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The first
step in credit repair is to understand your credit report and what factors
a credit bureau may consider in determining your credit score. Below is
information on credit reports, the credit bureaus - Equifax, Experian,
Transunion - credit scores and credit repair. Working diligently to improve
your credit score today may provide more options in the future for mortgages
and home loans.
1.
How is my credit score determined?
2. Improving your credit score.
3. Fair Credit Reporting Act.
4. Who can access credit reports?
5. Fixing errors on your credit report.
6. Getting out of debt.
7. Rebuilding damaged credit.
1.
How is my credit score determined?
There are several categories of information that may go into your credit
score. These categories may include:
• Your payment history – This is probably the first thing
a lender will look at when deciding on whether to extend credit and is
also one of the most important factors in a credit score. Late payments
may not be an automatic score killer because a good overall credit report
can outweigh one or two instances of late credit card payments. On the
other hand, having no late payments does not guarantee a perfect credit
score. Your credit score may take into account the payment information
on many types of accounts, public records, bankruptcy and collection items,
details on late or missed payments and how many accounts show no late
payments.
• The amounts you owe - Having credit accounts and owing money
on them does not mean you are a high-risk borrower with a low credit score.
However, owning a great deal of money on many accounts can indicate that
a person is overextended and may be more likely to make some late payments.
Your credit score may take into account the amount owed on all accounts,
the amount owed on different types of accounts, whether a balance is carried
on certain types of accounts, how many of your accounts have an outstanding
balance, how much of your total credit is being used and the remaining
balance due on installment loans versus the original loan amount.
• The length of your credit history - In general a longer
credit history will increase your credit score. However, even people with
short credit histories may have a high credit score depending on their
overall credit report. Your credit score may take into account how long
your credit accounts have been established in general, how long specific
accounts have been established, and how long it has been since certain
accounts have been used.
• Your new credit - Opening several credit accounts in a short
period of time may represent greater risk especially for people who do
not have a long established credit history. This also includes requests
for credit called inquiries by the credit reporting agencies - Equifax,
Experian, and Transunion. The agencies distinguish searching for many
new credit accounts and rate shopping by treating a grouping of inquiries
as though it was a single inquiry when all the inquiries were made in
a short period of time by the same type of lender. Your credit score may
take into account how many new accounts you have, how long it has been
since you opened a new account, how many inquiries you have made about
credit, the length of time since inquiries were made by lenders, and whether
you have a good recent credit history following past payment problems.
• Your mix of accounts - The credit score may consider your
mix of credit cards, retail accounts, installment loans, finance company
accounts and mortgages. It is not necessary to have one of each and it
is not a good idea to open new credit accounts you don’t intend to
use. The credit mix usually won’t be a key factor in determining
your credit score but it may be more important if your credit report does
not have a lot of other information.
A complex model is used to determine credit scores and is based on
many factors. Please keep the following things in mind when considering
your credit score:
• A credit score takes into consideration all of the information
in your credit history not just a couple pieces. No one piece of information
or factor will determine your credit score.
• The importance of any factor depends on the overall information
in your credit report. For some people, a given factor may be more important
than for someone else. In addition, as your credit information changes,
the importance placed on any one factor may also change. It is impossible
to say exactly how important any one factor is in determining your credit
score. What is important is the mix of information, which varies from
person to person and for any one person over time.
• Your credit score only looks at information in your credit report.
Lenders look at many things when making a credit decision and your credit
score does not reflect all of these facts.
• Your credit score considers both positive and negative information
in your credit report. Late payments will lower your credit score but
having a good record of making payments on time will raise your credit
score.
• Your credit score does not consider your ethnic group, religion,
gender, marital status or nationality. These are in fact prohibited from
use in calculating a credit score.
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2.
Improving your credit score.
Improving
your credit score may provide you with access to a wider variety of credit
options at a lower cost to you. Even if you already have a good credit
score, there's always room for improvement. Credit scores reflect credit
payment patterns over time with more emphasis on recent information. In
general, your credit score may be improved by:
• Paying your bills on time. This is the single most important contributor
to a better credit score.
• Keeping low balances on credit cards and other revolving lines
of credit. High outstanding debt may be viewed as negative since you may
have a greater chance of missing payments.
