Your credit score is an indicator of your history of financial stability and management. It is a sum of five elements : payment history, the amount you owe, length of credit history, new credit and the types of credit you’re currently using.
Payment history: Accounting for approximately 35% of your credit score, your payment history gives lenders a cue about your reliability and accountability in repaying money lent to you. It looks at four factors to understand your creditworthiness:
Amounts You Owe: One of the reasons for my credit repair guides to exist is to help individuals pay off outstanding debt in the quickest possible time. The amounts owed represent 30% of the credit score, and consider the following:
Credit History Length: This accounts for 15% of your credit score. The number of years for which you have been using credit, the age of your oldest account, and the average age of all your accounts are important factors.
An ideal scenario would be a long history without negative items. It is also desirable to have a short history so far as you have not made late payments or owe a large amount.
Just how susceptible is this three-digit number to inefficient financial management? Bankrate.com reveals the following effects resulting from four situations:
A maxed-out credit card will take 10 to 30 points off your score.
If you’ve delayed a payment by 30 days, your score may fall by 60 to 80 points
Debt settlement will cost you anywhere from 45 to 65 points
Bankruptcy will reduce your score by 130 or 150 points.
By understanding how your FICO credit score is calculated, you can make judicious decisions about your finances, scrutinizing spending, loans and other credit-related actions with better awareness.
You may be aware of the common consequences of having poor credit. You instantly look like a high-risk borrower or you may get stuck with a bad deal that you come to regret over your lifetime.
Consider a scenario where your credit score is between 740-759. It may qualify you for a mortgage rate of less than 3.5% on a 30-year loan of say $240,000. That would hold your monthly interest payment at $650 or less. If your credit score is slightly below the average of 650, your interest rate may reach as high as 5%, increasing your monthly payment by over $150 to almost $800. Over 30 years, this will add up to more than $80,000, which you could have saved by improving or repairing your credit score.
Post 9/11 laws permit certain counter-terrorism government agencies to access credit card reports on the basis of suspicion that the individual’s actions may be detrimental to national security. Poor scores tend to attract investigative scrutiny over a sustained period of time.
Love makes the world go round, but a bad credit score may make your love life topsy-turvy. Increasingly, engagements are breaking up after a partner’s poor credit has been discovered. Credit scores also factor in during the division of assets in divorce proceedings.
A poor credit score is no doubt undesirable, and can result in lost opportunities. However, some myths surrounding credit card debt may exacerbate the ill-effect and unnecessarily worry individuals. For instance, credit card debt does not automatically hurt your credit scores; what matters more is how you manage that debt. For instance, if you fail to pay your statements on time, it will definitely affect your credit score. Also, if your credit card debt is much higher in relation to your maximum credit limit (credit utilization ratio), your score will fall.
It is recommended that you have a credit utilization ratio of 30% or less. As much as possible, you must try to maintain the ratio at 10%.
Another myth around credit card debt and efforts at bad credit repair is that you should close your credit cards to improve your credit score. While paying down credit card debt no doubt helps your credit score, closing your account can actually be counter-productive. If your credit card reaches a zero balance, avoid closing the account as you will be lowering your available credit, and any balance you currently have can take up a bigger portion of your available credit limit.
The age of your credit accounts for approximately 15% of your credit score. If you’re closing an older card, it may adversely affect the age of your credit.
If you think paying off your collections account can make it go away forever, think again. After you account is in collections, it can be mentioned on your credit reports and affect your credit score for at least seven years. Though paying the debt will result in a ‘paid’ status in your account and free you from debt collectors, it will stay for the aforementioned time period. After the item exceeds this time limit, it will be erased from your report. As a best practice, do review copies of your credit reports from the big three to verify that the item has been removed.
Another myth is that it is not risky to co-sign a loan. When you consent to co-sign, you are accountable for paying it back. The loan can appear in your credit reports along with collections activity and missed payments. Should the loan become delinquent, you will be pursued by collection agencies, and your credit score will be directly impacted by the co-signed loan. It is in your best interest to assess the repayment capacity of the individual you’re co-signing and understand exactly what you’re getting into.
There’s a reason why credit restoration agencies exist. Studies by the Federal Trade Commission have continually confirmed that millions of Americans have errors on their credit card reports. It is estimated that around ten million Americans are either being denied loans or having to accept higher interest rates owing to mistakes on their reports.
