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4 Simple, Effective Ways to Repair Your Credit

By | Credit Repair

Anyone can make mistakes — and some of those mistakes can impact your credit standing. Even if you’ve always taken great care with your credit, unforeseeable crises can easily undo all your good work. Just as a few serious problems can torpedo your credit rating, a few smart strategies can help you bring it back to life. Fortunately, you don’t have to carry that burden indefinitely.  Here are some simple, effective things you can do to repair your credit.

Repair Your Credit Tip 1 – Start Over With Secured Credit

The worst-case scenario in the credit world is bankruptcy. This last-ditch move can indeed give individuals a fresh financial start, but in the process, you can expect to lose your credit. Oddly enough, you may start receiving credit card offers in the mail sooner than you’d expect. But this can prove a dangerous kind of trap. The creditors making the offers know that you won’t be permitted to file for bankruptcy again for at least 7 years, meaning that you’ll be stuck with paying them back even if you get into trouble.

Still, there is one kind of credit card you definitely should look into: a secured credit card. This card is backed up by a cash deposit, with the credit limit typically equalling the deposit amount. Use this card carefully and pay it off in full every month. By doing so, you’ll be rebuilding a positive credit history that can set the stage for your successful credit repair journey.

Repair Your Credit Tip 2 – Reduce Outstanding Credit Balances

You could have an excellent credit payment history, with multiple lines of credit going back many years, and still get turned down for a loan because of a high credit utilization ratio. This term refers to the amount of your credit tied up in outstanding balances. Lenders generally recommend that you keep your credit utilization ratio under 30 percent of your total credit limits. If you need to reduce your outstanding balances, you may want to try either of two popular debt payment techniques:

  • Snowballing – Snowballing involves paying down one credit line at a time, starting with the lowest balance. For instance, you might pay $25 above a $25 minimum payment (or $50 a month total) to accelerate repayment until the balance hits zero. You then take that $50 monthly payment and add it to the monthly minimum payment on the next-lowest balance. Repeat this process, and you’ll see that credit utilization drop at an ever-faster pace.
  • Stacking – Stacking is the same basic technique as snowballing, except that it involves paying the credit lines down in order of interest rate, with the highest interest rate going first. This may be less satisfying than seeing those smaller balances disappear quickly, but in the long run it’ll save you more money.

Repair Your Credit Tip 3 – Go Easy on the Applications

If you’re tempted to obtain a new credit card to make your credit utilization ratio lower, take care. While your utilization will indeed drop as your total available credit rises, that new credit line will require what’s known as a “hard pull,” or credit review. This type of review can temporarily make a bad credit score even worse. Actually using the card will compound your troubles if you don’t make certain to pay it off faithfully each month.

Other types of loan applications can also ding your credit, at least in the short term. Each car loan, home loan, or other kind of bank loan application will result in a hard pull. Too many of these inquiries can seriously disfigure your credit score. The fewer credit lines or shorter credit history you have, the more damage your score will take. If you need to shop around for the lowest rate among multiple lenders, make all those credit applications within the same 30-day credit cycle. Creditors recognize rate shopping when it occurs in this pattern, and they will score those multiple applications as a single hard pull.

Repair Your Credit Tip 4 – Watch Your Credit Report

Consumers who struggle with credit issues are only human — but so are the people who enter information into creditors’ databases and credit reports. It’s always possible that inaccurate data is depressing your credit score unfairly. You may also be suffering the effects of a co-signer or other party who has damaged your credit without your realizing it.

You can catch these issues by requesting and studying copies of your credit report from each of the three major credit reporting agencies (Experian, Equifax, and TransUnion). You’re legally entitled to one free copy of each report per year, and you can also purchase additional copies. If you see something wrong, you can dispute that entry and possibly get it expunged from your record. Once you’ve sent a written dispute letter, ideally via Certified Mail, the reporting agency is required to investigate the possible error within 30 days’ time.

As you can see, there’s no single “magic bullet” to repair your credit. But the right combination of best practices, implemented with patience, intelligence, and consistency, can give you the power to fix those nagging credit issues and prevent them from recurring. Last but not least, you’ll enjoy the tremendous feeling of accomplishment and empowerment that comes from taking control of your own destiny — and that’s surely something worth taking credit for!