• Only applying and opening new credit accounts when you need to.
Opening new accounts just to increase your available credit could actually
lower your credit score.
• Know your credit score and fix any incorrect information that might
appear on your credit report. Requesting your own credit report will not
negatively affect your credit score.
• If your credit score is severely damaged or you have a very short
credit history you may be able to improve your credit score over time
by opening new accounts responsibly and paying them off on time.
• If you fall behind on paying a bill because of illness, unemployment,
or family issues, write a short explanation to the credit reporting agencies
- Equifax, Experian, and Transunion. They will add it to your credit report.
Also, call your creditor to explain the circumstances and, if possible,
work out a payment schedule you can meet.
• If you need help managing your credit, contact a reliable nonprofit
agency, such as: Consumer Credit Counseling Service (www.cccsinc.org)
or the National Foundation for Credit Counseling (www.nfcc.org). Going
to a credit repair clinic may not be of help to you. There is nothing
any credit repair clinic can legally do for you that you can’t do
yourself. And their fees can be substantial, ranging from hundreds to
thousands of dollars. The Credit Repair Organization Act is a federal
law that prohibits credit repair clinics from taking a consumer’s
money until they have fully completed the service they promised. It also
requires such firms to provide consumers with a written contract stating
all the services to be provided and the terms and conditions of payment.
Consumers also have 3 days to withdraw from the contract.
The length of time it takes to rebuild your credit score after a decrease
depends on the reason behind the drop in your credit score. Most decreases
in credit scores are due to the addition of a new element on your credit
report such as a delinquency or an inquiry. These new elements will continue
to affect your credit score until they reach a certain age. Delinquencies
remain on you credit report for 7 years. Most public record items remain
on your credit report for 7 years although a bankruptcy may remain for
10 years and some tax liens remain for 15 years. Inquires remain on your
report for 2 years.
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3.
Fair Credit Reporting Act.
The federal Fair Credit Reporting Act (FCRA) is designed
to promote accuracy, fairness and privacy of information in the credit
report files of credit reporting agencies. The FCRA and state laws restrict
who has access to your sensitive credit information and what uses can
be made of it.
Basically, Your Rights as a Consumer Include:
• Obtaining a copy of your credit report. There is no charge for
the credit report if a person has taken action against you because of
information supplied by the credit reporting agency if you request the
credit report within 60 days of receiving notice of the action. You are
also entitled to one free credit report every 12 months upon request if
you certify that you are unemployed and plan to seek employment within
60 days, you are on welfare, or your credit report is inaccurate due to
fraud. Otherwise the credit reporting agency may charge you a fee up to
$9.
•
Inaccurate information must be corrected
or deleted. The credit reporting agency must remove or correct inaccurate
or unverified information from its files usually within 30 days after
you dispute it. However Equifax, Experian, and Transunion are not required
to remove accurate data from your file unless it is outdated or cannot
be verified.
Information That Can Be Included in Your Credit Report:
• Your identifying information
•
Your employment/salary information
•
Credit information (applications for credit
cards, payment history, etc.)
•
Public record information
•
Late payments reported by utility companies,
hospitals, landlords and other
•
Overdrawn accounts reported by banks
•
Late credit card, auto loan, and mortgage
payments reported by banks
•
Delinquent child support payments
•
Debts being collected by collection agencies
Information That Is Not Included:
•
Your race
•
Your religion
•
Your current health or medical history
•
Your driving record
•
Your criminal record
•
Your political preference
•
Notice of bankruptcy (Chapter 11) that is
more than 10 years old
•
Debts that are more than 7 years old
When you order a copy of your credit report from a credit reporting agency,
it will include information about who has requested a copy of your credit
report or made an inquiry of your credit report in the last six months.
Inquiries related to pre-approved offers, as well as inquiries you make
yourself, are not available to credit grantors, but are included in the
credit reports you order for yourself.
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4.
Who can access credit reports?
Anyone
with an FCRA permissible purpose, such as:
• Potential lenders
•
Landlords
•
Insurance companies
•
Employers & potential employers
(usually only with your written consent)
•
Companies with which you have
a credit account for account monitoring purposes
•
Entities considering your application
for a government license or benefit (if the agency must consider your
financial status)
•
A state or local child support
enforcement agency
•
Any government agency (name,
address, former addresses, current & former employees)
•
Someone to whom you have instructed
the credit reporting agency to provide a credit report on you.
