How to Repair Bad Credit and Improve Your Credit Score

• More people are filing bankruptcy then ever before
• Foreclosures are at an all time high
• Car repossessions have doubled in the last year
• Out of the thousands of people that are in trouble with credit card debt, over 75% owe more than $50,000

Do I need to continue? I don't care what the politicians say...the economy is in the crapper. The effects of continued rising gas prices and the de-valuation of the dollar are going to only get worse in the coming months. You need to start saving every penny you can. The housing and construction markets were the first to feel the pinch. Where I live, there are restaurants and movie theaters, that have been in business for years, closing the doors for good.

People can't afford to eat out or go to a movie, especially if you have a family. Meanwhile, my grocery bill keeps growing every week and the price of gas goes up almost every other day. Your friendly neighborhood banker and the credit card companies are swooping in like vultures to pick your bones clean. They absolutely thrive in bad times. Late fees and overdraft fees are there big money winners.

The age of debit cards has been a huge boon to the banking industry. The amount of money they make on "overdraft" fees has increased by 600% in the last 5 years! Every credit card you get has a clause that will jack your interest rate up to 20% or more if you fail to make your payments on time. This is a trap that will only be avoided by the small percentage of people who don't ever have to worry about having enough money to pay their bills.

Most of America lives pay check to pay check and the slightest hick up can cause a downward spiral that is almost impossible to recover from. That is why you need to do what ever you can to improve your credit rating and so called "credit worthiness". The system is set up to reward people with good credit and punish those that do not. Even if you are awarded a loan by a lender, your interest rate and terms will be determined by your credit standing.

Here are 5 good reasons why you should improve your credit score:

• A higher credit score will get you a more affordable mortgage. Only people with good credit get the sweet interest rates. Just a 2% reduction of your interest rate on a $200,000, 30 year fixed rate mortgage, can save you over $96,000!
• By the same token, you can save on your car loan as well, or be able to afford a nicer car.
• You can lower your auto insurance premiums. Almost all insurance companies use your credit rating as a determining factor. They don't just look at your driving record any more. Nowadays, bad credit makes you a higher risk.
• The same goes for your life and health insurance. Insurance companies spend millions of dollars studying statistics and demographics. They have determined that people with low credit scores have a harder time making their monthly premiums, so they reward people with better credit score by offering them lower premiums.
• Get a better job. Yes, you heard me correctly. More and more employers are doing credit checks on job applicants.

A bad credit rating can literally cost you hundreds of thousands of dollars during your lifetime. That is why you need to educate yourself about how the sytem works and how to manipulate it in your favor instead of the banks and credit card companies taking advantage of you.

Take a look at the video below to see how the banks are taking advantage of you.

I have a feeling that a lot of people can relate to the video above. I myself had an instance where I overdrew my bank account by $44 dollars and it cost me over $300 in over draft fees. It happened just like it says in the video.

I mailed a check to pay my rent on a Wednesday. Meanwhile, over the course of the next few days and the weekend, I payed the majority of my bills online, went to blockbuster, went to the grocery store twice, went out to eat, took the kids to the beach where I used my debit card twice.

Monday when I looked at my checking account online, I realized that I had spent to much money over the weekend and that there wasn't quite enough money to cover the rent check. I was $44 dollars short. So I am thinking, no big deal, I'm going to have to pay a $35 dollar over draft fee. I should have been more careful.

Tuesday I check my account to find that I am over $400 dollars in the hole! Even though the rent check was the last transaction to hit the bank, the bank took it upon themselves to rearrange everything so that the rent check came out first and I payed a $35 dollar fee on 9 transactions. Most of these were for less than $10 each. I never use cash and pay for everything with my debit card. Well, I used to.

I know that this is off the subject of credit repair but it really isn't. You need to educate yourself about how the system works and the traps that have been put in place by financial institutions. It is all tied together. Read on and I am going to give you some useful information that I have learned from a couple of good sources.

I have used this information to fix my own credit over the last 2 years and now have a 700+ credit score. A couple years ago it was below 500. I have listed a few links to resources that have been instrumental in allowing me to accomplish this. Look under "Credit Repair - The Best of The Rest"

The truth of the matter is that anyone can fix their credit, you just have to know how to do it.

