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5 Tips For Repairing Your Credit

Woman with papers and calculator looking puzzledYou just took the big step and got your credit score. Ouch! You’ve discovered it’s in the high 500s. This means you’ll have a hard time getting new credit and may not be able to buy that house you’ve been dreaming about. But don’t panic. There are literally millions of Americans in the same fix – or even worse. Plus, you can repair your credit though it will take time and a fair amount of effort.

Understanding your credit score

Here’s the simple explanation of your credit score – it’s a mathematical representation of your credit reports. Credit scoring was invented back in the 1950s as a way to standardize how people were granted or not granted credit and at what cost. Before credit scoring, lenders were forced to read every line of a credit report and then make a subjective judgment as to a person’s creditworthiness. One lender could review a report and decide the person was a bad risk while another might read the same report and decide the person was a good risk. Credit scoring has eliminated this and made things more objective as different lenders were then able to see the same score and have the same option about the person’s creditworthiness – for good or for bad.

Credit score ranges

Someone then came along and created the idea of credit score ranges, which make it even simpler for lenders. These ranges, which are based on the FICO scoring model, are as follows.

  • Between 700 and 850 – Very good or excellent credit score. one
  • Between 680 and 699 – Good credit score.
  • Between 620 and 679 – Average or OK score.
  • Between 580 and 619 – Low credit score.
  • Between 500 and 579 – Poor credit score.
  • Between 300 and 499 – Bad credit score.

How this affects borrowers

Credit scoring and credit ranges have made it very easy for lenders to determine a person’s creditworthiness. Lenders typically base your interest rate on your credit score. People with “good” or “very good” scores get the best interest rates. Conversely, people with “low” or “poor” credit scores will be charged higher interest rates because the lender believes it’s taking more of a risk. In fact, if you have a “low” credit score your mortgage could have an interest rate two points or more higher than if you had a “very good” credit score. This means that a bad credit score could cost your literally thousands of dollars more over the life of a 30-year mortgage.

Get your credit reports

If you learn you have a low credit score, the first thing you need to do is get copies of your credit reports. You have three of them as there is three credit reporting agencies, each of which keeps a credit file on you. You can get all three free at www.annualcreditreport.com.

Once you have your reports, you need to go over them carefully, looking for those negative items that are dragging down your score. This could be a lien, a judgment, a debt sent to collection, a charge off, a default, maxed out credit cards or late payments.

Step #1 in repairing your credit

Once you find the negative items in your reports that may be damaging your credit score, you need to double check to make sure they are really yours. The three credit bureaus process thousands of items a day and they can make mistakes. You might find a judgment or a charge off that was there due to an error. In this case, you will need to go to the appropriate credit bureau’s website and file a dispute. This is fairly simple as they all have online forms for this purpose. You will need to have documentation supporting your claim. If you do so, the credit bureau must contact the company that provided the information and request verification. If the company is unable to verify the negative item or if it doesn’t respond to the credit bureau within 30 days, the bureau must delete the item from your report – which could mean a nice increase in your credit score.

Pay down your balances

Your credit score is based on five components. They are.

• Payment history – 35%
• Credit utilization – 30%
• Length of credit history – 15%
• Types of credit used – 10%
• Recent searches for credit – 10%

There’s nothing you can do about your credit history as, well, it’s history. But you can do something about your credit utilization and types of credit used – that could help your credit score.

Credit utilization is the total amount of credit you have available vs. the amount you’ve utilized. For example, if you have credit cards with a total balance of $10,000 and have charged $6000 on them, you would have credit utilization or a debt-to-credit ratio of 60%. This is much too high and could be hurting your credit score. Most experts feel your debt-to-credit ratio should be 20% or less. So, if you were able to pay down your debt until you reached that 20%, your credit score should improve considerably. You might also be able to improve your types of credit used by applying for a personal loan, a personal line of credit, a homeowner’s equity line of credit or an auto loan.

