rebuild credit score
I’ve have been asked from time to time about the legitimacy of credit repair, does it really work, can I do it myself, should I hire someone, things of that nature.
Let’s start by saying that repairing your credit report is becoming increasingly important. As the cost of financing begins to rise, the added cost of having poor credit compounds the amount you must pay, leaving less and less discretionary income. In addition, other services (car insurance, home owners and renters insurance to name a few) are looking at your credit report and charging you accordingly.
Knowing this makes it crucial to fix bad credit as soon as you can. Credit repair does work! It’s that simple. Whether you choose to do it yourself or hire a company it is worth doing.
The steps you must take will be determined by what is on your credit report. If you are dealing with late payments, public records like tax liens or a bankruptcy, you will need to deal with the credit bureaus.
If you are dealing with debt collections you will probably need to address both the credit bureaus and the debt collection companies.
Here is a video which details what to do in dealing with the credit bureaus. These are the first steps you should take.
Of course there are many other issues in rebuilding a credit profile and improving your credit scores. Due to the increasingly complex nature of a credit report, I do recommend hiring a credit specialist even if it is just for a short time. Get their expertise on what a top notch credit report should look like and their advice on how to achieve this. Many companies will give you that information for free before you commit to purchasing their program. PLEASE SHARE
This question comes to me from a client in Kentucky. There are a lot of theories on what is best and the credit bureaus won’t tell anybody their formula. But after discussing with others who are in the credit education business we have generally come to the same conclusion.
The first part of the answer lies in the amount of available credit line you have. Let’s say you have $2,500 of available credit line on two credit cards. And that you have balances on Card A of $1,500 and zero on Card B. In this scenario you will likely have a lower credit score because you are carrying 60% of the available credit line on one card when the optimum amount has proven to be around 30%. This is the standard thinking in the industry
However, as one of my colleges points out, you would only be carrying a combined total of 30% when using the combined credit limits of both cards. Based on the credit reports I have reviewed there is truth here as well and the likely answer is that both factors are involved in calculating your credit scores.
The second part comes from reviewing those same actual credit reports and seeing consumers who are carrying balances on say 4 to 7 credit cards and still holding 740 FICO scores and above. What became obvious was that those with the higher scores were typically below 35% of their available credit lines. Those with scores in the 600’s were carrying a higher ratio to their overall credit lines
So…a possible way to raise credit scores if you are carrying ratios above 35% would be to apply for additional credit cards and not use them, thereby lowering your ratio of balances carried against your available credit lines. Of course, the obvious and first step to be taken to raise your credit scores is to pay down your balances on the way to paying them off.
The importance of having your credit in order today is becoming more and more evident. Companies are looking hard for ways to increase their income and are often trying to do it at the expense of consumers who have little or poor credit. They find ways to justify penalizing someone with bad credit. Therefore, due to increased costs by lenders, banks and insurance companies it pays to work on improving your credit.
There are a few key issues you must understand about credit,
1) to have a credit rating you MUST use credit and that credit use must be reported to the credit bureaus. It goes without saying that you need to pay your bills on time to have a positive credit rating.
2) A large percentage of your credit score is based on credit history which means you MUST use credit every month (all of your credit usage is reported in 30 day periods). These two things are crucial to raising your credit scores.
I am not suggesting that you go into debt. I am suggesting that you use your credit card(s) to make purchases you would normally pay with cash and pay them off each month. This adds positive credit history. In every case positive credit history eventually overwhelms the negative credit on your report.
What about the bad credit on my report?
People ask me regularly about using a credit repair company to remove bad credit from their reports. My answer is “yes and no”. You can fix your own credit by contesting what is being reported on your credit report both with the credit bureaus and the actual creditors. There is a lot of information and misinformation about this on the internet. Frankly, most of it is only partially correct. My goal is to steer you in the right direction for you!
Somefolks have used credit repair companies and had great results, others, not so much. The same has been true of the do it yourself-er.
In general, to do it your self, you will need to read about the law which explains what you can request of credit bureaus and creditors (called credit furnisher or furnishers). Next you will need to construct a letter of request and send it to each bureau or creditor with the proper identification. Then it is a waiting game until your receive letters back.
Here is where most consumers stop. When a letter comes back with no changed results, folks are stumped as to what to do next. This is where there is a lot of vagueness about what to do and why in many cases it is wiser to use a reputable credit repair company. A good company can help you with both removing the bad credit and helping you build new credit. Those two things can be worth thousands of dollars to you over the years.
Lastly, understand that rebuilding your credit will take time. As stated earlier, the bureaus report every 30 days, so rebuilding credit is a month to month thing not a day to day thing! A good amount of patience is in order.