DIY Credit Repair
DO IT YOURSELF CREDIT REPAIR
Module 1
What is a credit score?
A credit score is a three-digit number, between 300 and 850, that indicates a consumer’s credit risk. A person with good credit generally has a higher score. Paying your bills on time and keeping debt levels low will help boost your score over time. People with poor scores may find it difficult to get approved for new lines of credit, like mortgages or car loans. Keep reading to learn more about how you can get started with DIY credit repair today!
A person with good credit generally has a higher score. Paying your bills on time and keeping debt levels low will help boost your score over time.People with poor scores may find it difficult to get approved for new lines of credit, like mortgages or car loans.
Credit repair is the process of making sure your credit report is accurate.
Your credit report contains information about how well you've paid your bills, whether you've been sued or arrested and if you've filed for bankruptcy. The information in your report can affect whether or not you can get a loan, even if it's just an installment loan like a car loan or mortgage.
When you apply for credit, the lender will check your credit report to see how risky it would be to lend money to you. If they see something negative on your report (like an unpaid bill), they may decide not to give you the loan at all, or charge you more interest than someone who has clean credit.
Why Does Your Credit Score Matter?
A low credit score can make it difficult for you to get approved for things like new mortgages and car loans—even everyday purchases like cell phones and utilities can be affected by a low score! That's why it's so important to know what's in your report and how to improve your score if there are errors or problems with any information
A good credit score is crucial to your financial success. It can determine whether you are approved for a loan, what rate you pay on that loan, and whether you will be able to rent an apartment or buy a house.
A good credit score is anything above 700. A negative credit score is anything below 600. Anything in between those two numbers is considered "fair," but it's not great either.
If you have a good credit score, it means that your debt-to-income ratio is low and you've demonstrated responsibility by paying bills on time and not overextending yourself financially. You also probably have no or few outstanding debts or judgments against you, which means lenders feel more comfortable lending money to someone like this because they know there's a high likelihood they'll get their money back eventually if needed.
If you have bad credit, however—or even fair credit—it means there's something about your financial situation that makes lenders wary about trusting them with their money for any reason at all (even if what's happened was out of your control). This could be because of late payments or missed payments due to unexpected circumstances like being laid off from work or falling ill unexpectedly.
The Reasons You Should Repair Your Credit
You may believe that negative credit prevents you from obtaining a credit card or a loan, but it is more complicated than that. Bad credit might leave you without a home, a car, or a job. This is because an increasing number of businesses are relying on your credit score to make decisions about you. Still not persuaded it's time to clean up your credit? Here are reasons why you should improve your credit score.
l Have money that is earning interest
Low credit scores are associated with higher interest rates, which translates to higher finance costs on credit card balances. Repairing your credit will enable you to obtain a more competitive interest rate and save money on interest payments.
l Stop putting down large security deposits.
Utility companies and even phone companies run credit checks before enabling you to set up service. Those service providers charge you a deposit to cover the risk of default. You will be able to get your deposit back if you make your payments on schedule. You can avoid paying the deposit entirely by improving your credit score.
l Reduce Your Insurance Costs
Your credit score has an impact on your insurance premiums, believe it or not. This includes coverage for your car, life, and home. You'll pay more for insurance if you have a terrible credit history than if you have good credit.
l Paying cash for everything is no longer an option.
If you have bad credit, getting a credit card will be difficult, so you'll have to pay cash for everything. It may not seem like a big deal until you need to do something like rent a car and have to pay a deposit if you don't have a credit card.
l Obtain a Greater Credit Limit
Creditors will typically boost your credit limit when you demonstrate that you can pay your bills on time. However, before increasing your credit limit, a credit card provider will examine your credit score. Due to a poor credit history, your credit limit may be reduced, further harming your credit score by increasing your credit utilization.
l Stop being harassed by debt collectors.
Paying off those debt collection accounts is part of repairing your credit. Debt collectors will continue to contact and write you until you do. While you can take steps to stop debt collector calls, accounts are frequently transferred from one debt collector to the next. You'll have to start the procedure of submitting letters to halt the calls all over again if a new collector obtains your debt.
l Feeling More Confident About Your Credit Score
You won't be frightened to check your credit score or, worse, have someone else check it after you've repaired your credit. You can feel secure knowing that your credit score is in good shape.
l Purchase a New Home
The American Dream has always been to possess a home. Bad credit is the nightmare that prevents you from achieving your ambition. Many banks will not lend you money until your credit has improved. Those who will approve you with a high interest rate, increasing the expense of property ownership.
l Get an Apartment to Rent
Bad credit can prevent you from purchasing a home, but it can also prevent you from renting an apartment. Many landlords now run credit checks to see if you're likely to be late on your rent. Your rental application could be declined if you have bad credit.
l Purchase a New (or Newer) Vehicle
Many businesses check your credit before lending to you, including auto lenders. Your auto loan application may be declined if you do not have a strong credit score, forcing you to continue driving the same vehicle.
