Since the economy is so bad, more and more people are facing the prospect of a bad credit rating and wondering how this will affect them in the future. There’s no doubt that having bad credit will be a liability. It affects whether you can get loans in the future, what interest rates you are charged, and in some instances having bad credit may make you ineligible for certain jobs. But know that with the current economic downturn; a lot of creditors are in the same boat. Millions of homes are in foreclosure with more on the horizon, many people are out of work and bankruptcy filings are skyrocketing.
Since everyone’s credit situation is different, this article will need to make some simple assumptions about your current credit condition. This article will address credit report repair for people who have bad credit or would like to improve their FICO score.
When starting out on your credit report repair, the first thing you want to do is get copies of your credit reports from the three major credit reporting agencies: TransUnion, Experian, and Equifax. You are allowed one free report from each one every year, so there is no need to pay for this service. Anything you pay for from these agencies is an upgrade promoted to prevent identity theft, but this is not necessary. Carefully look over the credit report to make sure that everything on each of the reports is correct. If you see anything that is reported incorrectly, you need to write that company to have the erroneous information removed. You should include supporting documents and keep records of all your correspondences. Legally, these companies are required to remove incorrect or false information, so the law is on your side if you can prove your claims and they fail to act.
When you get your 3 free credit reports, you may also want to get a copy of your FICO scores. Unfortunately you will need to pay a small fee for this but it gives you a good overall view of your credit health. Your FICO numbers are the most used indicator of credit worthiness; it’s used by banks and lenders as a tool to see whether a customer is a good credit risk. Those with the highest FICO scores are not only the most likely to get loans, but they also get lower interest rates.
Each of the three credit reporting agencies listed above have FICO scores associated with your account, so essentially you have three separate FICO numbers. Equifax uses the name Beacon Score, Experian uses the name Experian/Fair Isaac Risk Model and TransUnion calls there FICO score Empirica. When you’re just starting out with your credit report repair you’ll probably want to get all three scores, because they may be different. Because each of the 3 different credit reporting agencies will have a slightly different credit report, you may have a small spread difference in your FICO numbers. In the future you will only need to get one FICO score, but initially it’s good to know where you stand because a lot of people are completely in the dark about how credit works and what their credit score signifies.
You now should have a good overview of your credit health, now that we have a starting point, you can start a plan of attack to begin improving your credit. Once you’ve verified that everything on the credit report is correct and corrected any mistakes, now comes the easy part. Unfortunately easy does not mean fast or quick. Everything involved with credit report repair is a slow process. But, the soon you start, the sooner you can have good credit. There are no short cuts.
To start the process you need to understand exactly what determines your FICO score. You score is determined by 5 main categories that myFICO shows as follows:
This means that the categories of “payment history” and “amounts owed” are the best place for you to start since these account for 65% of your overall score. This doesn’t mean that you shouldn’t pay attention to the other categories but rather that these are the two main areas that have the worst effect on most people’s credit.
If you are late paying your bills this will be reflected on your credit score. Banks and lenders don’t want to loan money to people who can’t pay their debts on time, it puts you in a high risk category. Likewise, if you owe a lot of money in debt, bank will consider you overextended and also put you in a high risk category. Also falling under the “amount owed” category is the total amount of credit you have available to you which is weighed against the amount of credit you are actually using. As an example, if you have a credit card with a $10,000 limit and you have it totally maxed out, this is bad. If you have the same $10,000 credit card with only $300 charged on it, this is good.
So, the absolute best place to start with your credit report repair work is in these two categories. From now on, pay every bill on time and work on reducing your debt load. This is well over half (65%) of your credit score, so you can achieve excellent results by just doing these two things alone. One thing you do need to keep in mind is that credit report repair work will take time. Don’t expect to pull up your credit reports in another 3 months and boom, your credit score has shot up 200 points, it simply doesn’t work like that. It’s more of a glacial pace, slow steady improvement, so don’t get discouraged, keep at it.
