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CREDIT REPAIR
ARTICLES
Written by Mark Clayborne
Author of Hidden Credit Repair Secrets
All rights reserved https:///www.hiddencreditrepairsecrets.com
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Understanding Your Credit Score
To have the best chance of improving your credit score you will need to have a good understanding of how it is calculated as that will help you to decide on the actions you need to take.
Credit score is a numerical calculation based on a number of factors that helps lenders decide whether you are a risk to lend money to.
The numbers generally range from 300 to 850 and allow lenders to see how well you are at paying off your debts.
The higher this number is the more likely you are to get credit and you will also usually get it at lower interest rates because of the fact that you will be regarded as a lower risk for repayment.
If your score falls below 600 you will probably have trouble getting credit and if you do you will be expected to pay higher rates due to the risk involved.
Scores over 720 are regarded as excellent and you can expect to get good rates.
This is just a guideline as some lenders place more importance on credit scores than others and while you might have difficulty getting credit with one lending institution that is not to say you will have difficulty with all of them.
Often you can discuss your situation with the lender even when you have a low score and still get them to finance you at reasonable rates.
Sometimes they will look at your whole credit history and take that into account rather than just the current poor score.
Your credit score comes from the calculations that are determined by the credit bureaus and are based on mathematical data that is arrived at from your credit report information that is supplied to the bureaus from people who have lent you money and from people you owe payment of bills to.
What is FICO
The various credit bureaus can use different methods at arriving at your score and this is why you can sometimes have more luck getting credit from one lending institution than another.
The industry standard is a system called FICO. FICO stands for Fair Isaac Corporation Company.
FICO is software for calculating credit score and is regarded as the leader in the calculation of credit score within the finance industry.
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The fact that it is commonly accepted as the most suitable way to rate a person's credit score is why many people will talk of FICO scores or FICO ratings rather than calling them credit scores.
The software that is used to calculate credit score, whether it is FICO or other software uses research and mathematics to decide upon the rating.
This information is important to you as it will help you to have a better understanding of what you can do to give your credit score a boost in its rating.
The best way to explain how credit score is calculated is to compare it to insurance premiums where you will pay a higher premium based on various factors in your life. With insurance those factors will be your age, your occupation, your health and even your choice of sport where dangerous activities will make you a higher risk for the insurance company.
The insurance company can then look at their research data and calculate your risk. Obviously older people and those participating in dangerous activities will be a higher risk and those people will be expected to pay higher premiums.
Credit bureaus have similar research data that relates to peoples ability to repay debt in certain circumstances, and it is this data that they will use when they input your information to decide whether they will lend you money and if so at what interest rates.
Your Credit Score and the Bureaus
With the knowledge of how your credit score is calculated you can focus your attention on making the right moves to help boost your ratings no matter what your current financial position might be.
You need to understand first and foremost that your credit score is simply a reflection of how the lending institutions view the data that is presented to them by the credit bureaus and how they 'expect' you will be able to repay your bills based on historical recording of data from a vast number of other people.
You need to look at that same data and look at how you can improve your position in the eyes of the lending companies.
If you can make your position more favorable to the lenders by helping them see that you are the type of debtor who can pay your bills on time you will get funds more easily. The information that the credit bureaus get comes from various different sources including the credit card companies and utility companies.
From the time that you open a bank account, start paying bills or borrow money from someone the credit bureaus will start a credit file on you.
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This file will document any defaults of payment, late payments and anything else that will affect your credit score by providing potential lenders a snapshot of your financial performance.
If you pay your bills late the companies you owe the money to will inform the credit bureaus and then will note this on your profile.
The more of these bad transactions that are noted the lower your credit score can become.
There are other factors that will also affect your credit score and these are also noted on your profile including the types of debts that you have, how much debt you have, and how well you pay these debts back.
The credit bureaus won't disclose how they calculate their formulas but recent financial history will generally have more affect on your credit score than older information.
The Main Credit Bureaus
One of the first things that you will need to do when you decide to start improving your credit score is to get copies of your credit report to see where you need to start taking action to boost your rating.
There are three major credit bureaus that you will need to contact. They will send you copies of your reports and once you receive them you should carefully go through all the documents to see whether there have been any mistakes that might affect your rating.
It is not uncommon to find some errors and if that is the situation you will need to contact the necessary agencies to get these corrected.
This can be done via the Internet, phone, mail or fax.
Here is a list of the organizations that you will need to contact;
Equifax Credit Information Services, Inc
www.equifax.com
Experian National Consumer Assistance Center
www.experian.com
TransUnion LLC Consumer Disclosure Center
www.tuc.com
Whenever you are dealing with anyone at these organizations make sure that you get the details of the person who is handling your request as this will allow you to go back to them if the error isn't resolved and it will also help to make them take action and do as you request.
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Keep copies of all the correspondence you have in case you need to produce it if there are problems again in the future.
If they make changes check that they are as you expected and if not query them until you are happy with the solution.
Sometimes just clearing up some of these errors and issues might be enough to allow you to boost your credit score and have access to more opportunities to borrow money or save money with lower interest rate loans.
Never assume that people have done their job correctly especially when it comes to something as impor
tant as you financial position. Many people have been paying higher interest rates for years simply because they were unaware that there were errors on their credit reports giving them a lower rating.
