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5 Quick Tips for Credit Restoration

Updated on March 17, 2015

What’s credit restoration? Credit restoration involves the use of credit repair and rebuilding tactics to restore an individual’s personal finances back to financial health. Unlike credit repair, credit restoration can be an insurmountable and complicated task, especially for those few consumers with very little knowledge on how the system actually works. However, consumers can rest to sure that with just a little bit of effort, there’s indeed light at the end of the tunnel. When you engage in credit restoration, you’re engaging in two different things: 1) credit repair, which is the very first piece of the puzzle and 2) credit rebuilding, which involves the acquisition of new credit. When done correctly credit restoration will without question have a positive effect on your credit scores. Many consumer suffering from lackluster credit scores often focus on the repair aspect and carelessly forget that the rebuilding phase accounts for 50 percent of credit restoration success. The following list below represents five quick tips you should discern when restoring your credit back to life:

#1 Obtaining Copies of Your Credit Reports

First’s things first, before you partake on a long-term journey, you'll have to know where you’re going. A proper credit analysis is indeed the very first step in the credit restoration process. You can obtain free copies of your credit reports once a year from Equifax, Experian, and Transunion, the three major credit bureaus, by visiting http://www.annualcreditreport.com/. Next, print all three credit reports so you can make notes and plan your course of action.

#2 Identifying the Damages…

Next, your job obviously moves to finding out exactly what’s wrong with the dang thing. Nevertheless, identifying the problems with your credit report is actually quite straightforward. The reason: most damaged credit reports seem to have all the same problems (i.e., high credit balances, late payments, lack of positive trade lines, etc.) Obviously, the more serious the problem, the longer you can expect your journey to be. But don’t get discouraged, with bad credit time and effort works magic.

#3 Checking For High Credit Balances…

Carrying high balances on your revolving credit lines (i.e., bank cards, store cards, be it any open end account) will have an adverse effect on your FICO scores. Why is this so? The FICO scoring system, which is an actual mathematical formula, was specially designed to penalize individuals who actually utilized a majority of their credit balances—delving off the idea that consumers pushed to the brink typically tended to exhibit bad financial behavior. Ideally, what you’ll certainly want to do is pay down all your revolving debt to under a ratio of about 30%, which should then get FICO’s scoring attention. For an even better score—that is, of course, if you can afford it, most financial experts advocate reducing that number to at least 10%.

#4 Getting Rid of Late Payments…

Perhaps after doing a complete credit analysis you notice that you have several late payments. Should you be worried? Yes and no. Yes, because obviously you'll be charged a hefty fee. No, because the thing about late payments—in reference to its effect on your FICO scores—is that the sooner the late payment, the more damaging its effect on your scores. Why is this so? This is so because FICO 2008, which is a revamped version of the scoring model, did an overhaul to its formula. The newer version now penalizes late payments that occur within the last six months the most, ignoring the late payments beyond this point. A good credit restoration tactic is to make six payments on time—paying the balance off in full—then write the creditor what’s called a “goodwill letter.” Most of the time this should do the trick! The golden rule of credit restoration has always been the same: “Always pay your bills on time.”

#5 Dealing With a Thin File…

With credit restoration most individuals forget that you actually need credit to have good credit. Ironic isn’t it? But again, this is what the scoring system accepts as good financial behavior, thus rewards those consumers who adhere to the guidelines. Furthermore, it goes without saying that if after you do a credit analysis and you notice very few positive credit accounts, then conventional wisdom advocates that you should apply for one—preferably a secured card—or maybe even a couple of subprime cards. Yes subprime card typically carry higher interest rates, but a higher finance charge won’t affect you if you pay your balance off in full each month. In theory, if a card have a 30 day grace period, which is the time you have before you start paying finance charges, then what you really have is 30 day charge card.

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