Sources:

https://www.bankrate.com/finance/credit-cards/10-questions-before-getting-a-secured-credit-card-1.aspx

www.nerdwallet.com/blog/finance/improve-your-credit-utilization-ratio-fast/

https://www.thebalance.com/debt-snowball-vs-debt-stacking-453633

https://www.moneytalksnews.com/ask-an-expert-will-opening-a-new-credit-card-hurt-my-credit-score/

https://www.myfico.com/credit-education/credit-checks/credit-report-inquiries/

https://www.usatoday.com/story/money/personalfinance/2015/08/22/nerdwallet-check-your-credit-reports/32129411/

https://www.consumer.ftc.gov/articles/0151-disputing-errors-credit-reports

5 Factors That Impact Your Credit Score

By | Credit Scores

Like it or not, your credit score probably affects where you live, the car you drive, the smartphone you use, and how you take vacations, go to college and care for your family. Even with a moderate or lower income, it’s important to understand the factors affecting your credit score. With smart moves and strategic thinking, you can build a foundation for the future and enjoy the benefits of plentiful low-interest credit. Here are the five factors to remember every time you’re considering a loan, card or new account:

1. Number of Accounts

Every time you open an account that requires faith in your ability to pay on time — and this includes phone lines, utilities and student loans — you add a record to your credit history. Most financial advisors recommend limiting yourself to the average amount of three or four cards. The reason is simple: The more cards you have, the higher chance you’ll miss or forget due dates. Alternately, you should get at least one card if you don’t have one. This is because you can’t build credit without having any.

Obviously, you can’t control the number of accounts for life necessities like heat, electricity, internet and phone. You can, however, limit the number of student loans, car loans and mortgages. If you’re married, work it out so both you and your spouse hold accounts for things you share. One partner might pay the power bill, the other the internet. This practice also allows each partner to practice good financial management and build a healthy score.

2. Age of Accounts

A long time ago, you took on a high-interest or secured credit card as a way to improve your score. Should you close that account when a better card comes your way? Maybe, but probably not. The age of your accounts is another factor that affects credit rating, so an old account is a plus instead of minus. Just make sure you have a low balance, no more than five percent of the limit, and pay on time to avoid fees. Be aware that closed accounts will drop off your record after a certain period of time — usually seven years. Keep track of open accounts by looking at your credit report frequently.

3. Number of Inquiries

Although it can be frustrating and seem unfair, your score is affected when lenders considering your request for a mortgage, business loan or credit card request your credit report. Sometimes, your credit history is also accessed by potential employers, agencies checking your background, or other instances in which your character may come into question. Keep the number of inquiries in check by planning ahead. Be strategic about major purchases, like a car, that will cause numerous checks on your credit as you search for the best financing. By limiting the number of inquiries in the months before the purchase, you’ll suffer less damage when lenders look at your record.

4. Outstanding Debt

Imagine that every cent of your credit is poured into a single, large bucket. This bucket, the total amount of credit assigned to you, is marked with three gauges — green at the top, yellow in the middle and red near the bottom. The point where the contents of the bucket settle represents your debt-to-credit ratio, one of the most important factors of a credit score. As a rule, your credit card balance shouldn’t be higher than one-third of your total allowed credit. Why? Consider how your high balances look from the viewpoint of lenders — if you have a crisis or emergency and no means to pay with your credit, the chance of late payment or bankruptcy increases.

5. Payment History

When you pay and how much is another important factor of total credit score. Establish the good habit of paying more than the minimum amount due to offset any interest charged to the account. When possible, pay all but five percent of the outstanding balance due. Leaving a small amount due in each account shows the account is active and confirms your commitment to the lender, but don’t forget it’s there, forget to pay and be charged a late fee.

If you have a record of late payments, it’s possible to recover. Pay a few payments on time and then call the lender and ask them to remove the negative mark. They might not agree, but you’ll never know unless you ask. The same goes for accounts in collections — once you are in the position to pay off the debt, call to negotiate with the agency or lender. Many times, they will reduce the total amount due if you agree to pay the amount due and close the account. Also note that you should speak carefully and cautiously when talking to debt collectors on the phone. Review your rights with a credit counselor first.

By setting goals, paying on time and making a sincere effort to raise your score, you can earn the good things in life. Low-interest credit opens doors to opportunities like self-employment, travel and education. Now that you know more about how credit scores are calculated, it’s time to get yours in shape for a better and brighter future.