Planning for Credit Repair
To successfully make changes to your credit score in a timely manner you need to create a plan of action that will see you taking the necessary steps to boost your rating.
The plan starts with obtaining a copy of your credit report and then you can determine where the main cause of your low score lies.
There can be many factors that will lower your score and these should be relatively easy to see when you have your report.
Maybe you have got too much debt and the credit bureaus think you might have difficulty making repayments.
You might be certain that you can make these repayments but their ratings are based on research and mathematical calculations based on the population as a whole and while they understand that some people are better at handling their finances than others this is the only way they can consistently offer suitable information to the lending companies.
If you have unpaid bills then getting these in order will certainly help and that will be one of the first things that you will need to focus on if that is the situation.
If you have had major problems such as bankruptcy then it is going to be a bit more difficult to help your credit score but not impossible as many people have periods of financial struggle and this is understandable to most people.
Even the fact that you haven't had enough credit or time to establish a good credit score will affect your rating.
Defaulting on loans, taxes or anything else that resulted in a collection will reduce your rating and will need to be addressed.
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Take your information and start to devise a plan where you can reverse the situation and let potential lenders see that you have sorted out your finances and are now a safe bet to make your repayments on time all the time.
Deciding on the Action to Take
By focusing on the specific areas that are causing the most problems and therefore having the biggest effect on the downgrading of your rating you will be able to boost your score a lot faster.
Even if you have decided to get professional help to increase your rating you should have a good understanding of the factors that resulted in your poor score and give your professional advisor information, along with what they will already have, to help them devise the best plan of attack.
If you have collected all the information and you make an honest attempt to see where you have gone wrong there is no reason why you cannot do this for yourself and in doing so it will give you the confidence to handle your finances better in the future.
You will also save on the cost of professional fees if you do this for yourself and that money can be used to help clear some of your outstanding debts.
Make a checklist of where you believe you have gone wrong and along with that create a list of the things that you will need to do to achieve your goals.
This will give you a guideline that you can follow and increase your chances of success.
By writing down all this information it will also help you to focus better and think more about the direction that you will now be leading in your life.
Don't underestimate the power that writing down a plan can have on actually achieving it.
You will also need to create a budget that will allow you to quickly see at any time, how many funds you have available for your debts and when those debts are due for payment.
Without a good budget it is very difficult to easily handle your finances and improve your score at the same time.
Your Credit History
While there is nothing you can do about your past history you need to understand that this is one of the most important factors that the credit bureaus will use to determine your credit score and whether you are a risk or not.
This is the best indicator that they can get on how you will be expected to perform in the future and even if you have changed your ways and are now more financially competent you will still have to deal with this on your records.
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Approximately 30 percent weighting is placed on credit history when determining credit score so you will understand that apart from the fact that you can't change what has passed you can start showing to the credit agencies that you are less risk now by paying all your current debts on time and in full.
This will give them some sign of what they might be able to expect in the future.
The bigger the problems you have had in the past the more work you will have to do to convince all involved that you deserve a second chance.
Bankruptcies and unpaid taxes are the ones that will count against your score the most along with loan defaults and late payments.
If you can clear any of these debts that will have a substantial affect on your rating but often this is not possible with bankruptcies so you will be better off focusing on showing the credit bureaus that all of your current debts are getting paid as they should.
This will begin to establish a new pattern and a new credit score will be the result of this action.
Even though this can take a while to reverse if your prior history has been relatively poor there is no time like the present to get started because that will allow you to start getting smaller amounts of credit which will in turn speed up the process of credit score recovery if you make the repayments on time.
Your Current Debts
It is surprising to many people when they find that their current debts affect their credit score almost as much as their previous history.
In fact almost a third of your credit score is determined by your current levels of debt and the types of debts that you have.
The reason why current debts are so important is because they can indicate to a potential lender that you might already be strapped for cash and have difficulty making repayments on your loans.
Even if you can show that you have been making your payments and you have a good record with no defaults they will take into account that any additional loans will make your repayments increase and that might be all that is needed to 'break the camels back' and that places all your loans into a higher risk situation.
Another factor that the credit bureaus will take into account apart from the level of current debt is when the debt money was initially borrowed.
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If a lot of the debt has been borrowed recently this will alert them to the fact that there could be problems with finances that have necessitated additional borrowings.
The best way then to increase your credit score is to start paying down your current debts so your financial position and ultimately your ability to make your debt repayments will look more favorable and your level of risk will be lower.
If you can increase your income then this will also help, as it will make repayments easier thereby lowering your risk, however for most people an increase in income is not an option.
The number of loans that are current has an effect on your score also. Reducing the number of loans, even if the total debt remains the same can help in some circumstances.
Time Factors with Credit
Even the time that you have had credit for will be a determining factor when your credit score is calculated.
This is affected by the number of loans you have and many other conditions however you can use, as an approximation, the figure of 15 percent for a guideline when determining your course of action to boost your score.
The reason this figure is quite high is simply because people who haven't had any, or have had very little credit, haven't given the credit bureaus enough information from their history to determine whether they will be a risk or not.
A person who has their first loan and has only had that loan for a short while, whether they have
made the repayments on time or not doesn't have a track record and while they might be excellent candidates for lending they could also start defaulting on their repayments after the first few months.
You can see now why finance companies are reluctant to lend to such people and the only way that the person can improve their situation is to get more credit and build a favorable profile of their lending and debt repayment.