The New York Times has posted an article that gives some helpful tips on how to repair your credit score. So many people have lost their jobs, are overwhelmed by bills piling up, or were hurt by the housing crisis or filed for bankruptcy that millions of peoples’ credit scores have plummeted.
The best thing you can do to improve your credit score is to focus on the information that FICO uses to determine your credit score. FICO is the most commonly used method of credit scoring by lenders to determine a consumer’s “creditworthiness”. A credit score ranges from 300 points up to 850 points, the higher the score the better.
The first thing you can do is to assess your situation. You need to make sure you will be able to pay your bills on time and not go further into the hole. You could call the credit card company and explain your situation and see if the two of you can work out a payment that you can afford. But if you do so, be sure to ask how the credit card company is going to report it to credit reporting agencies. Even though you’re paying an amount agreed on by the credit card company, they could still report it as you aren’t paying as agreed, which will further damage your credit score. Be sure and get the agreement in writing.
Next, focus on paying off credit cards, which will give your score almost an instant boost. Next pay off other loans, like car loans, student loans, or mortgages.
You also want to get your so-called debt utilization rate into good shape. FICO considers how the total amount of debt on each of your credit cards compares with your total available credit. The credit score “elite” – that is, people with FICO scores above 760 – typically don’t have debts that exceed 7 percent of their available credit. But if you are at 50 percent and can get the rate down to 30 percent, that will help.
You can also “leave a note” through FICO’s website that allows you to give a brief explanation of your situation- like a job loss. It doesn’t affect your credit score and probably won’t change lender’s minds, but at least you’re able to explain yourself.
Getting a secured credit card is a good alternative to a traditional credit card for people with poor credit. A secured credit card works by requiring you to have a set amount of money in your bank account to use as collateral. That amount of money determines the amount of credit you get on the card. Be sure to read the fine print and make sure the required deposit amount won’t change and that your payments will be reported to the credit reporting agencies.
“What is the most predictive and powerful in your score are the things you’ve done most recently,” Mr. Ulzheimer said. “That cuts both ways. If you add a secured card and you pay it religiously and the balance is low, it will help your score a lot more quickly than if you do nothing.”
Talking to a credit union is a good idea because they are more likely to work with someone who has less than ideal credit. Different credit unions offer different options, but some offer things like free credit counseling, have products designed for people with poor credit, or are willing to look at alternative credit scores.
For a monthly fee (sometimes a large one) you can sign up for “alternative verification.” Other credit reporting agencies or companies will collect your payment history from things that aren’t included on the traditional FICO credit report. Banks are becoming more willing to look at these alternative verification reports, however, the traditional FICO report is still the main decision maker, but things are slowly changing. Lenders may soon start looking at things such as rental payment history or alternative credit scores.
It’ a good idea to avoid credit repair offers.
“We really tell our clients to stay away,” said Ms. Glass, of CredAbility. One re-emerging scam, she says, involves companies that claim they can clean up your credit. Some companies manage to do this for a limited time by disputing all of your accounts, sending letters to the bureaus claiming the accounts aren’t valid. But after the credit bureaus validate the accounts and debts, they reappear on your report and your score will plummet again.
Legitimate credit repair companies exist, and they can assist in disputes. But there’s nothing they can do that you can’t do yourself at little cost. Besides, these companies often besiege the bureaus with letters, and the bureaus are allowed to ignore what they believe are frivolous disputes. Be wary of companies that do not disclose in writing that you can do these tasks free on your own, that guarantee results or that try to charge you before they perform any services.
To repair your credit score, you should also avoid certain credit cards that are designed to improve peoples’ credit scores, yet charge so much in fees that the purpose is defeated. Before you sign up for any credit cards be sure to read the fine print.
If you have had problems with a credit card or a credit report and have questions or concerns, feel free to contact us through our website or by calling 205-879-2447.
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