Sources

TransUnion.com: “What is a credit score?” https://www.transunion.com/credit-score

Credit Karma.com: “How many credit cards does the average American have?” https://www.creditkarma.com/credit-cards/i/how-many-credit-cards-does-the-average-american-have/

TransUnion.com: “How closing accounts affects my credit score”: “https://www.transunion.com/article/closing-accounts-and-your-credit-score”

5 Reasons Why Paying Your Bills on Time Is Not Enough

By | Credit Scores, Uncategorized

Accounting for 35 percent of your credit score, payment history is the number one factor affecting your credit standing. A single missed payment could lower your credit score by 60, 80 or 100 points, depending on the date of the late payment and your current credit score. Generally speaking, higher scores are hit harder by late payments than lower scores and older late payments have less impact than recent ones.

If you want great credit, you must pay all of your bills on time — that’s a given. However, excellent payment history alone will not give you the credit score you desire. You must also pay attention to the factors that make up the remaining 65 percent of your credit score.

5 Factors That Influence Your Credit Score

Credit scoring models look at a variety of factors when calculating your score, including payment history, credit card utilization, length of credit history, mix of credit and inquiries.

1. Credit Card Usage

With the exception of payment history, credit card utilization impacts your credit score more than any other factor. A whopping 30 percent of your credit score depends on it. Your utilization score represents the percentage of revolving debt you have in comparison to the total amount of revolving credit available to you. Most revolving credit comes in the form of credit cards, but it can also include any other type of revolving credit, such as a revolving loan.

Ideally, your credit card utilization should be 30 percent or less. For example, if you have $5,000 in revolving credit, your total balances should add up to no more than $1,500. To find out your utilization percentage, divide your total balance by your total credit then multiply the answer by 100.

2. Length of Credit History

The length of your credit history accounts for 15 percent of your credit score. To calculate your length of history, credit scoring models determine the average age of all credit accounts listed on your credit report. Closed accounts that have fallen off of your credit report are not considered.

When it comes to credit history, there is no magical number you should strive for. However, the longer history you have, the better.

3. Mix of Credit

Accounting for 10 percent of your credit score, your mix of credit depends on the types of credit accounts listed on your credit report. A diverse mix that includes installment loans, revolving credit and secured credit is best. The following is a brief explanation of each type of credit.

  • Installment loans: Personal loans, student loans, furniture loans
  • Revolving credit: Credit cards, retail credit cards, gas cards
  • Secured credit: Auto loans, home loans, equipment loans

For the best possible score, maintain a mix of credit accounts but don’t go overboard. A single installment loan combined with two credit card accounts and an auto loan is sufficient to show how you manage different types of credit.

4. Hard Credit Inquiries

There are two main types of credit inquiries: soft and hard. Soft inquiries are initiated without your knowledge by companies screening you for pre-approved offers. They do not affect your credit score.

Hard inquiries, however, account for the remaining 10 percent of your credit score. Hard inquiries include any and all credit applications initiated by you or by a lender on your behalf. Scoring models look at two factors when considering hard inquiries: the number of inquiries present and the date they were initiated. Older inquiries carry less weight than newer ones.

5. Multiple New Accounts

Too many new accounts can lower your score by decreasing your length of credit history and increasing the number of hard inquiries appearing on your credit report. For this reason, you should avoid opening multiple accounts within a short amount of time. Strive to wait at least six months between credit applications.

How to Improve Your Credit Score

To improve your credit score, take steps to address and optimize all of the factors affecting your credit score. The following tips will help you.

Improve Payment History

Do this by making all payments on time. If you have late payments listed on your credit report, contact the lender to see if there is a remedy. You may be able to restructure your loan or set up a payment arrangement in exchange for the removal of the delinquency from your report. This only works if your account is not currently in collections.

Lower Credit Card Utilization

Do this by paying down your credit card balances or asking for a credit limit increase on one or more of your revolving accounts. Remember, balances should account for no more than 30 percent of your available credit.

Increase Length of Credit History

This can be accomplished by being patient and letting your credit profile age. Avoid obtaining new credit, as this will shorten the average length of your credit history. Also, consider leaving older accounts open even if you’re not using them.

Diversify Mix of Credit

You can do this by obtaining new types of credit. If you have two or more credit cards, do not apply for more revolving credit. Instead, consider taking out a personal loan.

Decrease Hard Credit Inquiries

Do this by spacing out your credit applications. Only apply for credit if it’s absolutely necessary. Note: multiple inquiries for a car loan or mortgage are often grouped together and only considered as one inquiry, provided they occur within a reasonable time frame.

