Credit Repair

It is very important to understand that the term “credit Repair” is often abused and misunderstood. Don’t be fooled or ripped off by companies that make promises to remove negative credit from your report. You cannot remove accurately reported information. You can, and should, make sure that what is reported is correct. If it is not correct you can get it corrected by simply communicating with the repositories by mail, phone, or online. And then, you can improve your credit and credit score by following a few simple steps.

The first thing you should do is order your credit report from each repository (credit reporting agency). Make sure you only order reports that include your score. Your score is very important and you must know what it is. The three major companies are Equifax, TransUnion, and Experian. These are the three companies that major lenders use. They have very informative sites that will explain how credit scores are developed and what they mean. Each also has online communication so you can dispute any errors that may show up. You should start the correction process as soon as possible because it can take several months to get them fixed.

Now lets focus on raising your score

Unpaid Collections Charge Offs or Judgments:
This is really trickey, should you pay these off or leave them alone? If they are more than three years old you might not want to pay them off because the “date of last activity” impacts your credit score. And, the type of loan you are getting may not require it. If the lender does require payment perhaps it can be done at closing through escrow. These items will stay on your report for 7 years from the date of the last activity.

Sometimes the creditor you owe will accept a lesser amount and settle the account showing it paid. If you do this, make sure you get it in writing. When you pay them do it with a cashier’s check and keep a copy of it with your written agreement. It will still be on your report but it will show being paid.

Late Payments:
If they are correct you can’t really fix them but you can increase your score if you start paying on time, consistently!

Major Credit Cards:
Too many credit cards even if they show a zero balance will lower your score and increase your debt ratios. Close some of them out, but keep in mind that the older accounts improve your score as far as capacity and age of the account. Never allow your balance to go over 30% of your available limit. You should never consolidate debt to one or two cards for this reason.

Department Stores:
I knew a lady that had over 15 department store accounts. They all had very small balances. Even though she paid on time her score was low because she had so many. Close some of them out, but keep in mind that the older accounts improve your score as far as capacity and age of the account.

New Accounts:
If you already have established credit and credit depth, don’t open any new accounts. Every time you apply for credit an inquiry is placed in your file. Too many will lower your score. Be aware that when you finance an auto through the car dealer they broadcast your application to MANY lenders who each pull your credit. I recommend you get a car loan pre-approved at your bank before you go shopping for a car.

No Credit:
Unfortunately this is as bad as poor credit. Start off slow with a credit card. Never miss a payment. Maybe a well-known department store. Then a car loan. Make sure your debt to income ratio stays below 36% (including your rent). If you don’t have rent or a mortgage keep your ratio below 10%.