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5.
Fixing errors on your report.
It is possible for incorrect
or outdated information to appear on your credit report. If it does, it
can drastically lower your chances of getting the loans, credit cards,
and other credit products you deserve. If you find an error on your credit
report, take the following steps to fix it as soon as possible. Please
note: It's important to keep a record of everything you do. Send all correspondences
return receipt requested, and make copies of all letters and documents
you send. Never send original documents.
Contact the Creditor Regarding the Problem
In most cases, you should contact the appropriate creditor or lender before
contacting a credit reporting agency. Most large creditors have standard
procedures for customers to dispute items on their account. If you have
proof that the item in question is incorrect, it should be resolved quickly.
If the creditor finds that the disputed information is indeed incorrect,
the creditor is required under the Fair Credit Reporting Act to update
its records both internally and with the credit reporting agencies it
deals with, usually within 30 days. Always follow up your phone calls
with a letter. List each disputed item, and state how it is inaccurate,
attaching copies of all relevant documents. Include your full name, account
number, the dollar amount in question, and the reason you believe the
item is wrong. Be concise.
If Necessary, Contact the Credit Reporting Agency
If you cannot resolve the problem with the lender, contact the credit
reporting agency that is reporting the item in question. You will need
a printed copy of your credit report from them, which you may be eligible
to receive free of change. After you send written documentation of the
inaccuracy, the credit reporting agency will review it. If further investigation
is required, they will provide notification of your dispute, including
the relevant information you submitted, to the source that furnished the
disputed information to them. The source will then review the information,
conduct their own investigation, and report back. The credit reporting
agency will then make all appropriate changes to your credit file based
on the investigation, and notify you of the update.
Contact the Other Credit Reporting Agencies
If you find an inaccuracy with one credit bureau, you may want to get
your credit report from the other two agencies to see if their reports
contain the same error. After you've corrected an error with one agency,
the other agencies should eventually receive the corrected information.
But for prompt correction, it's best to contact each of the three agencies
yourself:
Equifax
(800) 685-1111
Experian
(888) 397-3742
Trans
Union
(800) 916-8800
Ensure that the Error Is Fixed
Within a month of your inquiry, the credit reporting agency should notify
you of the results of its investigation and provide you with a new credit
report free of charge. Examine it carefully to ensure that the inaccuracies
have been fixed or removed. If the error has been fixed, you can have
the credit reporting agency send the corrected report to anyone who received
the inaccurate report in the past six months (two years in the case of
employers).
If You Cannot Resolve a Disputed Item
You have the right to attach a 100-word statement, free of charge, explaining
the nature of your disagreement. Your statement will become part of your
credit file, and will be included each time your credit file is accessed.
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6. Getting out of debt.
Getting out of debt has become more difficult
since the introduction of the credit card. The "buy now, pay later"
mindset has left millions of consumers fighting an uphill battle. And
overspending has no social boundaries -- it happens to the rich, the poor,
and everyone in between.
To ensure a good credit score, it's important to pay your bills on time.
As you accrue more debt, however, you may find this effort becoming more
difficult. But remember, the sooner you get started, the sooner you will
arrive at your goal of becoming debt-free.
If You Fall behind on Payments
• Establish a budget immediately to assess your spending habits.
•
Lock away your credit cards
and don't use them -- but don't cancel them. If you have a low credit
rating, you may have trouble getting new cards.
•
Discuss ways with your family
of cutting expenses. Setting goals and limits helps your family work together
towards solutions that benefit everyone.
•
Consider using some of your
savings or a home mortgage for debt consolidation. In most cases, interest
paid on a home mortgage loan is tax deductible and usually at a lower
rate than credit card and other installment debt. You might be surprised
how many hundreds of dollars in interest it could save you.
•
Don't apply for new credit
cards -- doing so can have an adverse effect on your credit score.
•
Start to eliminate your debt
by paying off accounts that charge the highest interest rate. When that
one is paid off, move on to the one with the next highest rate.
•
Avoid "credit repair"
clinics that offer to remove late payments or bankruptcies.
Time to Seek Assistance?
