Everything You Need To Know About Repairing Your Credit

 

Why Do I Need Good Credit And What Is A Credit Report?

A credit report is what is used to measure how responsible you are at paying your bills. It is a measure of how faithful you have been to your financial obligations, making your payments on time, staying within your means, and handling your money and debt responsibly. On the other hand, missing or being late on payments, having too high a balance on credit cards, having judgments or liens, needing to pay child support, hard inquiries, etc., can seriously damage our credit score, in the long and short run. Most negative items can take up to seven years to fall off your credit report, and it is much more difficult to build up your credit than it is to tear it down.

 Your credit report shows a history of how consistent you are at paying back what you owe on time, and not buying things above your means very often.  It is what banks use to determine if they will give a loan to someone for a car or house and if they trust the person to pay them back. After all, would you want to give a loan to a friend if they had a history of not paying people back and still constantly asking for more money and never able to pick up the tab at lunch? Banks, just like you, don’t want to loan money to someone who is irresponsible and where the bank will never see their money again. Instead of trusting what a person tells the bank and believing them at face value, a bank will use a credit report and your FICO score to decide if they want to trust a person to give them a loan.

What Is A FICO Score?

A FICO score is a number based on your credit report. It helps banks and credit card companies see how dependable you are and how likely you are to pay your bills on time. Depending on your score, it helps the bank decide how much of a loan to give you, how many months you have to repay it, and how much extra you will have to pay as a result of how high the interest rate is.

Basically, a FICO score is your report card of how long you have had credit, how much available credit you have left, and if you pay your bills on time.  There are three top credit bureaus, Equifax, Experian, and TransUnion, that collect and store the credit histories of most U.S. consumers. Each bureau has its own proprietary algorithm for calculating a person’s credit history, so your score may be slightly different depending on which bureau is providing your credit score. For Equifax their range of scores is 280 – 850, Experian’s scores range from 330 – 830, and TransUnion’s range of scores is 300 - 850.

A FICO score is a composite of the three different credit bureau’s score. For FICO scores the range of scores you can have is anywhere from a 300 – 850.  While some lenders only look at the credit score from one company, most lenders will look at the FICO score since it normalizes all three scores across the board. A FICO score of 300 – 579 is considered very poor or poor, 580 – 669 is fair, 670 – 739 is good, 740 – 799 is very good, and a score of 800 – 850 is considered exceptional. 

There is also the VantageScore. Your VantageScore, like your FICO score, is just another means that lenders can use to look at all the information in your credit file, and have it translate into an easy to read number score. The VantageScore range is 300 – 850, just like a FICO score. 300 – 599 represents bad credit, 600 – 649 means poor credit, 650 – 699 represents fair credit, 700 – 749 means you have good credit, and 750 – 850 tells people you have exceptional credit.

Now, what do all of these numbers mean? Where your score falls on the range from poor to exceptional tells lenders and credit card issuers how much they can trust you to make payments on a loan or credit card payments and if you are likely to make those payments on time or miss them and have late payments. A FICO score or VantageScore tells the people you want to borrow money from if you are a good risk for them to give out money to. In the same way you wouldn’t give the keys to your Mercedes to a 15 year old who has just barely gotten her permit to drive without any supervision to prevent the kid from wrecking the car, lenders and credit companies don’t want to trust and loan out their precious money to someone that is going to waste it and not be a good investment for them.

An “at-risk” score is anything below a 600, or in the orange or red area. That lower range is where lenders and credit companies are more wary in approving you for a loan or sending you another credit card in the mail. This can translate into higher interest rates or higher monthly or annual payments. Banks will do this to offset you being at a higher risk of paying them back everything you owe them. To get approved and get good deals on loans and new credit cards, you want to strive to have your credit score be well above a 600 score, and in the yellow, or better yet, well into the green.

How Is A FICO Score Calculated?

FICO scores use five main categories in a credit report to determine how well off your credit report is. The chart below shows the importance that lenders typically place on each portion of your credit report history. 

35% of what the FICO score looks at is your payment history and if you pay your credit account bills on time. 30% of what the FICO score looks at is the amount that you owe, both the amount of credit you owe, as well as any home or car loans. 15% of the calculation that goes into the FICO score is how long you have had credit, which helps them see if you are brand new and starting off with no history of making payments of any kind on time, or if you are more reliable and have a long history of dependable payments. 10% of what goes into a FICO score is the amount of new credit you have, either through you opening new accounts or lines of credit, as well as the frequencies of hard inquiries in your name. And, lastly, 10% of what the FICO score entails is the type of credit, which is a mix of your installment accounts and revolving accounts. Installment accounts are mortgages, car loans or personal loans. Basically, anything with a fixed monthly payment for x number of years. Revolving accounts are credit cards or lines of credit with a credit limit, that shows how well you stay within the limit and don’t go overboard.