Ask for more creditcredit cards

The other way to improve your debt-to-credit ratio is to increase the amount of credit you have available. To do this, you would need to contact your lenders and ask them to raise your limits. This can work if you have a great history of making your payments on time and never exceeding your limits. If not, you’ll be out of luck.

Get a secured card

Another way to improve your credit is to get what’s called a secured card. This is one where you deposit money into a savings account. The more money you deposit, the higher will be your credit limit. You can keep using the card so long as you continue depositing money. If you use it sensibly this will be reported to the credit bureaus and will eventually have a positive effect on your score. If you use the card judiciously for a year, the bank may offer you an unsecured card, which would definitely have a positive effect on your score – so long as you use it wisely.

Some other tips for improving your credit score

• Pay all your bills on time all the time
• Keep the balances low on your credit cards and other revolving types of credit
• Understand that if you close an account this doesn’t make it go away.
• Don’t close credit cards you are not using as a short-term way to raise your score.
• If you have been using credit for a only a short time, don’t open a lot of new accounts too quickly
• Have you missed payments? Then get current and stay current.
• Don’t apply for new credit accounts unless you absolutely need them.
• Be aware that if you pay off a collection account this does not remove it from your credit report.
• Pay off debt instead of just moving it around

Here’s a video with 5 more tips for raising your credit score.

How To Handle Credit Report Errors

Holding credit card and looking at laptopCan you imagine how it would feel if you were to pay off five credit cards and then find that they had been recorded as “uncollectible” on your credit report? It can and does happen and can lead to messy problems.

Millions have errors

If you review your reports and find credit report errors, you’re not alone. I have seen reports that there are millions of credit reports containing mistakes, some of which are worse than others. This study also revealed that 1 in 20 consumers have errors on their credit reports so serious that they are probably paying higher interest rates on credit their cards and loans. This actually comes from the Federal Trade Commission.

Can cost thousands of dollars

Errors on your credit report can actually cost you hundreds of dollars over the course of a year or two in higher insurance premiums and higher interest charges. The fact is that even if the error seems innocent, it can have a negative impact on you.

You have rights

Several years ago our Congress passed the Fair Credit Reporting Act. This gives you the right to dispute items on your credit report with the appropriate credit bureau. If you find such an error, you will need to write the credit bureau and dispute it. You will need to send documentation supporting your position to both the credit bureau and the company responsible for the erroneous item. This could include any pertinent emails, faxes or letters, canceled checks (both the fronts and backs) and billing statements.

The credit bureau is legally required to respond within 30 business days from the day it received your letter. These 30 days are meant to give the credit bureau time to investigate your claim. However, the word “investigation” is very loosely defined. In fact, all the credit bureau has to do is go back to the entity that provided the information and ask it to verify the item.

The problem

The problem is the credit bureaus (Experian, Equifax and TransUnion) are not in business to determine who is right in these disputes. They will usually go with whatever the company that furnished the information tells them as they believe it’s in the best position to know.

At least three months prior

Most experts recommend that you get your credit reports at least three months before you apply for credit on a big items such as a mortgage. This will boost your chances of quick success. You can get your three credit reports free at the www.annualcreditreport.com. There are two reasons why you need a recent report. You want to see your current information and not information that’s six months out-of-date. Second, the personal report you will get is much easier to read (and understand) than the one the lender gets.

What else you could do

If you cannot settle your dispute with the credit bureau you still have some alternatives available. You can add a statement about your dispute to your credit file explaining why you disagree with the item. If you’re lucky, future creditors may take this into consideration when reviewing your credit applications. You can also involve the Consumer Financial Protection Bureau. The agency takes complaints online regarding credit report disputes but only if you first disputed the item with the appropriate credit bureau. The agency will send your complaint to the credit bureau and ask that it investigate it again.

Hire an attorney

Finally, you could get help from an attorney. Many attorneys will deal with these kinds of disputes on a contingency basis so that you pay nothing unless you get damages as the result of a settlement or from a lawsuit. You can usually get a free consultation upfront and the law firm might even help you draft the letter you would send to dispute the item.