Module 2
The Credit System
Given the importance of your credit, you'd think someone would double-check that your credit report is complete and accurate.
But the sad reality is that no one is looking out for you. You're the only one who knows what's going on.
It is your credit who benefits from a positive and accurate credit profile.This is why checking your credit reports on a regular basis is so important. You don't want any errors to hinder you from reaching financial peace of mind, especially because credit errors account for about 80% of all credit errors.
l The Credit Bureaus
Trans Union, Equifax, and Experian are the three major credit reporting companies. These are for-profit private companies that earn from the sale of customer information.
Your credit profile is made up of information gathered by current and former creditors and sent to credit bureaus on a regular basis. The agencies make money by selling this information to creditors in the form of reports, leads, and other techniques, which they use to either extend additional credit or solicit new credit.
When a creditor, such as CHASE, wishes to offer fresh credit to consumers, they buy a data list from the credit bureaus. Customers with credit ratings ranging from 550 to 620 may be on this list.
The bureaus then make money by selling that list to CHASE, who will use it to send you mailers inviting you to apply for a credit card.
Subprime credit is always more valuable in the realm of data selling. Simply put, a creditor will pay more for a list of customers who are 30 days late on their mortgage than for a list of customers who have impeccable credit. Why? It's all about supply and demand: consumers with bad credit are willing to pay a higher interest rate in exchange for more credit.
l Creditors
Your creditors charge interest based on the risk we pose. The larger our risk, the higher the interest rate we must pay. Our credit ratings determine our risk in most circumstances; the worse our credit scores, the higher the interest rates.
0% credit cards generate no revenue for credit card firms. However, as soon as you miss a payment, your interest rate skyrockets. This is where they make their money, with interest rates as high as 13 percent.
According to a published report, some companies make three times as much money on sub-prime clients as they do on prime clients.
Your creditors will charge you more if your credit is bad, and they will profit more from you if your credit is bad.
Look for 'Soft' or 'Promotional Inquiries' on your credit reports. Some of your creditors may examine your credit report on a regular basis, as you'll notice. Even if you've never been late on your account with them, they're looking for a drop in score or new negative information reporting that could trigger them to hike your interest rates!
Module 3
What Factors Go Into Calculating Your Credit Score?
Your credit score is a numerical representation of all of the financial data in your credit report, which comes from one of three main credit bureaus: Equifax, Experian, or Transunion.
Creditors and other businesses share financial data about you and your customers to help develop a more accurate picture of your creditworthiness.
Some creditors are required to report to all three agencies, while others may only be required to report to one of them. Your credit score is calculated by filtering the information on your credit report through a scoring algorithm.
l FICO Score
Credit scores are calculated using many credit scoring algorithms, but the FICO score is the most widely used by lenders and credit card firms. The FICO credit score range is 300 to 850.
A creditor will analyze your credit reports and credit scores to establish your creditworthiness while reviewing your application for a new credit card or loan.
Creditors will use that and other financial data to determine if you qualify for a credit card or loan. If you do qualify, your interest rate will be greater if you have a bad credit history. This is because they believe that if you have a rough financial history, you are more likely to default on your payments.
When you have good credit, you get the best terms and conditions available. That's why it's critical to have the best credit score possible so that your interest costs are kept to a minimum.
So, what's in your credit report and how does it impact your credit score? Here's how it all works out.
l History of Payments
How successfully you pay your payments each month accounts for the majority of your credit score. In fact, your payment history contributes for 35 percent of your credit score! This history will appear on your credit reports as a result of various credit accounts you've had during the last seven years.
You'll see how much you've paid each month for a long period of time compared to how much the monthly payment totaled under each loan, credit card, or mortgage you've had.
Other creditors, such as mobile phone companies or utility companies, can disclose late payments, but they usually don't report on-time payments.
If you have a late payment, it will be marked with the precise amount of time it was late, ranging from 30 to 150 days (or more, if the account went into default). As a result, the longer you wait to pay, the lower your credit score will become.
l Debt Total
The amount of debt you owe accounts for 30% of your FICO score. Installment debts, such as a mortgage or a student loan, are not as heavily weighed as revolving debt, such as credit cards.
