Tips for Repairing Your Credit
By Rebecca Game
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.
Rebecca Game is the founder of Digital
Women ®, an online community for women
in business. A 30 year entrepreneur and
dedicated to helping other women find
small business loans. Visit her site:
Loans for Women.
http://www.digital-women.com.
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