“How Can I get My Credit Report Repaired?”

Payment overdueI saw this question posed on a forum by a woman who had a bad credit report and wanted to know if she should hire someone to repair it or if she should just contact her creditors herself. She also wanted to know how long she should wait after her credit report had been repaired before letting someone pull her report to see if she could “qualify for a house.”

Two fundamental errors

If you read this last paragraph carefully, you should have spotted two fundamental errors. First, despite what some Internet advertisers might want you to believe, there is no way to get credit repaired (more about this later). And second, since her credit report isn’t going to get repaired anytime soon, there is probably no way she would “qualify for a house”, i.e., get a mortgage.

Ethical credit repair

Bad credit reports can’t be repaired period. If there is negative information in your credit report that’s accurate, it cannot be removed and will stay there for seven years. Read the fine print in the ads for ethical credit repair companies and you’ll probably see that this is true. For example, if your search Google on the term “credit repair,” you’ll see a link to the website of Veracity Credit Consultants. Its page says“ Veracity works to remove errors, delete inaccurate negatives, and highlight good accounts. Notice how it says nothing about “repairing” or “deleting” accurate information.

What Veracity and other honest companies can do

As Veracity states, it and the other companies and attorneys you’ll find by searching on “credit repair” can get erroneous information removed from your report. If this information has negatively impacted your credit score, getting rid of it would definitely help both your score and your credit report. But again, remember there is nothing that can be done about accurate information.

Easy to get in, tough to get out of

The biggest problem with credit for many people is that debt is so much easier to get into than get out of. In fact, you can trash your credit in as few as three months by skipping payments and or by failing to make even your minimum monthly payments. Every expert I have read on personal finances has said that it’s critical to pay off your balances each month. Once you start carrying balances forward by making just the minimum monthly payments, you’re on a slippery slope. And if you start skipping those minimum payments, it’s certain that you’re on the way to big trouble.

Contacting her creditors

One thing this woman suggested that would make good sense is for her to contact her creditors as they might be willing to negotiate. This is especially true of credit card companies. They are staffed by hundreds of customer service agents who have been trained to be sensitive to their customers’ needs and to work with them. If this woman could show how she was in a serious financial bind, her credit card companies might be willing to give her a sort of recess of no payments for two or three months to work on her balances or they might suspend her interest charges for several months.

Debt settlement

It might also be possible for this woman to negotiate settlements with her creditors for 50% of what she owes or even less. This could work if she has not made even her minimum monthly payments for six months or longer. However, she would have to be a very good negotiator and would have to have the cash available to pay the settlements.

How To Dispute An Error In Your Credit Report

Credit Score highlighted in yellow

Why reviewing your credit report is critical

If you follow the news, you may have seen the report that 20% of Americans have errors in their credit reports. The net of this is that you could be refused a loan, have to pay higher interest rates, pay more for your auto insurance or even miss out on a job because of an error in your credit report. If you haven’t ever seen your credit report or haven’t seen it recently, you really need to get a copy and review it for mistakes. This is especially critical if you are about to apply for a loan to buy a house, a car or auto insurance.

If you find a mistake

There is a law titled the Fair Credit Reporting Act (FCRA). One of the things that’s required by this act is that both the information provider and credit reporting agency need to correct any information in your credit report that is incomplete or inaccurate. If you review your report and find an error, step one is to tell the relevant credit-reporting bureau about the information you think is incorrect. When you write the bureau, you will need to include copies of any documents that support your claim. The letter should include your name and address and information about each item you believe should be deleted. You will need to explain why you think the information is incorrect. Finally, you should ask that the erroneous information be corrected or removed.

Your claim must be investigated

Again according to the FCRA, the credit bureau must review the item you’re questioning and it should do so within 30 days. It is also required to send the documents you provided in support of your dispute to the business that provided the information. When that company receives notification that you have disputed its information, it must investigate, examine the relevant information and then report its findings to the appropriate credit bureau.