The first thing that you need to when trying to repair your bad credit is to find out why you have bad credit. I know this sounds obvious but what I mean is that you need to look at your credit report and identify the items that are lowering your score. You may even have items listed on your credit report that are erroneous. One of the most effective techniques to repair your credit and improve your credit score, (sometimes referred to as your FICA score), is to remove derogatory items for your credit report.

You need to secure a copy of your credit report from the 3 big credit bureaus before you can begin this process.

• Equifax
• Trans Union
• Experian

Before you jump in and do this please beware. There is only one place to get your credit report for free. You will run across a million advertisements that claim to give you a free credit report but they are all tied to some kind of credit monitoring service and they are offering you a "free trial". If they ask you for credit card information, don't do it!

Instead, go to http://annualcreditreport.com. You can get a free credit report once a year for absolutely no charge. Now you may decide that you would like to have a credit monitoring service to protect yourself from identity theft. This is a good idea especially if you find that there are a lot of items on your credit report that don't belong to you.

Hold off for now because you want to educate yourself before you make a choice on which service to use. Unfortunately, the credit repair and debt consolidation industry is full of scammers and people who will only make your situation worse.

For now, go ahead and get your 3 free credit reports, print them out, and identify any derogatory items. Also, make a note of any items that may not be correct. These are the ones that you want to address first.

"My Favorite Credit Repair Secret"

I mentioned earlier that the best way to fix your bad credit and improve your credit score is to remove derogatory items from your credit report. I am going to show you how you can get negative items deleted with this sneaky little technique.

Before we get to the technique, you need to know a little about how the the credit bureaus work. There is an interesting thing that happens when consumers dispute derogatory information on their credit report. The credit bureaus don't make money by providing accurate information, so they look for ways to avoid investigations.

The most common is to claim that you didn't send in any identification, like a copy of your drivers license or utility bill, even when you did. Another common thing the credit bureaus do, or should I say "not do", is to do an incomplete (half-assed) investigation.

Here is how the process is supposed to work:

• You mail in a dispute.
• An employee at the bureau pulls up your file, and enters in some codes, which are electronically sent to the creditor.
• the creditor responds back
• the item either gets corrected, deleted, or no changes at all are made

Does this process always take place? I don't think so. It's my guess that sometimes the bureaus don't even contact the creditor, but instead just skip over the verification process.

How can you be sure this happens? You pull out all three copies of your credit reports and check the "item as reported date".That's what it will say on your Experian report. On your Equifax report it will be the "date of status" and Trans Union just uses "date updated". These dates will reflect the last time the item was verified by the creditor.

If you dispute an item and the date does not change after the credit bureau claims to have verified the item, then it is pretty obvious that they did not do a complete investigation if any at all. A simple follow up letter, pointing out the discrepancy, can get the item deleted. You need to keep in mind that if the bureas don't do a complete investigation, then they are violating the law.

This is called the "DU (date updated) technique" and is one of several that I effectively used to remove a derogatory item from my credit report. It seems to be especially effective on older items that have been charged off and have been through several collection agencies. I learned this particular technique from the Credit Secrets Bible.

"More Insider Techniques"

We have talked about removing negative items from your credit report. This is a very effective way to boost your credit score but there are many other effective techniques. You may be one of those people who don't have any negative items to remove but still want to raise your credit score.

You would be surprised at some of the things that can lower your credit score. Did you know that moving will drop points off your score. Any change of address knocks points off your score. Any time some one checks your credit report, it can lower your score. You would think that paying off your credit card balance every month would increase your credit score, right?

Wrong!!! It is better to leave about 10%-15% of your limit in your account and pay off the balance once every other month or every 2 months. I know it doesn't make sense but when you realize that the credit bureaus are influenced by the credit card companies, banks, and other lending companies, it makes sense.

They are in the business of making money on the interest. They don't like people who settle up their debts every month. They want people who run up their limit and make the monthly minimum payment. The key to understanding how the system works is in your debt to credit ratio.

