Credit Repair Essentials
Credit repair is hard enough to be interesting and easy enough to be doable. Planning and study of credit repair essentials are the keys to effective results. Can you do it alone or do you need to hire a credit repair company? Years of experience have taught me that most people will benefit from at least starting the process on their own and proceeding very carefully. In order to achieve and keep a high credit score with staying power it is necessary for you to understand some of the fundamentals of the credit scoring process. Having someone else do the work for you or being told to do something without knowing why will not make the lasting impression necessary to carry you through to a lifetime of high credit scoring. Your understanding is helped by a hands on approach. Do not waste money on national credit repair firms. Their unrealistic promises are designed to separate you from your money. They use a slow and ineffective cookie cutter one size fits all approach.
Credit Repair Essentials Check List
Stop the bleeding and get on top of the situation. Do the “no-brainer” stuff in a careful measured way. If you get lost in the weeds don’t hesitate to seek qualified help. Just what is the no-brainer stuff of credit repair essentials?
- Get your latest free credit reports from Annualcreditreport.com
- Pay up to date any credit card or installment loans that are overdue
- Resolve that there will be at least the minimum payments made on time for credit cards and installment loans from this date forward. Even one recent late payment hurts a lot. Pay down credit card balances as much as you can.
- Do not take out unnecessary new credit or close out any credit cards you already have. Ask customer service for a limit increase.
- If you have a family member or friend with a credit card with a spotless payment record, good age and low balance to available credit ratio (more on that later) ask them to make you an authorized user without giving you a card
- Do not start paying off charge offs, collections until you have had time to read about defenses, priorities, strategies, deletions, discounting and more. Many of them can be settled for much less than face value. The damage is done. You may need the money for active accounts. Save these older claims for later in the process.
- Do subscribe to free credit monitoring sites such as CreditKarma, Bankrate.com or any other free credit monitoring sites you may want to try. Monitoring these sites on a regular basis may enable you to pick up on an erroneous new entry.
- Do not think the monitoring site’s more lenient FAKO score is your FICO score. FICO is a unique scoring system used by more than 90% of lenders
Credit reports are always subject to revision as new information is submitted, processed and old information is updated or deleted. There is no actual credit report sitting on a shelf somewhere.
3 Major Credit Reports May Differ
There may be different information contained in the records of each of the major credit reporting agencies…Equifax, Experian and TransUnion. Each credit bureau has its own resources and policies. Their powers are governed, empowered and limited by a Federal law known as the Fair Credit Reporting Act (FCRA). Their reports are seldom identical. Because they are in competition with each other they don’t share information. Many creditors only report information, whether good or bad, to one agency. Each report needs to be thoroughly examined separately. Adverse entries are coded. Inward facing ^s indicate adverse entries.
CLO means closed
PRL means unpaid balance has been charged off
PDE means payment deferred
SEC means settled for less than full balance
PPL means paid in full/was a charge off
A debt is classified as a “charge off” when it has gone unpaid for 6 months or longer. It has been taken as a tax write off by the lender. The lender has officially given up on collecting the debt. The debt may have been sold to a collection agency. This does not mean that you don’t still owe the debt. Typically charge offs can be settled for less than face value. Debts settled at less than face value are coded as such. The older they are the easier they are to settle for less. Recency of the charge off determines how much negative weight it is given. It is usually better to take care of the more recent debt first. The settled debts improve your credit score but still have some negative effect until they are dropped completely 7 years after the date of the first delinquency. Achieving complete expungement of the record is the holy grail of debt settlement.
All three reports are of equal importance. Five different categories on credit reports need to be examined for accuracy. A potential creditor can look at any one of the three reports or more than one. Banks considering mortgage applications look at all three. Mortgagors typically judge their decision on the middle of the 3 scores.
The information contained in the reports is analyzed by the Fair Isaac Corporation (FICO) and scored on a numeric scale from 300-850. Specialized FICO scores such as your “Auto Score” and your “Bankcard Score” (more on them later) range from 350-900. Your final FICO score is the only credit score that really counts. FICO scoring is based on many different factors.
Credit Reports are not Credit Scores
Do not confuse credit reports with credit scores. Your credit report does not have your FICO score or any other credit score on it. The credit report contains only the information from which the credit scores are compiled by the credit scoring companies. They do not contain the score itself.
Credit scores are improved both by removing and/or minimizing negative entries and by adding and/or maximizing positive information. Think of it as being like a weight loss program needing both diet and exercise. Also, like a weight loss program, there is a marathon ahead, not a sprint. It took you years to get deep into the swamp of credit woes. It won’t take years to get out but it will take a reasonable amount of time. With a focused, realistic and well directed approach success will be inevitable. It is important to start with a realistic look at the big picture and to keep this big picture in mind at all times as we work to improve each component of your credit score. You will end up with a credit score you can keep high and be proud of for the rest of your life. Loans and mortgages will then be available to you at the lowest rate offered. You will receive many offers of credit cards with interest free rates of up to 18 months followed by low interest plus other perks such as free mileage, cash back and high credit limits.
Credit Reports are the report cards of your financial life. Virtually no one has a perfect 850 score. Your score doesn’t need to be perfect to get the best deals. 680-720 is usually considered fair to good. 740-779 is considered Very good. Over 780 is Excellent. An Excellent score guarantees the credit applicant the best deal offered by any lender as long as the application is clean and honest in other ways. Anything higher than 780 is strictly for show or as a cushion for unforeseen financial reverses in the future.