What happens next

In the event that the company that provided the information agrees that it had made a mistake, it must notify all three credit reporting bureaus (Experian, TransUnion and Equifax) so the information in your file can be corrected.

When the investigation is over

Once the credit bureau finishes investigating the disputed item, it must give you the results in writing. If it has made a change in your report as a result of the dispute, it must send you a free copy of it. If you wish, you can have the credit-reporting bureau send notices of the corrections it’s made in your credit report to any company that had received a copy of it within the past six months.

Contact the organization that provided the information

You should also inform the company that provided the bad information, again in writing, that you are disputing the item. Don’t forget to include copies of any documents that support your position. The company must then send a notice to the appropriate credit bureaus that you are disputing the item. If it turns out that you were correct, the information provider is prohibited from reporting the item again.

Credit Repair – Real Help or Big Scam?

Masked thief with bag labeled dollarsOkay, you’ve had a bad stretch of luck and your credit report is in tatters. You’ve been late on a lot of payments and you’ve even failed to pay anything on several of your credit cards for the past three months. So you go online and you search on the term “credit repair” because goodness knows, your credit does need repairing.

What you’ll find

What you’ll find is almost a full page of listings on Google for companies that offer credit repair. You will probably find a listing for Credit Report Repair, Bad Credit Repair, Credit Repair and more. However, if you click on the listing Credit Report Repair and then How It Works, what you’ll find are four “stages” as follows: Stage One: Obtain Credit Reports; Stage Two: Legal Action Begins; Stage Three: Credit Score Analysis; and Stage Four: Follow-up and Escalation.

Stage Two – Legal Action Begins

The website describes this stage as, “The attorneys and paralegals assigned to your case will review your credit reports and prepare and send the appropriate legal challenges and interventions in accordance with your case, under your direction.” What this site never says directly is that you can get your credit repaired. And there is good reason for this. No information on your credit report that is accurate can be changed or removed.

The most that one of these credit repair companies can do is find inaccurate or erroneous information and get that fixed. But you could actually do this yourself. In other words, credit repair companies, despite what they might claim, can’t do much more in credit repair than what you could do yourself.

DIY Credit Repair

As noted above, the only information you can get removed from your credit report is information that is inaccurate or erroneous. You can find these mistakes yourself simply by monitoring your credit report on a fairly regular basis. You can get free credit reports from all three of the credit service bureaus on the website www.annualcreditreport.com. However, you can only get your reports free once a year. This means a better tactic is to order one credit report from one of the three credit bureaus every four months. This way, you would have almost year-round credit report monitoring.

The credit bureaus

The three credit reporting bureaus are TransUnion®, Experian®, and Equifax®. You can request your credit report from any of the three by calling 1-877-322-8228.

What to look for

Credit reports are not much fun to review. Yours might run 12 to 14 pages and won’t be easy to read. But you must read your reports carefully as this is the only way you can spot erroneous or inaccurate information. The two most common credit report bungles are information that’s just totally inaccurate and what are called reporting errors. This could be accounts attributed to you that are not really yours, applications for credit that you didn’t really fill out, and out-of-date employment information. Another type of error to look for is called an omission. This could be the report of a delinquent payment that you’ve already fixed or an old collection action you have satisfied but is still being listed as overdue.

How to correct errors

Unfortunately, fixing these errors is easier said than done. You’ll need to write a letter to the appropriate credit bureau and ask it to make the necessary correction. You will need to include some proof that the information was erroneous or the credit bureau may just ignore your request.

Fix your debts and not just the errors

Living under a big cloud of debt can have a very negative effect on your entire life. If you’re heavily in debt, there is a solution called debt settlement or debt relief. We’ve helped hundreds of American families find relief from their debts through debt settlement. You can learn more about debt settlement by filling out the free debt analysis form you will find on our homepage. It’s easy to fill out and could be your first step towards becoming debt-free.

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