Lenders consider your debt-to-credit ratio, also known as credit usage, which measures how much you owe compared to your credit card's maximum line of credit.
Your credit suffers if you're close to maxing out your credit cards. Due to the fact that it is a ratio, two people with the identical credit card balances may have different credit scores if one has a larger credit limit.
A person with $3,000 in credit card debt and a $10,000 credit limit, for example, has a debt-to-credit ratio of 30%. Someone with $3,000 charged on a credit card with a $5,000 credit limit, on the other hand, would have a 60% ratio and, all else being equal, a significantly worse credit score.
l Credit History Length
The length of your credit history accounts for 15% of your credit score. If you have a low credit history, lenders will be unable to assess your ability or willingness to repay a loan. The FICO credit rating methodology takes into account the length of time you've had various credit accounts open, such as loans and credit cards.
Unfortunately, rent payments aren't normally factored into FICO scores, but there are rental reporting services you may use to supplement your credit application.
l Accounts with New Credit
Inquiries is another component on your credit reports that you'll see. This relates to each new credit application you've made in the last two years, and it can effect 10% of your FICO score.
Unless you've made several enquiries for the same product within a few weeks of each other, each hard enquiry will deduct around five points within the first year. This just means you were looking for a better rate on a loan or credit card, and it's usually handled as a single enquiry.
l Credit Combination
The types of credit you have account for the remaining 10% of your credit score. We previously said that revolving credit, such as credit cards or retail cards, has a greater negative impact on your credit score than installment debt. Installment loans are secured by a valuable asset, such as a home or a car.
When compared to unidentified purchases made with a credit card, these forms of loans demonstrate that you own something of value and are more dedicated to repaying those debts.
Student loans are also seen as a better investment than credit cards because they represent an investment in your future earning ability, and the more money you earn, the faster you can pay off your debts!
Module FOUR
The DIY Credit Repair Method
Credit repair isn’t easy and it takes time, but you can do it yourself if you are willing to put in the effort. There are plenty of different credit repair companies out there that will do the job for you, but they will charge you a lot of money in exchange. Doing it yourself will save you money, but it requires some patience, knowledge and perseverance to make it happen over time. Here are some steps to take to get started with DIY credit repair
l Step 1: Access Your Free Credit Report
This is a critical first step that no DIY credit repair tutorial would be complete without. Accessing your free annual credit report will provide you with an overview of where you stand in terms of credit history, as well as details about any creditors or debts currently on file. Getting your hands on these reports can also help you see how errors and inaccuracies may have affected your credit rating, helping you catch errors and rectify them for better scores in future reports. If you haven’t accessed your free credit report recently, now’s a good time to do so.
l Step 2: Review Each Credit Report Carefully
After receiving your credit reports, you will want to review each one carefully. This can be a difficult task if you have little or no previous experience with credit reports and scores. Make sure that all of your personal information is correct on each report. If it isn’t, contact the company immediately to get it corrected. Also, look for any errors in any of your financial accounts that may be included in your credit report. These could include late payments, incorrect balances, or even closed accounts that are still listed as open. If you find any mistakes like these, dispute them with the credit reporting agency so they can be fixed. The more accurate your credit report is when it comes time to apply for new lines of credit (credit cards, loans), car loans, etc., the better off you will be. You should also check to make sure there aren’t any collections listed on your reports from companies that don’t belong there.
Even if they do report to all three credit bureaus, one of them may enter your payment history incorrectly. As a result, instead of presuming that the information is the same on all three credit bureaus, you should go through each one with a fine-tooth comb.
Ø Information about yourself
First, double-check that your basic personal information is valid and that your credit reports do not contain any information about other people. Then go over each page one by one, looking at all of your account details.
Ø Inaccuracies
Note any areas that look inaccurate, especially if there's a negative mark like a late payment, from the account's start date to the maximum balance you've ever had.
You should also double-check that you own each line of credit to ensure that no one has created an account in your name falsely. If you see any unfamiliar accounts, you may have been a victim of identity theft.
Ø Public Records & Collections
Pay particular attention to the negative records portion of your credit report after you've gone over all of your open and canceled credit accounts.
Any accounts you haven't paid as agreed, collections, or public records you've had will be listed here. Anything included in this section has the greatest negative impact on your credit score and should be at the top of your list of things to try to get removed.
l Step 3: File a dispute and ask for negative information to be removed.
It is both your right and responsibility to dispute and have erroneous, untimely, misleading, prejudiced, incomplete, or dubious information deleted from your credit report. Furthermore, deleting bad entries from your credit history can help you improve your credit score.
