Credit Repair

We’ve already discussed the basics of credit scores, how credit scores are created, and how to safeguard your credit score. But what if your credit score has taken a hit? What steps can you take to improve your score? In this blog, I would like to give you some tips on how to repair your credit score and what to do if you find inaccuracies in your report.

The fact is there’s no quick fix for creditworthiness. You can improve your credit report legitimately, but it takes time, a conscious effort, and sticking to a personal debt repayment plan. Here are several tips on how to curb spending and avoid falling into the credit trap:

1. Consider wants vs. needs – having a budget helps you know what you can afford and minimizes impulse buying
2. Pay your bills on time and if possible pay more than the minimum payment
3. Apply for and open new accounts only when absolutely necessary – each new application for credit affects your credit report
4. Avoid finance company and department store cards – they usually have higher interest rates
5. Open a savings account – it’s much better to save for major purchases or those unexpected bills than to use credit – pay yourself first, even if it’s a small amount, over time it adds up (your credit union allows you to set up multiple savings accounts under your main membership which allows you to set up a Christmas account or a vacation account and so on)
6. Take care of bills or disputes in a timely manner – investigate disputes and have them removed if the information is incorrect

If you’re not disciplined enough to create a workable budget and stick to it, to work out a repayment plan with your creditors, or to keep track of your mounting bills, you might consider contacting a credit counseling organization. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. Just be careful and remember that “nonprofit” status doesn’t guarantee free, affordable, or even legitimate services. One trusted service that we recommend often is Consumer Credit Counseling. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. They will discuss your entire financial situation with you, and can help you develop a personalized plan to solve your money problems.

If you find yourself in the unfortunate position of having to consider filing for bankruptcy, be aware that bankruptcy laws require that you get credit counseling from a government-approved organization within six months before you file for bankruptcy relief. Consumer Credit Counseling is a government-approved organizations listed on www.usdoj.gov/ust, the website of the U.S. Trustee Program, the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees.

Just because you have a poor credit report doesn’t mean you can’t get credit. Creditors often set their own standards, and not all creditors look at your credit history the same way. Some may look only at recent years to evaluate you for credit, and they may give you credit if they see your bill-paying history has improved. It may be worthwhile to contact creditors informally to discuss their credit standards.

So, what can you do if you find discrepancies on your report? No one can legally remove accurate and timely negative information from a credit report but the law does allow you to ask for an investigation of information in your file that you dispute as inaccurate or incomplete. There is no charge for this. Some people hire a company to investigate on their behalf, but anything a credit repair clinic can do legally, you can do for yourself at little or no cost. According to the Fair Credit Reporting Act (FCRA):

• You’re entitled to a free report if a company takes “adverse action” against you, like denying your application for credit, insurance, or employment. You have to ask for your report within 60 days of receiving notice of the action. The notice will give you the name, address, and phone number of the consumer reporting company. You’re also entitled to one free report a year if you’re unemployed and plan to look for a job within 60 days; if you’re on welfare; or if your report is inaccurate because of fraud, including identity theft.
• Each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — is required to provide you with a free copy of your credit report once every 12 months, if you ask for it. The three companies have a central website, a toll-free telephone number, and a mailing address for consumers to order the free annual credit reports the government entitles them to. To order, click on annualcreditreport.com.
• It doesn’t cost anything to dispute mistakes or outdated items on your credit report. Under the Fair Credit Reporting Act (FCRA), both the consumer reporting company and the information provider (that is, the person, company, or organization that provides information about you to a consumer reporting company) are responsible for correcting inaccurate or incomplete information in your report. To take advantage of all your rights under the FCRA, contact the consumer reporting company and the information provider.

Just some good news to end with, as recently as this week, Equifax reported that the average credit score surged to 704 in July, a level it hasn’t been at since 1998. This is proof that consumers are actively reducing debt, increasing savings and repairing credit. I trust this information has given you hope that you too can improve your credit and become financially healthy!

Safeguarding Your Credit Score

Avoiding free credit report and free credit score scams.
In last week’s blog I relayed information on how to receive federally mandated free credit reports. The official site for your free credit reports from the major credit reporting agencies s is www.annualcreditreport.com. Unfortunately, thousands of scam artists have also latched on to this consumer benefit. Many scam artists run fake “get your free credit report” websites that exist just to “harvest” your personal information such as social security number and account numbers that they can use to steal your money. At best, even the legitimate “free credit report” sites provide out-of-date-information and their main purpose typically is to sell you expensive “credit monitoring services.” If you stagger each of your free reports throughout the year, you will be able to check your report every four months for errors or possible fraudulent activity. And remember that no government agency or credit reporting agency sends you unsolicited emails requesting your personal information or asking you to correct your report.

