Easy Credit Repair Guide

If you don’t know what your credit score is, you should. This is one of the most basic pieces of information potential creditors use when they decide whether or not you should qualify for a loan or credit card, for example. More than that, though, your credit score is also sometimes used as a means to gauge your reliability as a potential employee when you apply for certain jobs, and for other important situations. For this reason, it’s very important not just to know what your credit score is, but also how to use it so that it can work to your best advantage.

Your Credit Score – Defined

It should be noted, first of all, that the most important type of credit score is something known as the FICO score. “FICO” stands for “Fair Isaac Corporation.” The Fair Isaac Corporation simply developed a process whereby your credit score is calculated based upon a number of factors, including such factors as how reliable you are with payments (are they on time?), how much debt you owe, whether or not you’ve defaulted on a loan or credit card, and so on. It should be noted that there ARE other so-called “credit score” calculations out there, but the only one most people pay attention to is the FICO score. All three major credit bureaus (Experian, TransUnion, and Equifax) use FICO scores on their reports. FICO scores can run anywhere from 300 to 850, with the average in the United States being between about 600 to the maximum, 850. You should also note that many lenders will not even consider lending money to people with scores below about 600.

Getting Your Credit Score

There are lots of companies out there these days touting services that will “watch” your credit report for you and report suspicious activity. However, you don’t need to spend a lot of money to simply pull your credit report from each of the three major agencies (again, Experian, TransUnion or Equifax). If you have a very common name, you’ve been a victim of identity theft in the past, and/or you have a LOT of activity going on continually in your credit history, one of these services may be useful. However, if you don’t, then simply pulling your credit report (from all three bureaus) every six months to every year so that you can check activity should be sufficient.

The federal government supplies every consumer with a free credit report once year from each of the three credit bureaus. To claim yours, go to Annualcreditreport.com. It should be noted that this free credit report is not going to give you your FICO score, so that’s something you have to buy; it’s pretty inexpensive to do so, though, and you should only have to do it once year. For that, you can go to myFICO.com and pay a small fee for just one of the credit scores; some people say the TransUnion is the most commonly used of the credit bureaus, but any of the three should do.

Okay, You Know Your Credit Score; Now What?

Once you’ve determined what your credit score is and have your credit reports in hand, take a look at your credit score and see where you compare to the rest of the country. Have you had difficulty with finances in the past? This could mean that your credit score is less than it should be. However, you also need to take a look at what’s on your credit report itself. Is there activity you don’t recognize as yours?

Now, first of all, don’t panic. It could mean identity theft, true, but likely not. Credit bureaus are notorious for making errors on credit reports, and by law, they have to fix them. Therefore, make note of anything that’s not yours, write the credit bureau in question noting these errors (for best results, it’s often a good idea to send your letter by registered mail so that you have a record that they received it), and guess what? They have to investigate every single incident and have the creditor in question respond. If it’s found not to be yours, or if the creditor does not respond, they have to drop it off of your credit report, usually within 60 days. This takes care of these types of errors. However, pull your credit report again in six months and make sure none of them have simply “come back.” Sometimes this happens and it takes a time or two for these types of things to drop off of your credit report. Write the credit bureaus again (enclosing a copy of your previous letter so that they know he you’ve contacted them before) and demand (nicely, but do absolutely demand) that these errors be removed.

Now, onto negative things on your credit report that are yours. If you’ve had difficulty financially, then many of your creditors have reported that you’re late on payments or have missed them; accounts that you have defaulted on will be on there too.

Again, if this is you, don’t panic. However, you do have to be responsible for your past behavior and take care of your mistakes. One of the first things you need to be aware of is that NO ONE can simply “fix” your credit report for you if the negative information is indeed yours. Negative information is something that you’re going to have to take care of or that in some cases will simply “age off” your credit report in several years.

Here’s what you do, then. If you’ve had financial troubles and had difficulty paying bills in the past, clean up your act NOW and begin to be responsible. Why? Because time here is a panacea. Simply replacing “old” irresponsible behavior with “new” responsible behavior is going to improve your credit score by default, over time. That’s because “old” irresponsible behavior from the past (beginning by about two years after the irresponsible behavior occurred) doesn’t count as much to creditors as your current behavior. So if you’re behaving responsibly now and you have been for a while, that’s what creditors (and in some cases, employers, etc.) are going to look at.

What this means is that you have to get that clock ticking now. If you’re behaving irresponsibly right now, stop. Begin to act responsibly and start paying your bills on time. If one of your major difficulties is credit card debt, STOP using credit cards. Right now. Sit down, figure out a budget, and contact any creditors you’ve gone into arrears with and set payment arrangements to begin paying that debt off. Pay your main bills first (rent, food, utilities, and so on). Then, put 10% in savings. The rest of your income goes toward debt until it’s paid off. There are many systems out there to help you pay off this debt, such as picking the credit card with the lowest amount on it, making minimum payments on all of your other credit cards and then applying the balance of your debt money toward that credit card until it’s paid off; then, go onto the next “lowest balance” credit card and do the same thing; make minimum payments toward the other credit cards, put the rest of your debt money toward that credit card, paid off, and then go on to the next one.

Keep checking your credit score every six months or so and you should see it begin to creep up. Again, within about two years, old behavior (even “bad” behavior) does not have as much of an impact on your credit score as current behavior does. So any mistakes you’ve made in the past shouldn’t have much of an impact on you after a certain amount of time has passed.

A note about credit cards: Yes, they’re handy, and in some cases people say you “must” have them simply to live. Now, that’s not true, but if you want a credit card that’s going to help you reestablish your credit score and you want the convenience of credit card but you can’t get one (or you don’t want the risk of one), you can start with something called a “secured” credit card. A secured credit card works like a regular credit card except that you make a deposit with the lending institution for the exact credit line of that credit card. You help reestablish your credit history by making payments on that credit card on time, too (pay off the full balance every month), but the difference is, if you default on that credit card, the lending institution simply takes the money out of your deposit and pays itself back the money it “lent” you on the credit card purchase. It’s meant as a tool to help you learn to use credit wisely again, not to simply fall back into old habits that got you into trouble in the first place.

If your credit score is good now, great. If it’s not, don’t worry. You can reestablish a good credit history (and therefore credit score) once again by simply replacing “bad” behavior with “good” behavior financially, so that you’ll be on the path to financial health once again.

By: Dawn Smith

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