Personal Credit Repair

History of Credit

FICO scores originated as a system, instead of relying on trust, for lenders to determine the probability of getting paid back on loans. Other uses now exist, including insurance, employment, higher education, and potentially others. For example, insurers maintain a claims database, so if you file more than once over a 9-to-10-year period you could lose your coverage, have difficulty getting coverage, or pay much higher premiums. If your state allows credit scores to be factored into price setting, your good credit could not only save you money on mortgages and other loans, but also on your homeowners and auto insurance policies.

Your credit report and score began when you received you first offer or completed your first application for credit. Whatever the credit is for, your credit score determines whether or not you are approved, and then the terms, rate and down payment if you are approved. You may need credit for:

Auto loans

Commercial loans

Credit cards

Investment loans

Lines of credit

Mortgages

Credit companies provide credit reporting agencies with information about how you pay your bills, and then these agencies aggregate this information into a file. Inquiries, authorized requests for current credit reports, also add to your credit file. Your credit report may include:

Aliases

Bankruptcies

Collection item information

Current residence

Date of birth

Employment information

Inquiries

Judgements

Liens

Past residence

Payment information on housing debt

Payment information on installment debt

Payment information on revolving credit

Public record

Suits

Wage attachments

Your credit score factors all of this information, not just some of it. Scores range from 300-900, with higher scores indicating a lesser probability of defaulting. Each national reporting agency, however, only considers its own data, and since creditors may not report to all three agencies, each may have different scores. Consumers are entitled by law to one report from these agencies per year for $9, and soon this entitlement will be for one free report per year upon request.

Credit Scoring

Consumer credit scores take numerous factors into consideration, categorized as follows. As you can see, not all factors are weighted equally.

1. 35% - PAYMENT HISTORY. Pay your debts on time and in full. Late payments, judgments and charge offs will lower your FICO score. Bring your past due balances and char-offs within the last 2 years current; paying off older past dues and char-offs may have no or even negative effects.

2. 30% - OUTSTANDING CREDIT BALANCES. Keep your debt ratio of outstanding balances to available credit below 50%, and below 30% if possible. Do not close accounts if doing so will increase your debt ratio, or if doing so will eliminate seasoned lines. Because "maxing out" credit cards is very bad, pay your outstanding debts as far down as possible, and then redistribute the balance evenly among all of your open lines. Ask your creditors to increase your limits to lower your debt ratio, but only if they do not have to do hard credit inquiries or new applications. Also, consider opening new accounts to transfer balances to.

3. 15% - CREDIT HISTORY. Keep credit lines open that have been open at least 24 months. This will provide a history, which may be required, to creditors.

4. 10% - TYPE OF CREDIT. Have a combination of auto loans, credit cards and mortgages instead of just credit cards, for example.

5. 10% - INQUIRES. Avoid hard inquires for credit, as each inquiry can cost 2-50 points for up to 10 inquiries. Additional inquiries in any 6 month period will not reduce your score further. Auto and mortgage inquiries are exceptions; you can have up to 20 inquires over a 14 day period only count as one inquiry.

Other tips to further increase your credit score:

• Keep separate credit cards from your spouse, if applicable. Transfer debt from one spouse to another to increase the first spouse's credit score. One spouse may be the sole borrower without changing ownership of the home.

• Ask creditors and credit agencies via certified return receipt to delete any incorrect debts. If they do not react within 30 days, the account can be deleted. If you pay off debts that are less than 2 years old, write "accepting this check is evidence that the transaction is complete and this charge will be deleted from my credit" on the back of the check, as the cancelled check may provide future evidence if the charge remains open.

Remediation

Serious mistakes in your credit report change your credit score and could cause you to be denied for a loan, insurance, or even a job.

Beware of organizations claiming to "erase bad credit," "remove bankruptcies, judgments, and liens," and so forth from your credit report. Credit can only be improved over time with a solid plan.

If you believe you have been subjected to fraudulent, deceptive, or unfair practices, free information is available from the Federal Trade Commission, including the Credit Repair Organization Act. Notify your creditors, and if the dispute is not resolved contact the credit reporting agencies to include a statement of dispute in future reports. Few lawyers handle these complex cases, but you can find one through the National Association of Consumer Advocates.

Credit Agencies

Equifax Information Services
    800-685-1111
    PO Box 740241
    Atlanta, GA 30374

Experian,
    888-397-3742
    PO Box 2002
    Allan, TX 75013

Trans Union
    800-916-8800
    PO Box 34012
    Fullerton, CA 92834

Additional Resources

Credit Repair Organization Act

Federal Trade Commission

Insurance-Risk Credit Scores

National Association of Consumer Advocates