Before you fill out that application, ask yourself if you really need the credit card.

A less than favorable credit score won’t haunt you forever. Begin taking the steps to improve your credit score now and enjoy the effects later once your score starts to improve.

In the present economy, it’s crucial that consumers have the ability to buy and sell goods and services. Everything we require for living (with the exception of air, which is still free of charge!) demands a financial transaction – clothing, groceries, transportation and shelter. The three-digit number that makes up what’s known as your credit score has substantial influence on your ability to conduct business and purchase the things needed for every-day life.

Credit scores are designed to be a extraction of your financial history. The algorithm takes into consideration various aspects of key financial points – your payment history, debt level, length of credit history, credit applications and types of credit. There are a number of things that can have a negative impact on the score, including making a number of applications for credit in a short period of time. If your credit score drops into a range considered less than favorable by lenders and others, you may have difficulty obtaining services and additional credit.

Many people are under the impression that if they are not buying things using a credit card, they aren’t utilizing credit and disturbing their credit score. They would be surprised to learn that many companies whose services they utilize see credit utilization and credit scores in a much different way. Cell phone carrier services consider the term of the contract, typically one to two years, to be an extension of credit. Similarly, utility companies, such as the gas company or electric company, are defined as extending credit because of the way you utilize services and the necessity to bill after services are rendered. As a result, these companies will take your credit score into consideration before agreeing to enter into a contract for services with you.

When you have a low credit score, it can elicit an additional security charge for services such as utilites and cell phone. In some cases, you might also have your service application denied completely as a result of your credit score, even if there is money to pay for the services. Nearly all landlords will check your credit history as part of the application process prior to signing a lease, and may refuse your application if your credit score is low. Not many people have the ready money to pay the entire lease period in advance, and your credit score reflects your power to pay – and whether or not you are liable to pay on time.

A low credit score may even have an effect on your employment opportunities. Many employers view a credit score as a factor when offering a job to someone. If you have a low credit score, you may find your job application denied.

Where a low credit score can close off opportunities or cost you additional money in fees and deposits, a high credit score will open up opportunities you weren’t aware existed. If you’ve always had high credit scores, you may not be conscious of the “perks” being offered to you. In addition to higher credit limits, individuals with high credit scores can normally obtain more credit and at a lower interest rate or with no fees. Additional deposit fees charged by service providers aren’t an issue if you have a high credit score. You are able to obtain a wider variety of services, generally with lower fees and higher rewards.

If you have a low or middle-range credit score currently, your best strategy is to take steps to improve it. If you enjoy the benefits of a high credit score – congratulations and keep up the good work!

Consumer reporting agencies, better known as credit bureaus, collect financial information from you from institutions with which you have a relationship. This information is compiled into a credit report. If you’ve had a credit card, loan, or a collection account, chances are you have a credit report.

Creditors and lenders to whom you make an application for credit use your credit report to determine how you pay your bills. They then use this information to determine whether or not to extend credit to you. If the information contained in your credit report is incomplete or inaccurate, you could be turned down for credit.

In the case that your credit report indeed has information that is not correct, you are allowed to dispute this information. The Fair Credit Reporting Act provides you with the advantage of having the information provider confirm or update information that you deem as being incorrect.

When you find inaccurate information on your credit report, the first thing you should do is contact the credit bureau that the report came from. Write a letter to the bureau stating the information that you think is not correct. Provide copies of any documentation you have to support your claim and request that the information be removed. It is a good practice to include a copy of the credit report indicating the items that are questionable.

After receiving your letter, the credit bureau will investigate your claim, forwarding any information you provide about the claim to the creditor or lender who provided the information. The creditor then has 30 days to provide proof supporting the information on your credit report. If the creditor determines that the information disputed is indeed incorrect, it is required update the account with all three credit bureaus.

Once the investigation has been completed, the credit bureau must let you know the results. If there were any changes to your credit report as a result of the dispute, you must be provided with a free copy of your updated report. You can also request that the credit bureau send a notice of the changes to any party that has received your credit report in the last six months.

It is best to send disputes via certified postal mail so you have verification that the dispute was sent.

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