Debt To Credit Ratio: Your debt to credit ratio is how much credit you have used of your potentially available credit. If the total of all your credit card limits was $10,000 and you have charges that total up to $3,000, your debt to credit ratio is 30%. One of the main elements of the credit scoring model is based on your ability to maintain balances and pay over time. This supposedly demonstrates long term credit worthiness, which is profitable to the lenders who make their money on the interest you pay.

Obviously, the lower your ratio, the better your credit score. The problem is that most people use up their available credit so their debt to credit ratio is really high. How do you lower your ratio without selling every thing you own to pay your credit cards down? The answer is easier then you think, but it is probably one of the most mis-understood methods.

Sub-Prime Merchandise Cards: This is probably the single most cost effective way for consumers to lower their debt to credit ratio. You will also raise your high credit limit, which is a good thing as well. I am sure that you have received advertisements, usually in the form of spam, for these type of cards. It is the reason that they have a bad reputation in general.

A sub-prime merchandise card is simply a credit card that is restricted to purchases made from a particular catalog, vendor, or online mall. The companies literally will approve anyone regardless of past credit history. Usually their is no credit check at all. You can only buy goods through their website or catalog. When you make a purchase, you put down a deposit and finance the balance. For instance, you buy $500 worth of merchandise. You will pay $100 to $200 up front and the rest goes on your line of credit.

The good thing is that they normally give you a line of credit of $5000 to $10,000. This can make a huge impact on your debt to credit ratio, but you must be cautious. The big problem with a lot of these cards are the methods used to advertise. They use telemarketing and email campaigns which allows them to make almost irresistible offers like "$10,000 Credit Card...Guaranteed! No Credit Check! You Cannot Be Turned Down!" Many of the companies that do this are "shady at best", but there are some which are legitimate and it using this method is one of the best kept secrets to build your credit and build it fast.

The most important thing you need to make sure of when acquiring a sub-prime merchandise card is that the company reports to at least one of the major credit bureaus. This means that, on your credit report, it will look like any other credit card and will do 3 extremely important things for you:

1. It will increase your current "High Credit Limit" by a substantial amount almost overnight as the account "looks" like any other unsecured revolving account.
2. By carrying a small outstanding balance, it will positively impact your credit report by building and showing potential lenders your credit worthiness.
3. With a good payment history, you are virtually guaranteed to receive "legitimate" pre-approved credit offers.

Piggybacking: A very effective and extremely fast method that is practically ignored by most people even though it has virtually unlimited potential. It is easy to implement and can boost your credit score almost immediately. Here's how it works.

Just about every credit card or credit account will let the primary account holder to add on an "authorized user" or "secondary account holder". A perfect example would be where you have a credit account and you add your spouse onto the account. No big deal right.

What people fail to realize is that the entire account history will be retroactively posted to the secondary holders credit report, regardless of their age or credit history. Imagine that your Father or Mother had a gold card for the past 20 years with a $15,000 limit and had never missed a payment or been late. They add you on as an "secondary account holder". The entire history of that account will be added to your credit report as if the card was yours from the beginning!

I hope you can see the potential here. That is why there are actually individuals, with excellent credit, that "rent out" authorized user accounts" on multiple credit cards for a fee.

Advanced Credit Profiling: While this method sounds complicated, and can be taken to very complex levels, it is not as difficult as it sounds and can be used in a very basic form. Basically, it is building your credit report in a way that creates a certain "profile" which closely fits the criteria of the overall credit scoring system and most lenders. You "sculpt" your credit report to be exactly the type of person they want to lend to.

It is mostly about diversity. You may have several credit cards with high limits but that is all. Lenders like to see consumers that have a mortgage, a car loan or lease, and maybe even a line of credit with a bank or credit union. This displays a much more well rounded credit profile and shows that you have experience handling multiple types of credit.

I won't get into the more complex methods here, but this kind of profiling can be taken to great extremes. This is another very effective way to raise your credit score basically by giving the powers to be exactly what they are looking for. In credit repair you have to "play the game", but you have to know all the rules.

If you want to learn more about credit repair and improving your credit score then check out my bad credit repair blog, where I am constantly adding content about credit repair.