If you feel that you are in over your head, it might be time to seek assistance.
There are helpful agencies out there that can assist you.
But first a word on possible pitfalls. Be sure to avoid "credit repair"
clinics that offer to remove late payments or bankruptcies. Such agencies
can be disreputable, preying on vulnerable consumers who are often desperate
for help.
Among the reputable agencies that can help you is the Consumer Credit
Counseling Service (CCCS), a nonprofit organization that offers free or
low-cost financial counseling to families that need to solve financial
problems. CCCS can help you analyze your situation and works with you
to develop solutions. Currently, there are more than 1,200 CCCS offices
in the United States. Call (800) 388-2227 for the phone number of the
office nearest you, or visit the CCCS web site at www.cccsatl.org.
There are two primary types of personal bankruptcy: Chapter 13 bankruptcy
and Chapter 7 bankruptcy. Each must be filed in federal bankruptcy
court. The current fees for seeking bankruptcy relief are under $200 however
attorney fees are additional and can vary widely. The consequences of
bankruptcy are significant and require careful consideration.
Chapter 13 Bankruptcy allows you, if you have a regular income
and limited debt, to keep property, such as a mortgaged house or car,
that you otherwise might lose. In Chapter 13 bankruptcy, the court approves
a repayment plan that allows you to pay off a default during a period
of three to five years, rather than surrender any property.
Chapter 7 Bankruptcy, known as straight bankruptcy, involves liquidating
all assets that are not exempt. Exempt property may include cars, work-related
tools and basic household furnishings. Some property may be sold by a
court-appointed official trustee or turned over to creditors. You can
receive a discharge of your debts under Chapter 7 bankruptcy only once
every six years.
Both types of bankruptcy may get rid of unsecured debts and stop foreclosures,
repossessions, garnishments, utility shutoffs, and debt collection activities.
Both also provide exemptions that allow you to keep certain assets, although
exemption amounts vary. Personal bankruptcy usually does not erase child
support, alimony, fines, taxes, and some student loan obligations. Also,
unless you have an acceptable plan to catch up on your debt under Chapter
13 bankruptcy, it usually does not allow you to keep property when your
creditor has an unpaid mortgage or lien on it.
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7. Rebuilding damaged credit and credit
repair.
Bad credit
can happen to good people. Don't despair. There are ways you can get your
credit report and credit score back in shape. But you have to start working
on it today -- and keep working hard to show potential creditors that
you're serious about getting your credit report back in order. As you
do so, your credit score will improve, resulting in better credit offers
and a substantial savings in money.
Get Started Now
Open new accounts and pay them off. Being able to repay a variety of new
accounts is a key step in rebuilding your credit score. That means that
devising a strategy to open and pay off as many different kinds of accounts
as you can is better than adding more debt to an existing credit card.
Start small. Rebuilding your credit score can be similar to starting over
from scratch, and starting small may be the easiest option. Credit cards
from department stores or your local credit union can be useful.
Consider asking for help. If you can't qualify on your own, ask a friend
or family member to cosign for a small loan or credit card. If you can
stay current on a major credit card account or small auto loan, this will
speed up the process of re-establishing good credit on your own.
Consider a secured credit card. They are guaranteed by a deposit that
you make with the credit grantor. The cards offer the purchasing power
of a major credit card. Just make sure the grantor reports payment histories
to one of the three major credit bureaus so you're building your positive
payment history.
Use your new accounts in moderation. And make payments that are more than
the minimum. You can keep a small balance so that your positive payment
history will continue to show up on your credit report.
Keep your balances low. Avoid carrying a balance that is more than 30%
of your credit limit (creditors may view it as excessive debt that you
may not be able to stay current with).
Find Out Where You Stand
You have taken the first step toward rebuilding your credit. Now it's
time to take the next. Do you know where your credit stands? Get a copy
of your credit report and review it for accuracy.
Be Patient-the Payoff Is Worth It
It takes some time for your new credit history to gain momentum. You're
demonstrating that you are not depending on certain credit cards and loans
for your financial survival. That's
why opening and paying down accounts may make it a little easier to get
more credit. With patience and timely repayments, you'll likely be able
to build a new credit history that creditors will look upon favorably
when making decisions about your ability to handle even more credit.
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