The Federal Trade Commission (FTC) suggests doing yourself a favor and saving your money – don’t believe the unofficial sites’ claims: they’re very likely signs of a scam. Attorneys at the nation’s consumer protection agency say they’ve never seen a legitimate credit repair operation making grandiose claims of a quick fix to repair your credit.

Why checking your credit report is important to maintaining your credit score.
Whether you like your credit score or are alarmed by it, you can begin managing it by carefully checking your credit report for errors. Because your credit report provides the primary information used to determine your credit score and your creditworthiness, it’s important to correct any errors you find immediately.

How to correct errors in your credit report
The process for correcting errors is not particularly complex, but it does require a number of steps to make sure you adequately inform all the parties who need to know and follow up on your complaint. The FTC guide How to Dispute Credit Report Errors provides complete details on how to do this.

In addition to making sure your credit report is accurate, there are other steps that you can take to improve your credit rating and credit score. Next week, I'll offer some practical tips on improving and repairing your credit score. The information in this blog is a combination of material gathered from a variety of sources and my personal experience. Please let me know if you have found this information to be helpful... askgene@roguefcu.org. I am beginning to get a bit worried since I haven’t heard from anyone since I started this series. What do you think? What do you want to know?

Credit Score Creation

Last week I shared some Credit Score Basics with you. This week I will provide some of the background on what goes into a credit score. Simply understanding some of these details and managing your finances accordingly can make significant improvements in your credit score and save you considerably in finance charges and other costs determined by the use of your credit score.

Before looking at the factors that go into creating a credit score, it’s important to know that the models used are complex, they can vary from CRA to CRA (credit reporting agency) or from lender to lender, and they can vary for different types of credit, such as credit card, auto loan or mortgage. The weight given to any particular factor can also vary.

With that said, let’s go to the source: The Fair Isaac Corporation (now FICO) reports the following factors and the approximate weight they contribute to your score. The company also notes FICO scores consider only the information on the individual’s credit report but that other lenders may add other factors or items such as age, length of current employment, and so on.

Factors that contribute to creating an individual credit score

• Your history of payment on all types of accounts. Approximately 35% of your FICO score reflects whether you’ve paid bills on time or have been late. How late, how often you’ve been late and how many accounts you’ve been late on is taken into consideration. Any collections, liens, suits, judgments and the like also count and stay on your report for 7 years. Bankruptcies remain on a credit report for 10 years.
• The amount of money you owe. This category considers how much money you owe on how many different accounts. Owing a lot of money on many different accounts may signal that the borrower is overextended. It looks at the proportion available compared to the limits on the account more than the number of accounts. This factor accounts for approximately 30% of your credit score.
• How long you’ve had credit. In general the longer your credit history the better, particularly if you’ve handled that credit responsibly. This factor counts for about 15% of the score.
• How much debt you’ve taken on recently. If you’ve recently opened several credit accounts in a short period of time, that fact tends to lower your score. The scoring also looks at how many requests for your credit report have come in and the nature of the requests. (Requesting your credit report for your own personal review does not count against you nor do checks made by lenders who send out “pre-approved” offers that crowd your mailbox.) This category accounts for about 10% of the score.
• What kinds of credit you have. Approximately 10% of your score is based on the mix of credit you have (credit cards, installment loans, retail accounts, mortgages, small loans from finance companies) and how much of each you have.

For information beyond this summary, check out the extensive information provided under the “Credit Education” button at www.myfico.com. This website provides you the ability to do additional research on any of the items that I have discussed in this week’s blog.

How I can get my credit score

Since credit scores are proprietary, consumers usually have to pay for an accurate report, all those “free” website come-ons typically don’t offer up-to-date or particularly accurate information. If you go it alone, you’ll pay about $15.95 (Fair Isaac’s MyFico.com is a useful service) for your credit score, a copy of one credit report, and access to the FICO Score Simulator (not to be confused with the free Sample FICO Score Simulator) which lets you see how various activities would potentially improve or lower your credit score. You can also purchase your FICO score when you get your federally mandated free credit report as detailed in the next section.

Federally mandated free credit reports are now available

As a protection against identity theft, many consumer experts and security officials are urging consumers to keep close tabs on their credit reports at the three major CRAs. Consumers in all states have the right to a free annual credit report from each of the three major CRAs. These federally mandated free reports are ONLY available at www.annualcreditreport.com or by phoning 877-322-8228, a service run by the three major credit reporting agencies.

Next week I will provide you some simple tips on how to protect your credit score. Special thanks to our staff (especially Sandra Wiuff) here at Rogue for their hard work researching all of this information for you. They have gathered the information from a variety of sources and I have combined it with my experience to give you these brief notes. Please let me know if this information is helpful....askgene@roguefcu.org