Thousands of consumers successfully dispute such things with credit agencies every day, despite the fact that many individuals are unaware that it is possible to get them erased. So it's a lot easier than you might think, and it's a lot better than waiting years for negative information to disappear from your credit report.
Ø Writing a Letter of Credit Dispute
Begin by sending a credit dispute letter to the credit bureau with the negative item listed on it. A sample dispute letter can be seen here. Keep a copy for yourself, and make sure to select return receipt so you can be sure your letter was received. Make sure to send it certified mail as well.
The credit reporting agency has 30 days to respond to your request after that. If you purchased your credit report through AnnualCreditReport.com, you'll have to wait an extra 15 days for them to answer, for a total of 45 days.
Some people will tell you that you can dispute online, but we've discovered that contesting by mail yields considerably better outcomes. Please see Why You Should Never Dispute Credit Report Errors Online for additional information.
Ø What Should You Include?
Make sure to list all of the inaccuracies in your credit report in your dispute letter. Include copies of supporting documentation rather than the originals if you have them. Supporting paperwork, on the other hand, is not required. Remember that the credit bureaus and creditors who report information about you bear the burden of evidence.
Include your name, phone number, and current address as well. Maintain a professional and courteous tone without expressing any personal opinions. You have the option of listing the grounds for your disagreement or just stating that you want to disagree.
Federal law requires credit reporting organizations to investigate once you file a dispute, and the relevant creditor must show verification of the item's correctness.
It's possible that you'll have to contact the creditors and the credit reporting agency multiple times. It may take a significant amount of time and effort, but the benefits to your credit scores may be well worth it.
Quick Tips for Repairing Your Credit
Getting bad items erased from your credit report can improve your credit score dramatically, but the credit repair procedure might take a long time.
You can still employ a few tactics if you're searching for speedy results. Some are tiny changes, while others can still have a big impact, so look over the entire list to see which ones you can try right now to improve your credit.
Ø Reduce the amount of credit you're using.
Remember how we talked about the credit usage ratio earlier? Your credit score will suffer the closer you go to maxing out your credit cards.
As a result, paying down big credit card balances makes sense in terms of lowering your debt-to-credit ratio and improving your credit score. Concentrate on credit cards with high balances rather than those with low amounts. Over the course of a few months, keeping your credit card balances low could result in a 100-point rise.
Ø Increase your credit limit on your credit cards by requesting it.
Even if you can't afford to pay off the extra debt to lower your credit utilization, you can still make progress. Request a credit limit increase on your credit card by calling your credit card issuer.
You don't want to end up owing more money than you already have. Instead, you want a bigger credit limit so that your current credit card amount is a smaller percentage of your total credit limit.
Here's an illustration. Let's say you owe $5,000 on a $10,000 credit card. You'd be putting 50% of your credit to use. However, if you increased your limit to $15,000, your $5,000 amount would only be using 33% of your total limit.
It will help you when you call your creditor if you have made consistent on-time payments throughout your history with them. They'll almost certainly respect client loyalty enough to aid you with your credit line.
Ø Become a Licensed User.
Building a credit history takes a long time, but there is a way to speed things up. Request to become an authorized user on one or more of your friend's or family member's accounts if they have a long history of good credit. That credit card account will be added to your credit report in its entirety automatically.
This action includes some risk: if your friend or relative defaults on payments or has a significant balance, those negative entries will be added to your credit history.
Similarly, if you amass large debts and fail to help make any payments you're liable for, the other person's credit will suffer. This is a terrific strategy, but it must be used with caution.
Ø Credit Card Debt Consolidation
Consider acquiring a debt consolidation loan as another quick approach to rebuild your credit. It's a form of personal loan that you use to pay off your numerous credit cards before making a single monthly loan payment.
You might be able to save money on your monthly payments by receiving a lower loan rate, depending on your interest rates. Pre-approvals can help you figure out what kind of rates you qualify for and how they compare to your present credit card rates.
Installment debt is seen more positively than revolving debt, so even if your monthly payment stays the same, your credit score will improve.
Ø Take out a credit-building loan.
Credit-builder loans are frequently available from smaller banks and credit unions to help people rebuild their credit. The monies are deposited into an account that you can't access when you take out the loan.
The debt is then paid off in monthly installments. The money are released for you to use once you've paid off the entire loan.
Making payments on money you can't spend may seem unusual, but it's a method for the financial institution to feel secure while you prove yourself as a trustworthy borrower.
The bank reports your on-time payments to the three credit bureaus once you've completed your payments and received the money, which enhances your credit score.