Almost everyone at one time has felt the undeniable stress resulting from credit problems, but simply ignoring the problem before it gets out of control is not going to fix the irreparable damage caused by bad credit. In fact the road to credit repair is not paved with good intentions, instead it requires discipline, education, and more importantly; patience!
Now if you have already been stung by the lure of invisible cash offered by these shinny plastic nemesis, or have allowed your debt to reach near critical mass, there is glimmer of hope at the end of the tunnel. Most might think poor money management and irresponsibility is the main cause of credit issues today, but actually a majority of these cases are the indirect result of uncontrollable circumstances. Sudden illness or medical conditions, unforeseen loss of long-term employment, and even divorce have left millions of victims with a credit burden.
Nobody ever plans to be in debt, but when it happens it is vital to tackle the problem before it snowballs beyond normal control. The only common element that exists in most credit problem cases is not the debt itself or the manor it was incurred, instead it is lack of understanding that there are ways to rise from the ashes of credit debauchery. There are many ways to try to repair bad credit, however six simple steps is all you need to begin on a road to recovery. Before we move forward I think it is essential to get to know the possibly not so friendly credit reporting system shared across the better part of the globe.
Knowledge is power:
The most important factor in credit repair stems from understanding a bit how the credit rating system works, and who is holding all the cards. Your credit rating or score is determined by your overall risk projection, which is made up by a series of complex calculations. This process takes into account your financial history regarding previous debts, current total debt, and even your past and present payment history. This report can show failed payments, comments or other data input by creditors, which will act like a black mark on your credit rating.
Lenders or other institutions commonly know this rating system as the FICO system, which was developed by the Fair Isaac Corporation to allow creditors or lenders to verify an applicant’s risk factor before accepting or rejecting a request.
Each blight reported can range from a minor offense to a much more severe problem such as when a lender hands your debt to a collection agency in order to collect amounts owed. Honestly very few really know the real formulation that is used to compile your credit score, since the mathematics used are a tightly guarded secret held by the Fair Isaac Corporation.
Another factoid to take into consideration is the various credit reporting companies, since each have a somewhat skewed version of the FICO rating system. The scoring system ranges between 300 and 900, where a lower score denotes a poorer credit rating, and a higher rating shows a reduced risk factor. The basic understanding of this score can be broken into numbering system that makes up your total FICO score. The three major companies who hold credit rating reports are Equifax, Experian and the TransUnion.
Each company may have a similar rating, but yet each varies to some degree. Equifax is most recognized in Canada, and use a system known as a BEACON score. TransUnion is the more commonly recognized company for most United States residents and they use another known system called the EMPIRICA score. The Experian company actually uses two systems, the first being the FICO score, the second system would be their own coined system the Experian, which regardless of the name are still a derivative of the same developer Fair Isaac and Company.
Lets try to break down the FICO system into a simple percentage which make up 100% of your total credit score:
35 percent of your score is based on your payment history. Typically a score against your credit can begin when two 30-day late payments are reported within a given time. The more missed or failed payments the largest part of your rating is greatly affected.
30 percent of the score depends on your total outstanding debt. The more you owe to creditors and lenders, such as car loans, credit balances, and mortgage balances, will be empirical to this percentage. A good thing to know is that the best way to improve this rating is to keep your balances within 25% or less than the total spending limit.
15 percent is determined by the length or time you have had credit. Age does have benefit, and establishing good credit early can impact a small percentile of your credit rating.
10 percent actually is impacted by the number of inquiries on your report are made. Each time you apply to a lender whether it is a credit card or loan, it will affect this small portion of your credit report. This means it is more beneficial to hold a small amount of credit cards, than a multitude of individual companies regardless of the additional benefits such as points.
10 percent is based on the form of credit you currently have. Yes it does make a difference when you have loans opposed to credit cards, or if you have specific combinations of different credit types. This percentage can sometimes barely affect your rating, but can be more apparent when you have no other information on your credit report to determine your score.
Is it possible to wipe your credit report by just paying off all your debts? Unfortunately your credit report is much like an elephant and it has a hard time forgetting you’re past transgressions. The official wait period for an item to fall of is dependent on whether the balance was paid, and the date it was resolved. Secondly after the damage is repaired you will still have to wait approximately seven unblemished years before the item will no longer be counted against you. This is another important reason to acquire your rightfully obtained annual credit report, so you can ensure nothing from the distant past is messing with your chances for future requests.
Now let me introduce six easy steps to maintaining or repairing damaged credit.
One: -Obtain your credit report-
1.) Do you know it is a right of every individual to know what’s on your credit rating report, and yet barely anyone ever takes advantage of this service? The biggest mistake that most of us repeatedly make is denying or failing to know where our credit rating stands.
2.) Knowing your rights. The Fair Credit Reporting Act (FCRA), ensures that each credit report company must provide a free! Yes I did say free, copy of your credit report once every 12 months. To order a copy you can either call 1-877-322-8228 or visit annualcreditreport.com, and even by mail, just send your request to, P.O. Box 105281, Atlanta, GA 30348-5281.
3.) Know how to read what is on your report, check out several of the provided resources to better understand your report. Many people don’t even know what a BEACON or FICO score is, so becoming educated in this area, can prove valuable when you finally have a report in your hands.
Two -Read your report, and ensure it is accurate-
1.) Yes, even the credit reporting agencies may make a mistake. Outstanding balances that were already paid off may still be lingering, negative feedback may be impairing your ability to acquire a loan, and it is possible to have it corrected.
