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Credit Repair; It Can Be Done!
Everybody needs credit, so why is it that nearly one third of Americans have a credit score lower than 601? Bankruptcy, poor spending habits, and loss of job are some of the reasons why many people have poor credit. So, what can we do about that? Credit repair may seem like a daunting task but, it is all about hard work and diligence. With the current surge of first time home buyers it appears a large portion of Americans are taking a long hard look at their finances and making attempts to be credit worthy. If you happen to fall into the unlucky third, you may have some making up to do. But, don’t despair! Credit repair is something that you can do on your own.
There are credit repair agencies out there that will charge you a fee and make attempts to fix your credit. While this may seem like a good idea, you may want to double check the fine print on those contracts that they want you to sign. While some credit repair agencies will (Illegally) promise that they will boost your credit score, if you look at the fine print you will see that there is no actually guarantee of that. And while boosting your credit score is the end game, making sure that your credit report is accurate and that you are completely financially healthy is the more immediate need. The truth of the matter is that anything that a credit repair agency can do for you, you can do for yourself.
When starting your journey to great credit the first thing you will want to do is order your credit report from all three reporting agencies. These reports are offered once per year for free and it will give you a chance to take stock of what you’re working with. Another option is to sign up for credit monitoring which can be pricey at around $30 per month but worth the expense if you are repairing your credit to purchase something. I must say, from personal experience, that MyFico.com is by far the best that I have found. Not only can you track your credit in real time, they also allow you the chance to see the exact credit scores that potential creditors will see. Most people think that they only have one credit score, or maybe three. In reality, you have closer to 20 credit scores. Different reporting agencies use different methods to calculate your score. From there, there are different scoring models for different types of credit. For example, the score that an Auto lender pulls up can be vastly different than the score that a Mortgage lender pulls. Investing in a good credit monitoring service will help you learn more about what each lender sees and what actions will alter those scores.
Now, once you get your credit reports, look over each report carefully and if you see any errors dispute them! In a study done by the Federal Trade Commission it was found that 1 in 4 consumers identified errors on their credit report that might affect their score. The credit reporting agencies make every attempt to have the most accurate information regarding your credit. But, as with any relationship, there needs to be two-way communication. The companies that you do business with report to the credit agencies “Their side of the story”, so, why shouldn’t you? Being an active participant in the reporting process keeps everyone honest and ensures that when you go to apply for that mortgage you don’t get any surprises.
The next step is settling any debt. If you have old bills that are affecting your credit, open the lines of communication with the creditor. Depending on the age of the account, the creditor is likely to accept a much lower payment to settle the debt. The key to this process is to get everything in writing. Once you find a debt that you would like to settle the first step is to send a certified letter requesting that the debt be verified. This is asking the creditor to prove that the debt belongs to you. If they can’t prove that the debt is yours, you can then have the debt removed completely from your credit report. This may seem like a long shot but it really isn’t.
When a consumer fails to pay their bill, the account is typically sent to the collections department. The collections department will try to get in contact with the consumer and if they are unsuccessful a lot of companies will then sell the debt to an outside collection agency. These collection agencies typically buy these debts for pennies on the dollar and then make their own attempts to collect. During this process of your debt leaving the first company and making its way to the second paperwork can sometimes get lost or just not be included. If that happens, the collection agency is unable to prove that you own that debt so you are then able to dispute that debt. If they do provide you with proof of the debt, you can then negotiate how much you will pay for this account to be either removed or marked paid in full.
Another thing that you can do to improve your score is to diversify your accounts. If you have a mortgage and an auto loan then it would be a good idea to get a credit card. In most cases, having a credit card can make a huge impact on your credit. If you have struggled with self-control or have never had a credit card before a good option is going to be a secured credit card. Secured credit cards are easy to get, everyone is typically approved, and they encourage responsibility with credit. With a secured credit card, you must pay a deposit which is then used towards your available balance. Depending on your current credit health you could pay $50 and get a limit of $200 or you could be expected to put the full $200 up to receive the card. The deposit is usually refundable so long as you leave your account in good standing and your limit can increase over time with no additional deposits required.
The key to using your card to boost your score is the amount you spend and what you pay back. To get the most benefits from a credit card you want to never use more than 10% of your available balance. Make your payments on time every month and try to pay off the balance every month. This will show that you are using your credit and that you are being responsible with it. Most secured credit cards will increase your limit to $500 after 6 months of on time payments and keeping a low balance.
These ideas are great ways to start your credit repair process. I have many additional methods so if you have any questions please feel free to leave a comment below! *I would also like to add that these methods were all tested by me personally. Any products that I have endorsed are products that I used and that worked for me.