A lot of people tend to just jump right into credit repair programs without giving it much thought. But those that are truly committed to restoring their credit the right way make sure to do a little research before taking the plunge.
That’s because when it comes to credit repair, it’s always important to consider that:
• There are many different approaches to credit repair
• What works in some instances may not work as well in others
• Most credit repair companies operate very differently from one another
• Your approach to fixing credit should depend on your personal circumstances
• Taking the wrong approach can be a waste of time and may even cause more problems
So first of all, try to avoid moving too hastily into a repair plan. Taking the time to understand your situation and seek out the right company for help really is the first step on the road to success. You wouldn’t want to misunderstand your objectives or hire a company that’s not equipped to deal with your particular credit issues.
And furthermore, if you don’t have a clear understanding of what you’re getting yourself into…
• How do you know if you’re making the best possible decisions?
• How will you know what results to expect?
• How can you be sure you’re not going to make matters worse?
• And how can you know for sure if you’ve hired the right company to help?
If you find yourself in the middle of the repair process and you can’t really answer these questions, you’ve probably gotten ahead of yourself. But here’s an opportunity to back up and take it from the beginning. After all, there’s no magic to credit repair and it’s actually really easy to understand.
What makes up your credit score?
You’ve heard the saying—a chain is only as strong as its weakest link. And, in a way, the same could be said about your credit. That’s because your credit profile is made up of a handful of key factors:
1. Your types of credit
2. Your payment history
3. The length of your credit history
4. Your credit balances and/or amounts you owe
Now picture your credit as a big wooden barrel, held together by these 4 elements…
As you can see, the amount of water the barrel can hold depends on the strength (and length) of each and every stave (wooden strip). If just one of them is shorter than the rest, the barrel’s fill capacity goes down.
The way to ensure an optimum credit score, then, is to make sure your credit profile is strong in every possible way. In other words, the way to maintain the best possible rating is to concentrate on establishing and preserving:
• A sufficient mixture of credit types
• A lengthy credit history
• A consistent and sufficient payment schedule
• And low credit card balances
If just one of these elements is weak or lacking, your credit score is going to take a hit—regardless of how strong you are in other areas.
Your credit report tells all…
So where are you at with your credit? Can you see where you’re strong points are? Can you see where you need some work? Getting a copy of your credit report is normally one of the very first steps in any repair effort. This is how you’re going to determine what’s hurting you, what’s helping you, and what you need to do to make it better.
You can get your credit report for free once every 12 months by contacting any or all of the 3 major credit bureaus (TransUnion, Equifax and Experian). You can request a copy of your report by mail, by phone, or electronically from their websites.
You can also receive a free report each year by visiting www.annualcreditreport.com.
Making sense of your credit report
Not everyone checks their report regularly. In fact, few people have any experience reading credit reports at all. That may explain why so many are reluctant to take matters in their own hands—fixing your credit can be and frustrating, and much of that is due to confusion with credit reports.
Credit reports, however, are very basic documents and are, for the most part, divided into a few key sections:
Every credit report may be organized in a slightly different way than others, but they all generally list the same data: your identifying information, public records, credit history and sometimes inquiries.
The Personal Information Section
The personal information section of your credit report contains information that helps to identify you. Your name, social security number, date of birth and other various facts will be listed here. People often just glance over this section, assuming it’s unimportant or irrelevant.
But this could be one of the most vital parts of your report—and is always worth looking over carefully. Ensuring that this section of your report is accurate can help you avoid the growing problem of identity theft or even mistaken identity.
Public Record Information
Public records are the documentation of any court action taken against you or involving you. You may have a listing under this section if:
• You’ve been sued by a creditor or collection agency
• Have filed for bankruptcy
• Have any tax liens or other civil judgments
• Have missed child support payments, or
• Have had a recent foreclosure or eviction
If you have a listing under the public records section, this is an immediate indication that you’ve had some credit problems in the past, and lenders are quick to take notice of that when reviewing your report.
Your Credit History
This section of your report may be one of the most important, and it’s the section that usually gets the most attention—by both lenders and consumers who are taking the time to look over their report.
And your credit history, as you know, may be divided into 2 parts: your positive credit history and your negative credit history. Both are very important when it comes to repairing your credit.
A negative trade line on a TransUnion credit report indicates to creditors and lenders that you’ve failed to pay a debt, and is listed as an unpaid collection.
Collection accounts can be quite damaging to your credit score, costing you up to 60 points.
The credit history section of your credit report will not only show your positive and negative trade lines, but it will also show whether or not you’ve paid on time, your current and defaulted balances, and more.
Many people assume lenders are only concerned with your negative credit history. But keep in mind that having a sufficient level of positive credit is almost just as important.
Adding it all together…
Now that you’ve gone over your credit report, you should have an idea of what you’re dealing with, what’s hurting you and how you can improve the situation. Remember, an ideal credit profile:
• Has few—if any—negative items such as late pays, collections, judgments, etc.
• Has a proper mixture of credit types (credit cards combined with auto/home loans)
• Has a long, sufficient and well-managed credit history
Your first task, then, is to try to figure out how to make the necessary improvements. For example, if you have collection accounts, unpaid debt, or a history of paying late, you’ll either have to find a way to reduce or eliminate the damage caused by these marks, or offset the damage by making improvements in other areas.