2.)Once a creditor has been paid in full, you have the ability to request that the creditor remove any negative comments or bad credit items from your report.
3.) Fraud can also be found where you least suspect, which can be as severe as a slap in the face when it comes to applying for a loan of any kind. Ensure all credit balances are your own doing, unknown balances or debts should set off an alarm to contact the authorities to begin an investigation. In this day there are a growing number of victims to identity theft, and a myriad of different types of fraud, not knowing is no excuse in the eyes of your lenders.
Three -Paying off your debt-
1.) This might seem to be a ludicrous step because obviously paying your debt is going to help, but evading collection or creditors can cause your credit rating to sink like a sack full of lead weights.
2.) One of the easiest ways to begin this task is to first, talk to your creditors to arrange a reasonable payment structure. Some creditors may defer interest or assist with restructuring your payments, since even though they are cashing in on your interest and late payment charges; ultimately they want their money back.
3) Pay off the higher interest rates first, take advantage of balance transfers to lower paying interest cards, although ensure you verify the fine print before playing the juggling game with your credit.
4) Another good tip is to reduce the amount of credit cards you hold. After a higher interest card is paid off, such as a retailer card, cut it up into little bitty pieces. This process is both productive and rewarding all the same, and it will eliminate the pang of temptation to make future transgressions.
Four -Get a credit card or take out a loan-
1.) OK, this one might sound counter productive, but consolidating debt or acquiring credit after suffering from fatal credit issues can greatly improve your credit rating, providing you adhere to making all your payments on time.
2.) Not having credit can actually impede in generating a good credit rating, but having credit and maintaining healthy billing will act highly in your favor. Don’t be afraid to ask someone to co-sign to help you out of a bad situation. Getting a single loan to eliminate several debt amounts shows both responsibility and it also reduces the amount of balances owed overall.
Five -Communicating with your lenders-
1.) Failing to make a payment is not always avoidable, but failing to tell your creditor may actually impact your rating. If all it takes is two missed payments to impact your rating, reporting a possible late payment before it happens may avoid a dark cloud looming over your credit.
2.) Most creditors and lenders will be open to making arrangements to ensure your balance or payments continue.
3.) Another unknown tidbit of information is that interest rates can be negotiated. If you have maintained a good standing relationship with your lenders such as credit card companies, they may be able to offer lower interest balance transfers, or even a preferred interest rate offer.
4.) Haggle for the best rates. I admit most never want to contact the billing companies, dealing with that nameless voice on the other end of the line. Unfortunately most people are paying through the nose for this practice, since just like the olden days gone by bartering is still possible even when it comes to credit. Like any other business there is competition, and where competition exists there can be negotiation to continue your valued business.
5.) Once you have made amends with a creditor or lender and the balance is no longer being held over your head, now is the right time to inquire to have any late payments eradicated from your record that might impair your credit. Most companies have the ability to remove these items which can act like a catalyst to block any attempts to get future loans.
Six -Credit counseling and debt recovery-
1.) If it gets really bad and you are possibly considering throwing in the towel to bankruptcy; don’t do it! This is the worst thing you could possibly do to your credit rating and it will take almost a lifetime to recover from the impact that follows. Most creditors automatically turn up their nose at a bankruptcy victim regardless of the circumstances that caused them to be forced to this fatal step.
2.) Third party debt assistance companies. There are hundreds of reputable companies that offer free services to help you get back on your feet without destroying what little credit you have left. Sure it takes a bit of humble pie to accept defeat, but these organizations have probably seen your case and even worse so let them do what they do best.
3.) Counselors can first ease the growing stress of worrying, and secondly aid in a recovery program to get you back on track. Most agencies will assist you get interest deferred, allow you to arrange an affordable payment schedule, and possibly instruct you on what to do with your current financial situation.
Honestly debt is an ugly business, and there are companies that strive upon the backs of a society of individuals struggling under the weight of surmountable debt loads. The goal for anyone who is suffering from bad credit is to avoid becoming a statistic that perpetuates these bottom feeders who live off of our suffering. Credit can be handy when a paycheck is just around the corner, but factoring in want versus need can sometimes make the difference between debt and freedom.
For more information on debt recovery or how to repair damaged credit, seek assistance from your local government, or contact your local financial institution. Most banks have an on-site-trained consultant to handle customers seeking this kind of assistance, and even if you aren’t approved for a consolidation, they can provide valuable information or advice to help get back on your feet. Checkout these resources for more information on credit recovery, and avoid anyone who claims they can fix your credit for a charge, since it doesn’t cost anything to obtain a credit report, or to get assistance from your own government.
There are several non-profit organizations in America to aid in debt recovery or counseling with credit problems. Avoid pitfalls that offer complete debt recovery, or promise financial freedom from bad debt, because they ultimately without disclosing are bankruptcy agencies, which will ultimately benefit from your pain. I hope this article helps get you back in the saddle, and on a healthy road to credit recovery.
Free debt or credit counseling:
American Consumer Credit Counseling. Visit www.consumercredit.com or call 1-800-769-3571
InCharge Institute of America. Visit www.incharge.org or call 1-800-565-8953.
Money Management International. Visit www.moneymanagement.org or call 1-866-899-9347.
Myvesta. Visit www.myvesta.orgor call 1-800-680-DEBT.