Repairing Your Credit
Credit reports are compiled, organized and sold to consumers by credit bureaus. TransUnion, Equifax, and Experion are the three principal credit reporting agencies.
What is a credit bureau? Well, simply put, credit bureaus are private organizations that compile information about the credit history of consumers, and this information is sold to businesses that are permitted to see your credit history. Every piece of your important financial history is kept as a record by these agencies.
These records are given out to businesses that request them. That means your employers, banks, credit card issuers, mortgage lenders, and insurance companies will all have access to the information these credit agencies have compiled about your financial history.
Where to Credit Bureaus Get Their Information From?
Every financial transaction you make for any major purchase, especially if it involves some sort of credit process, leaves a trace somewhere. And it’s those traces that get reported to credit agencies.
Credit reporting agencies obtain most of their information from:
-people you owe money to (creditors)
-bankruptcy filings, lawsuits, judgments (court records)
-legal claims (county records)
Note that even something like an unpaid LIBRARY fine can negatively impact your credit IF the library reports it. The author of this article actually knows a person who was denied a mortgage because she had an unpaid library fine!
What’s Included in a Credit Report
-each account number and type of account
-date accounts were opened
-history of payments
-original loan amounts or credit limit
– current account balance
-Any information on loan disputes or accounts in collection are listed on the report.
-Noncredit data are also included in a credit report aside from the financial data. Your current name and any previous names, Social Security number, current and past addresses, history of employment, and marital/divorce history is included.
Credit Reports: How to Obtain a FREE Copy
If you want instant access to your credit history, you will have to typically pay for it (all the major agencies allow you to ‘buy’ your credit report for 20 or so dollars).
However, you can, once a year, obtain a free credit report if you send a letter to each agency requesting your copy.
You will likely have to give a reason. If you meat one of the following criteria below, you should have no problems getting your report:
-credit has been denied due to your credit report data.
-you are not working and are seeking employment
-you are receiving public financial support
-you suspect their are errors in your file due to identity theft or fraud, or
-You have been denied a job due partially or completely to information obtained form your report.
Correcting Mistakes and Errors
After receiving your credit report, be sure to examine it for inaccurate data in the noncredit and credit data. To find more information on removing erroneous data from your credit report.
Understanding Your Credit Score
Your credit history is summarized by a single score ranging all the way into the 800’s. The higher the number, the better your credit. Typically, most people have scores in the 600’s, which is considered average. Make the 700’s and you have great credit. Bad credit (620 and below) can drastically raise your interest rates on any loans AND make it very difficult to qualify for any sort of loan.
See this info chart for credit score breakdown:
Impact of your Credit Score
Your credit score affects your ability to get any sort of credit AND the interest rates you do pay if you do get credit. Here’s a an infographic detailing the impact of your credit score on interest rates you might pay on a loan.
Rebuilding Your Credit
You can either hire someone to help assist in your credit repair (they will act on your behalf and give you advice) or repair your credit on your own. If you want to do it yourself, here is where to begin.
Renovate Your Credit Report: Begin by cleaning things up, that is, removing inaccurate data and mistakes from your report. *
Add Positive Data: Next, begin adding any positive information to your records. If data are missing from your report, such as accounts that are paid on time, send a recent statement to the three credit bureaus, along with records of payment history, and ask for these to be included in your report. Creditors are interested in stability, so ask the credit bureau to include this information in your report if it isn’t there already: employment history, current employment, telephone number, current residence, birth date, and checking account number. The credit bureaus will often do this, but they are not required to include this information. *
Credit Card Use: Potential creditors look at your credit report for historical evidence that your credit has been paid off on time. Your credit card should be used at least once every month. Making small, regular purchases and paying the entire balance in time is helpful. *
Submit an Application for a Credit Card: Applying for a credit card is helpful if you don’t already have one. A tarnished credit history may cause you to be rejected, but you can apply for a secured credit card. A family member or friend may agree to cosign your credit card or loan application. Ideally, you should have one to two credit cards issued by banks, perhaps a department store card, and a gas card. The ability to manage multiple accounts is something that creditors like to see. *
Keep ALL Accounts Current: Begin making all payments by the due dates. Utility bills, mortgage payments, cell phone accounts, and credit card bills must be paid on time. If you are never late, your damaged credit will be on the mend. Recent payments are more heavily weighted by lenders, so you can begin to prove you are currently not as much of a credit risk.
Rebuilding your credit so that you will not be denied a loan or major credit card typically takes around two years. After four years of on-time payments, you should meet the criteria for a mortgage loan.