Before you need to worry about credit repair, you need to know your personal credit score. What is your score and what does it mean? Generally speaking, credit scores are broken down by the following:
- 580 or Less – Poor
- 580 – 669 – Fair
- 670 – 739 – Good
- 740 – 799 – Very Good
- 800 and Higher – Excellent
A higher score means you can get loans with better terms and rates. On the flip side, low credit scores make it harder to get loans. And if you can get a loan, you will be charged a higher interest rate. Therefore, it is in your best interest to have the highest credit score possible.
Low credit scores can be a result of bankruptcy, years of bad spending habits, or accounts in default. Obviously, higher scores are attributed to not doing these things. For those with a Poor or Fair credit score, you need to understand and think about credit repair.
Get Your Credit Report
Get a copy of your credit report. You can get it from one of the three main agencies – TransUnion, Experian, and Equifax. Your credit report will give your score and a bunch of other valuable information. Look at it. See how many accounts are in default. How much debt do you have? What problems need to be fixed? How bad is your situation? Let’s figure out where you are so we can plan a path into a better future.
Credit agencies often have inaccurate information. They make mistakes. Likewise, they can get bad reports from creditors. Carefully go through all your reports. Ensure that every single report is accurate. Verify that each account belongs to you, that balances are current, and that it reflects the proper status for each such as late, in default, etc. If there are any incorrect reports, dispute the report with the credit agency. We can do this for you.
Reduce Loan Balances
Paying down or paying off your off debt is an obvious credit repair strategy. Hence, it is one of the most important things you can do to improve your credit score. Part of your credit score is calculated by the amount of available credit on your revolving accounts. So, if all your credit cards are maxed out, you’re at 0% available credit. Your credit score will improve by steadily increasing your amount of available credit.
Income-to-debt ratio is one of the most important components of a lender’s decision-making criteria. Even though this is essential data, most people have no idea the value of their income-to-debt ratio. It is a simple formula. How much income do you have as compared to your debt? The higher your income is as compared to your debt; the more credit will be available to you. One great way to rapidly improve your income-to-debt ratio is through a bankruptcy filing. If you file for Chapter 7 relief wiping out your unsecured debt, your ratio improves immediately.
Do Not Apply for New Credit
Do not get intrigued by attractive credit offers. No matter how good the discount is or what the terms of the card are, do not apply for new credit. First, improve your credit score. As mentioned, pay down your debt or filing bankruptcy to relief from the debt. New credit applications can immediately decrease your credit score. Too many applications can show an irresponsible use of credit especially inquiries in a short period of time. Also, if an application is approved, the new account decreases your average account length and negatively impacts your credit.
Make Payments on Time
Too often, late payments are due to disorganization. People have the money but forget to mail the payment on time. You should create a system to avoid late payments. Keep a spreadsheet of your accounts, their due dates, and their payment amounts. If you know you can keep the money in your checking account for your payments, set up autopay so you can put it out of your mind.
Repairing your credit can take years, but it’s a project that can change your life. We can help you understand your credit score and work with you on credit repair. Call us!