Credit scoring models are complicated and mysterious on purpose. Credit agencies do not want you to know or understand the exact formula they use to calculate your credit score. However, they offer enough transparency for you to optimize your credit profile in an effort to earn the best possible score. If you learn all you can and take steps to improve your credit profile, you will see your score improve over time.

Sources:

www.blog.equifax.com/credit/can-one-late-payment-affect-my-credit-score/

www.thebalance.com/understanding-credit-utilization-960451

www.creditcards.com/credit-card-news/length-credit-history-fico-score.php

www.myfico.com/credit-education/questions/how-do-inquiries-impact-credit-scores/

How Long Does It Stay on My Credit Report?

By | Credit Reports

If your credit report includes some negative items, it’s important to know how long they will remain there. Every negative mark on your credit report has some impact on your overall credit score, so the sooner a negative mark no longer shows up, the better. If you’re trying to improve your credit score, take a look at some of the most common types of negative items and how long they will stay on your credit report.

Credit Report Lifetime

Late Payments

If you paid a debt more than 30 days late, your creditor may have reported it to the credit bureaus. It will take about seven years from the date of your late payment for it to come off your report.

A payment that was 90 days late affects your score more negatively than a payment that was 30 or 60 days past due. In addition, the older your late payment is, the less it affects your credit score. So while it might take seven years to get a late payment off your report, its impact will gradually lessen as you get closer to that seven-year mark.

Collections

Any debts you haven’t paid on time may go to collections, and these will stay on your credit report for seven years plus 180 days from the date of the first missed payment. Even one account going to collections will reduce your credit score, as will any subsequent accounts that you leave unpaid. Even after you pay an account that has gone to collections, it may remain on your credit report unless you contact the creditor or a credit repair agency for help removing it.

Charge-Offs

Many creditors decide that your debt is a lost cause once your payment is more than 120 days late, so they mark it as a charge-off. Essentially, it’s a negative item on your credit report at that point, and it will stay there for seven years plus 180 days from the date of the first missed payment. This is the case even if you pay this debt off eventually. Keep in mind that you may still owe the debt after it has been charged off, because the creditor can still sell it to a collections office that will contact you for payment.

Bankruptcy

The amount of time a bankruptcy stays on your credit report depends on the chapter you filed. For a discharged chapter 13 bankruptcy, it will stay on your report for seven years, since you had to repay at least some of the debt you owed. For chapter 7 or 11, the bankruptcy will show up for 10 years, since debts are not repaid with these chapters.

Foreclosure

Before you foreclose on a home, you should know the foreclosure will stay on your credit report for up to seven years from the date you file. This timeline also applies to a short sale, which will be reported as a negative mark on your credit report and will therefore make it more difficult for you to buy another house for at least seven years.

Tax Liens

If you have a tax lien on your credit report due to not paying your taxes, this negative item will remain on your report for up to seven years after the IRS filed it. This is the case even after you’ve paid it off. If you want it to come off sooner, contacting the IRS to see if you qualify for withdrawal of the lien. This is a good step to consider if you need to get a loan or mortgage soon and do not want an old tax lien affecting your credit score and thus your chance of obtaining the loan or mortgage.

Inquiries

Credit inquiries may show up as negative marks on your credit report, but they’re not as damaging to your score as many of the other negative items discussed above. In fact, soft inquiries do not damage your credit score at all. An example of a soft inquiry is when a current creditor reviews your account to see if you’re eligible for a better interest rate or increased credit limit. Checking your own credit score is also a soft inquiry.

On the other hand, hard inquiries occur when you apply for a new credit account, such as a car loan or credit card. This will damage your credit score slightly, but only for up to one year. Luckily, the effects of either type of inquiry are minimal, since inquiries stay on your report for up to two years.

Clearly, with most types of negative items on your credit report, the magic number is seven. So any time you make a mistake when it comes to your finances, you could be suffering the consequences for the next seven years. The good news is that you may be able to reduce the amount of time the typical negative mark stays on your report, because you have the option of hiring a credit repair company to help. This could get items removed much sooner and is worth looking into if you plan to make any big purchases soon that require you to have a good credit score.

Sources:

https://www.credit.com/credit-reports/late-payment-secrets-revealed/

http://blog.equifax.com/credit/faq-how-long-does-information-stay-on-my-credit-report/

https://www.credit.com/credit-repair/how-long-do-things-stay-on-your-credit-report/

http://www.experian.com/blogs/ask-experian/how-long-do-paid-public-records-remain-on-your-report/

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