One in five consumers had an error that was rectified by a credit reporting agency after disputing it on at least one of their three credit reports from the major agencies. While a wrong address may not have much impact, a misreported late payment will lower the score and act as an obstacle.
According to the National Foundation for Credit Counseling – as of March 2014 – 60 per cent of individuals had not assessed their credit score over the previous year, while 65 per cent had not even seen their credit reports.
You don’t have set reminders for frequent reviews of your credit score, just follow the simple rule of reviewing them once a year. If you plan to apply for a home or car loan or you’re trying to improve credit, it is best to check your score once a month. It isn’t any different from checking your credit card statement on a monthly basis. With your report before you, you can more easily put yourself in the shoes of prospective lenders and evaluate your own creditworthiness objectively.
Even if you’re not going to take out a loan any time soon, an idea about your credit score can help you make wise choices at the time of emergency or unexpected purchases. Should your score be poor, you’ll be in for a nasty surprise and need to fix the problem before going ahead with the purchase.
Credit repair is one avenue you can use to hold credit bureaus accountable for their reporting errors and get accurate reports. The Fair Credit Reporting Act dictates that credit bureaus must prove the presence of accurate information on consumers’ credit reports. They have a time window of 30 days within which they must prove the accuracy of reports, failing which they must remove the disputed item.
If you suspect that a certain item is wrongly reported, dispute it without delay yourself or have a credit repair company do it on your behalf.
The information contained in the credit reports from the top three credit bureaus can differ. As there is no link between the three bureaus and they don’t report to each other, there is no reason why each of them must report similar, uniform information.
Naturally, the best way to figure out discrepancies between the three credit reports is to review them for errors. If you spot errors, quick action can improve your credit score and leave you free to comfortably pursue your loan application or cellphone contract.
If you have a poor credit score (600-649), it may take you months before you can move back into the fair range (650-699) or good range (700-749). How soon you’re able to rebuild your credit depends on the steps of action you take and how religiously you stick to them. After all, the endeavor demands a lot from you, including leading a frugal lifestyle, paying with cash over credit cards to avoid amassing a large balance on your cards, and meeting your payment deadline without fail.
On the other hand, if you have spotted multiple errors on your credit report, and believe these to be the reason for a drop in credit score, a credit repair company can help you remove the negative items and improve your FICO score. Credit bureaus respond to disputes within 30 days, but sometimes the process can take up to 45 days.
Credit repairs can be attempted by individuals, but a majority of Americans prefer to entrust credit repair services with the job. That’s because the process takes time and effort, much of which is exhausted in conducting research on what you must do. It is important that the process is performed properly; when in doubt or in the absence of sufficient time, letting the pros do it is a wise approach. This way you have confidence from the outset that the process will go on smoothly and negative items will be removed quickly.
You may wonder does credit card companies actually work, and this is an important question to ask. Understanding what such a service can and cannot do will help you make informed decisions when you start reviewing advertisements of different companies. If a company suggests that it can give you a new credit identity, it is best to probe further as it may be making too tall a claim, and possibly going against the law. Credit repair companies also cannot demand payment from you in advance, and can charge you only after the services promised have been fully rendered.
Keep in mind that neither can accurate data be removed from your credit report, nor can timely data – which isn’t so old that federal law requires its removal. It is also impossible, not to mention illegal, to remove liens, bankruptcies, bad loans and judgments from your credit file. In fact, the Credit Repair Organizations Act forbids credit card companies from promising any service that they cannot legally undertake. Credit repair takes time and lot of effort from your side. If the low score is a result of misreporting on your file, then disputing it with major credit bureaus is the only quick remedy at your disposal. Here’s where consumers find the services of credit repair agencies quite invaluable.
You are entitled to a free credit report from Equifax, Experian and TransUnion annually. If you’re unemployed and plan to seek employment within a period of 60 days, or if you’ve suffered identity theft, you can get a no cost credit report from these major credit reporting bureaus.
As mentioned above, you can take charge of repairing your own credit, but you will need to spend time and effort into the endeavor. A top-rated and experienced credit repair service can go about the task at a rapid pace, without costing you too much.
You have the answer to the question do credit companies work, and understand that a quality credit repair service can smooth out the path to an accurate credit report and a healthy credit profile. On this site, you’ll find honest reviews of credit repair companies – we endorse based on actual reviews and real customer experiences. The services are scrutinized on multiple factors, so whether you’re looking for a cheap agent or the best in the business, you’ll be able to make the right decisions with our data and inputs.
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