How Do I Get A Copy Of My Credit Report?

Having a personal copy of your credit report is very beneficial. It lets you know what is on the report and where you stand. This is helpful to show you how likely you are to get approved for loans or not, as well as what credit cards you can qualify for. Additionally, having a copy of your credit report personally is a smart way to protect yourself against identity theft. Typically, when your cards or identity are stolen, it will show up on your credit, as either charges or payments you are unaware of, or a mortgage or car loan in Hawaii or someplace else, when you live in Michigan. Familiarizing yourself with your credit report every few months will ensure that you will catch anything strange that pops up and protect yourself and your identity, so the charges will not keep occurring right under your nose.

You can order a full credit report from each of the three credit bureaus once a year free of charge. You can order those reports from AnnualCreditReports.com . You can also pay a small fee for a copy of your credit report if you would like to access it more than once a year. A credit report shows your payment history, debt usage, different types of credit you have, and any hard inquiries that have been made in your name. You must get a copy of your credit report from all three credit bureaus because sometimes they can all report different information and not be streamlined, and you want to ensure that your credit report history is as accurate as possible. There can be an error on the credit report from one bureau and the error does not exist on the report from another bureau. You never know from which bureau a lender is going to pull a copy of your credit report from, so it is wise to make sure you know your credit report is accurate without any negative items or errors. Having errors that portray you in a bad light of not being financially responsible or not paying your bills on time will definitely affect the lender’s decision to give you a loan or not, as well as at what interest rate the loan will be. This could cost you an additional thousands of dollars to pay back the loan, as well as having to pay back the higher interest rate. All because you had inaccurate information on your credit report that influenced the lender into believing that you were financially irresponsible and a high risk for them to give money to.

Keep in mind though, that the credit reports do not include your credit score number, just a history of your credit footprint. You can order your credit score itself from Credit.com and they give your Experian VantageScore for free for life. If you also want your FICO score as well, you can order it for only $1 every time you want to receive your FICO score. 

Accessing these scores and credit report history often will help you know where you stand financially if you are looking for banks to lend you money or if you want to apply for additional credit cards. This will also help you catch any abnormal payments or negative items that should not be on the report to catch any identity theft early on. Once you have your credit report and score and know if it is bad, good, or exceptional, that will help you to know what is affecting your credit, for bad or good, and work to improve it.

How Do I Repair My Credit And Can I Do It On My Own?

Unfortunately, either through poor spending choices, or if you were the victim of identity theft, or the reality of simple human error in data entry, you may discover after reading your credit report, that you have a low credit score. You don’t need to let that stop you from moving forward with your dreams of a car or home, as long as you get some help first to repair your credit.  

Credit repair is the process of disputing errors on your credit report that are negatively affecting your score. You can dispute errors on your own for free with each of the three credit bureaus, Equifax, Experian, and TransUnion. You need to file a formal dispute with the credit bureau that you are trying to raise your score with either online, or by snail mail. In the dispute, you will need to provide supporting documentation to support why you believe something is an error or you have been charged falsely, which then resulted in a lowering of your credit score. 

Once you start a dispute to formally dispute an item on your credit, the credit bureau has 30 – 45 days to investigate and return to you with an answer. If the credit bureau in question concludes that the item was an error based on the documentation you provided, or if they can’t verify it at all, they are required to remove the negative item. That is easier said than done and can be a major headache and source of stress for you as you are being led in circles with the back and forth from the bureau to determine if your credit score is correct and all the information is 100% accurate and as high a score as possible.

You will need to go through each section of your credit report from not one, but all three credit bureaus, to ensure that all of the information matches and is accurate, since you never know from which bureau a lender will request a copy of your credit report. If you see any errors, which are called negative items, on any of the reports, or accounts, or late payments you don’t recognize as coming from you, mark them down. You will need to dispute each error with the individual credit bureau where the error was found. Even if the exact error is on all three of the credit reports, you still need to separately dispute the error with each bureau. You also are not allowed to make one blanket formal dispute for all errors on your credit report, but instead, need to dispute each wrong item individually. The caveat to that rule is if your credit report shows two items that are for the same account, i.e. two late payments on your home or car, you need to only file one formal dispute, instead of a dispute for each of the late payments.  

Depending on if the errors on your credit report are an easy fix like a misspelled name or previous address, or if it is something that is a bigger deal like a missed payment, low score, or overdrawn charges on your account, it can be a massive headache to try to take care of on your own. An accumulation of the errors that inevitably could occur on your credit report, due to human errors in imputing data or identity theft, can significantly damage your credit over the years and cost you tens of thousands of dollars as a result of higher interest rates and upfront costs. Believe it or not, errors on your credit report can be fairly commonplace. A Federal Trade Commission (FTC) study showed that 1 in 5 consumers have at least one error on one or more of their credit reports. It is very important to check your credit report and score regularly and when you notice that something is not right or there are unfamiliar items or charges, don’t be afraid to file a formal dispute with supporting documentation or why it is not you, so you can clear your name and your credit history and have the negative items removed.

