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I am writing this to shed some light on the complex (and somewhat confusing) topic of credit repair. This is chapter 1 in a series of credit repair, credit monitoring and credit FAQ reports.
Credit. The one thing so many companies are willing to give out to the doe-eyed 18 year old highschool grad and so unwilling to give out to the individual who make a few mistakes later on down the road.
Credit has been around since the dawn of commerce. Although, when Caveman Ogg couldnt make his minimum monthly payment of 10 seashells for the 10lbs of Brontosaurus meat he got on loan, instead of taking him to court to obtain a judgment, the creditor simply sent 3 hairy, muscle-bound cave-debt collectors to the front of Oggs cave with a big stick in hand and their eyes on his kneecaps.
Flash forward a few thousand years to debtors prisons where the unlucky few who couldnt pay their debts were sent to "think about things" for 30 or so years.
Good thing we live in 2007, right? Not if you ask one of the estimated 10 million people in America with credit card debt. On average (laws vary by state), a negative item remains on your credit report for up to 7 years. This directly lowers your FICO scores (the scores that almost all lenders use to calculate your credit risk), and as such, you will not be able to obtain a prime rate, low interest on a loan or even the house mortgage you were ever so hopeful on getting.
What are the basics of credit and credit repair?
First things first. Do you know what is on your credit report? In order to know what kind of credit you have, you will need to run your credit report. By Federal Law, the three credit reporting agencies:
Experian, Equifax, Transunion,
must provide you with one free copy of your credit report per year. These free copies will allow you to see your current Fico Scores and credit reports. There are various websites out there that offer "free credit reports". I would advise going straight to the horses mouth (I would like to call it the other end of the horse, but this document might be read by minors under 18....). Myfico.com is where your FICO scores are calculated. There is no credit card required to get a copy of your free annual credit report.
So now you have gotten your free copies of your Fico Scores/Reports online, and printed them out and have them in hand. Look at your FICO score. If it is somewhere in the 600s, then congratulations !! Your FICO scores are on par with the average American. FICO scores range from the low 300s to the high 900s, with 600 being average. A 600 FICO score will not get you a prime rate or zero interest, but it wont stop you from applying for (and in most cases being approved for) credit.
In order to maintain your good credit or your current credit level rating, I suggest the following:
* Pay your credit card bills on time every month.
* If possible, keep your oldest accounts open. The credit card companies like to see old accounts with age. It shows that you are reliable over a long period of time.
* Resolve disputed credit issues quickly, and follow up to make sure that they are taken care of the first time. The credit reporting agencies will NOT babysit your account. They have been known to keep inaccurate information on credit reports, and only change them when the original creditor or the consumer contacts them with an update or a dispute.
* Keep your monthly usage of your credit cards down to about 40% utilization. This is because FICO likes to see low usage utilizations. It again, shows that you are a responsible consumer and pay your bills on time. If you happen to run up the entire card one month to get yourself out of a pickle, dont fret. Just pay it off as soon as you can.
Your FICO score fluctuates every month. It is based on a number of factors.
35% Payments. 30% Amounts Owed, 15% Length of Credit History, 10% New Credit, 10% Types of different Credit.
These factors combined tell you your FICO score. So if you have a low FICO score, chances are you have a negative tradeline on your credit report, or you are lacking in one of the areas above. We will discuss in further detail the variables that affect your credit score in the following editions of "Credit Repair 101".
There isnt much you can do to make amends for past credit mistakes. You can dispute inaccurate items on your credit report, you can also do a few other "tricks" as afforded to you by the Federal Law (FDCPA). I will save that for another chapter in my ongoing Credit Repair 101 series.
What is credit repair exactly? Well there are two ways you can go about repairing your credit.
1. Use a pay service like Lexington Law Firm or one of the many other credit repair agencies that can be found by doing a quick google search.
2. Repair your credit on your own.
There are pros and cons to going either route. Since using an attorney service like Lexington Law Firm is pretty self explanatory, I will stick to the basics on how to repair your credit on your own.
One of the first steps on the road towards credit repair is to pay off your debts. If you have already passed this step, then congratulations !! You have fulfilled your agreement to pay (even if it took you 20 years to do so). Your next step is to start applying for unsecured credit cards. Yes, I realize that sounds a little illogical. You did not pay your debts in the past, this is why you have bad credit. Applying for more credit at this point in the game is kind of like dangling a pork chop in front of a hungry lion.
The reason you want active, unsecured (if possible) credit cards is because it helps raise your FICO score. With age and reliable, on-time payments, comes a big increase in your credit score. Chances are you will not be approved for a high limit credit card if you have bad credit. This should server as a reminder of your past mistakes, and you should resolve to plan for the future better.
We will go into how to get some of the negative items off of your credit report in chapter 2 of my online credit repair sessions. For now, we are only concerned about getting another piece of plastic with a $100-$500 credit limit in your grubby little hands.
You credit score will not automatically go higher overnight. It takes upwards of one year of on-time, reliable credit card payments to establish reliability with the credit card companies as well as raise your FICO scores.
With that being said, a good credit card to get for people with no or poor credit is the Orchard Bank Mastercard.
They do a "soft pull" on your credit report and will let you know instantly if you have been pre-approved. This way, you wont have to wait 2-3 weeks for them to make a decision. This "soft pull" is to your advantage as all of the normal credit card companies do whats known as a "hard pull". This places an inquiry on your credit report, regardless of whether or not you are approved. Too many "hard pulls" in a short period of time, is seen as a negative by the credit card companies and can actually hinder your chances of getting approved.
The credit card companies see people that are actively shopping for credit as a credit risk. Yes, this does seem kind of silly....but it makes logical sense. If I had poor credit, and was applying to every single credit card company out there in a short period of time, it would look rather suspicious.
The Orchard Bank Mastercard does not do a "hard pull", therefore it is the perfect card for people who are in the process of rebuilding their credit or for people who dont have much credit history.
I sent my friend a link for the Orchard Bank Master card, and her FICO scores for Experian were in the high 500s. I believe she had a 570 for Experian, a 610 for Equifax and 598 for Transunion, but she still was approved for the Orchard Bank Mastercard with a $300 spending limit.
Chances are, if you have poor credit, you wont be approved for much more than $100-$300 spending limit, but hey....at least its a start in the right direction.
Over time, with reliable monthly payments, you can go back to Orchard and ask them to increase your credit line based upon your history of reliable payments. After 6 months to a year, your FICO scores shoud improve and in time you will be able to get approved for more and more credit cards. The better credit card companies like to see at least a 1 year history of reliable monthly payments on revolving credit in order for them to consider you for their card.
This concludes a basic introduction to credit repair 101. Stay tuned for further in depth how-tos on understanding what is on your credit report, as well as taking the first steps to legally and morally repair your credit.
Anthony DeRoia owns and operates http://www.101deals.com and has over 6 years of experience in marketing, sales, purchasing, as well as website design and SEO techniques. His hobbies and interests are numerous and he has been instrumental in helping people get their financial affairs in order, building financial plans for the future, investing, as well as helping people to get started on repairing their credit reports.
His current project: http://www.101deals.com helps people save money in their day to day lives by showing them how they can save thousands of dollars every year by shopping wisely.
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