Repairing Your Credit
Repairing Your Credit
Repairing credit scores cannot
be deemed an easy task, but also cannot be considered an impossible task,
either. Many individuals have less than ideal credit scores due to a number
of factors. It can be due to a job loss, where bills fell behind due to
reduced household income. Repairing credit scores can be necessary in situations
where a medical emergency occurred, and medical bills have piled up beyond
reason, or the individual that was injured was contributing to the household
income is now unable to work.
Credit scores can be reduced
due to a debt ratio that is much higher than the income level, and can
also occur if all payments are not made on time or are not made at all.
A bad divorce can also contribute to an individual's financial well being,
and can lead to poor credit scores when bills are in the middle of an argument
and payments are not made on time or are not made at all.
Regardless of the reason for
poor credit occurring, be assured that you are not alone. Many individuals
need to repair credit scores, and while it can create a dilemma when a
loan is needed, even loans are not impossible in most situations, though
interest rates may be higher. If possible, try to repair credit scores
before applying for a loan, if time allows. Take a few important steps
to repair credit scores.
1. Request copies of
your credit reports to assist in repairing credit scores.
Lenders rely on three reporting
credit bureaus: Experian, Equifax, and Transunion. These three bureaus
are where all lenders turn prior to offering a loan to any business or
individual. To understand what they are seeing, obtain copies of your reports
offered by each of these credit bureaus.
You may obtain a free copy
of your credit report from each bureaus once per year, or more if you have
been denied a loan or have been denied some type of credit due to your
scores. In addition to requesting the reports, be sure to also request
your credit scores be revealed. The reports and scores can be requested
online at Experian.com, Equifax.com, and Transunion.com, or can be obtained
by calling their toll free numbers.
Experian: 888-397-3742
Equifax: 800-685-1111
Transunion: 800-916-8800
2. Once you've obtained
your credit reports, review and understand them in order to repair credit
scores.
In order to repair credit scores,
it's crucial to understand what it is that needs to be repaired. When creating
a credit report, the three credit bureaus study the credit history of an
individual and calculate a credit score, which lenders use in considering
whether or not to approve a loan. This credit score is known as the FICO
score, and is calculated using software created by the Fair Isaac Company.
Credit scores range from 300, for no credit, to 850, for perfect credit.
A credit score below 619 is considered poor credit and the borrower is
considered a high risk to a lender.
3. To repair credit scores,
read through each item listed.
If there are items on your
credit report that are not yours, such as a loan that was given to your
spouse after a divorce, report those errors to each of the credit bureaus
who lists those errors. Likewise, there may be occasions where identity
theft or other errors on the part of the reporting bureaus have occurred.
Read through each item carefully, and contact each credit bureau that has
incorrect information regarding your credit history. Don't be afraid to
dispute anything at all that may be of question.
Contact each bureau promptly
with these disputes. There is normally a 30-day waiting period after filing
a dispute, where the credit reporting bureaus will contact each of the
creditors in which you're disputing, offering the creditors the opportunity
to respond or remove the listing from your credit report. If not response
is received, the credit bureaus are required by law to remove those items
from your credit reports, which will be one step in assisting you on repairing
credit scores.
4. Consider a consolidation
loan, reorganize your financial structure, and maintain control of your
spending in order to repair credit scores.
Obtaining a consolidation loan,
such as refinancing a home or obtaining a home equity loan, is an excellent
step in the right direction when it comes to repairing credit scores. By
consolidating all debt into one lower monthly payment, even if the interest
rate is higher, it usually will have more positive impact than negative
impact because it can greatly assist in repairing credit scores. A consolidation
loan will pay off as much existing debt as possible, and credit scores
will increase over time, provided new debt is not incurred due to the loan.
Not everyone gets a fresh start,
so it's crucial to keep that in mind after signing for the loan. If you're
tempted to spend more once the loan is in place, consider the impacts involved.
Your attempt to repair credit scores could possibly be lost with careless
spending. Spending more money once obtaining a consolidation loan will
only reduce credit scores more than what they were previously. Stay away
from payday loans, and destroy all but one credit card, which should be
used only for emergencies, such as unexpected automobile repairs. If the
card is needed for such an emergency, pay it off in full before using it
again. Don't splurge or make any purchases in haste, or your efforts to
repair credit scores will be lost.
5. Make payments on time
to repair credit scores, either with or without a consolidation loan.
Especially if you've decided
to obtain a consolidation loan, make all payments on as scheduled. To fully
repair credit scores, this is one of the most important steps to take.
Showing that you can pay your bills is one of the highest impacting actions
that you can make. It illustrates you as a financially responsible individual,
and can increase your credit scores as much as 100 points or more in just
one year.
By repairing credit scores
simply with making payments on time, within that one year, it's possible
to bring yourself into a better credit rating bracket, with more financial
opportunity available in the future, including lower interest rates, which
lead to lower monthly payments.
If you opt not to obtain a
consolidation loan, start making payment arrangements with your creditors
to aid in repairing credit scores. Start by making arrangements with the
creditors in which payments are the latest. Most creditors will gladly
work with you if you make payment arrangements and stick to the payment
plan.
By not communicating with your
creditors, they assume the worst of you. If you make them aware of your
financial difficulties, most will be flexible enough to work with you so
that your debts can be paid. If your creditors involved credit card companies,
ask them to re-age your accounts. By re-aging credit card invoices, the
credit card company will remove all late payments and added interest, significantly
reduce the interest rate you're paying on the account, and bring your payments
current. They'll also report the payment arrangement with the credit bureaus,
and this step alone will help repair credit scores. It may mean that the
accounts will be closed, but having them open in the first place are the
reasons for many financial problems due to unnecessary purchases.
NOTE: You
should have a credit score of at least 580 to be considered for a loan.
If you don't KNOW your credit score, you can find out instantly here.
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