This process, however, of regularly ordering a credit report history, going through each item with a fine-tooth comb to spot any discrepancies, and if you spot anything wrong, filing a formal dispute for each individual negative item, can be exhausting and time-consuming. That is why many people who are already busy with their day-to-day lives choose to go with a credit repair company and pay for their services to take care of and fix their credit for them. While you can definitely DIY to repair your own credit, it takes research and a significant amount of time; a luxury most people do not have much of these days. There is a lot of legwork involved most of the time, so unless if you want to make it your part-time job to keep on top of constantly analyzing and repairing your credit, then it is best to pay someone else to do it for you and save you the trouble.

How Do Credit Repair Companies Work?

There can be a wide variety of errors that show up on your credit report history, from misspelled addresses to incorrectly showing that there was a late payment, to multiple hard inquiries. While irritating and time consuming those types of errors you can usually dispute and fix on your own. Just be prepared for it to be very time consuming and exhausting. Then there are the times that repairing your credit on your own can get a lot more complicated, such as when you have a collection account that has been sold to several different debt collectors, that can appear on your credit report multiple times even though it should only be one item. 

Applying for a mortgage, car loan, or additional credit cards can be difficult and tedious enough on their own, let alone when you have bad credit preventing you from being qualified some places. What makes it even worse is when that bad credit is not the result of poor choices on your part, such as late payments, or overdrawn fees, but because of inaccurate errors that lower your credit score and make it harder to get approved for loans. 

A credit repair company takes all of the legwork out of attempting to repair your credit yourself. They are, “an organization that helps you understand and repair your credit by analyzing your credit report and disputing inaccuracies with credit bureaus and creditors.”  The people at these repair services are specially trained to analyze your credit report, quickly spot any discrepancies, and work on disputing them and fixing your credit. They understand the processes needed to fix inaccuracies and how to dot all of the i’s and cross all the t’s of all the legal requirements to ensure that inaccurate negative items get resolved and removed from your credit report as quickly as possible to repair your credit report and credit score. The top credit repair company in the nation, Lexington Law, has helped more than 500,000 clients to repair their credit, with over 10,000,000 negative or incorrect items removed in 2017 alone. They also include fraud alerts and identity theft protection in some of their monthly billing packages. CreditRepair.com is rated the number two best credit repair company in the nation with more than 1.5 million negative items removed in 2017, as well as having identity theft protection available for some of their packages.

Credit repair companies will typically request a copy of your credit report from all three credit bureaus, to ensure that accurate information is portrayed from all of the bureaus where a lender could look to determine if you qualify. While analyzing the reports line by line, they will look for credit report errors such as: accounts that don’t below to you, duplicate accounts, incorrect inquiries, and inaccurate accounts. Having inaccuracies, especially if a lot have piled up over the years unnoticed, can significantly damage your credit score and your ability to move forward with being successful and purchases things that you want, such as a home or car. 

Once credit repair companies, such as Lexington Law and CreditRepair.com, spot any discrepancies on your credit report, they will start the legal process for formally disputing the negative items to either get them removed or corrected. Credit repair companies not only save you time and energy by identifying any errors on your credit report quickly and working on repairing them, but they also help you manage and keep track of any correspondence with credit bureaus or creditors, and help you develop and stick to a plan of action to improve your credit score and ensure it continues to raise and your score does not get lowered again. 

How Long Does It Take To Repair Credit And How Much Does It Cost?

While no credit repair company can promise an exact timeframe of when your credit will be cleaned up since no two cases are the same, and much of the time frame is contingent on how quickly the communication is back and forth with the credit bureau, most people’s credit is significantly improved in an average of 4 – 6 months. Lexington Law, for example, reports an average of 10.2 items, or 24% of any negative items, removed within 4 months. CreditRepair.com reports that while every credit scenario is unique, the average amount of time that someone needs their credit repair services is 6 months. 

Depending on the credit repair company that you go with and your unique situation, the monthly fee while you are using their services can range from $25 – $100 a month. It is well worth the cost to avoid the trouble and time of having to attempt to repair your credit yourself.

What Do I Do Once My Credit Is Repaired?

After having gone to all the work of repairing your credit, or paying money to have a credit repair company improve your credit for you, you want to ensure that your credit score continues to stay high and does not drop again due to negligence or poor spending habits. One of the biggest things you can do to continue to have a good credit history and an excellent credit score is to always, always, always pay your bills on time. This will save you a hefty sum of money in the long run in the form of higher interest rates and overdrawn fees. Another way you can stay vigilant is to remember to order your credit report history and check it often, to see if there are any discrepancies. Start today and take charge of your personal credit history, and watch how it pays off and saves you money and time down the line.