Credit Repair

Credit repair or credit recovery is the process of either correcting errors in your credit report due to fraud and/or clerical errors, or improving your credit score by obtaining high risk credit or loans and showing that you can repay them. Credit repair takes time and diligence on both your part and the part of anyone you find to help you in the process. It is not uncommon for the process to take from a few months to a few years to be totally resolved.

If you have problems with your credit report that are not your fault, you should contact one of the big three credit reporting agencies and get a copy of your credit report. If you find any errors, ask them to correct the mistake. The request must be made in writing or they will likely not honor it. These types on non-fault credit repair problems are the easiest to resolve and you can normally handle the process yourself if you have the time to stay on top of it. There are also numerous services available that will handle the process for you.

If your credit has been damaged due to late payments, collections, or bankruptcy, you should get started right away in trying to reestablish your credit rating. To do this, you should find a credit card company that specializes in high-risk or secured credit and have them issue you a line of credit. You should then begin by making small purchase once a month and pay the balance in full. It is important to never make big purchases that you can’t pay in full every month.. Over time, this will show that you are responsible and you will be on your way to repairing your credit.

You may be able to lower your cost of credit by consolidating your debt through a second mortgage or a home equity line of credit. Remember that these loans require you to put up your home as collateral. If you can' t make the payments - or if your payments are late - you could lose your home.

What' s more, the costs of consolidation loans can add up. In addition to interest on the loans, you may have to pay "points," with one point equal to one percent of the amount you borrow. Still, these loans may provide certain tax advantages that are not available with other kinds of credit.

Creditors are always looking for borrowers they deem to be a good credit risk, that is, someone who has demonstrated in the past that they’ve settled their balances in a timely fashion. For borrowers, this means having a good credit rating; after all, the better the credit rating, the better the financing options and interest rates for prospective borrowers. However, “good” credit can include a few discrepancies here and there. Not everyone has a perfect credit score, and yet they’re still able to finance the homes or cars of their choice. Regardless of your credit score, there are a number of ways to either maintain the good credit you may already have or to improve your credit profile in the eyes of brokers and lenders. Here are five simple steps to building a solid credit profile:

1. Pay Your Bills in a Timely Fashion
Whether or not a borrower pays back his or her debts on time is a critical component to the credit profile, and often the first place a lender or broker will investigate. A few late payments here and there won’t hurt your credit too much, but payments of any kind more than 60 days late, as well as any outstanding public judgments or liens against you will damage your credit. It’s especially important that you pay your bills on time near or around the time you apply for a loan.

2. Keep your Credit Card Balances and Other Debt Manageable
Creditors will undoubtedly check on the total debt of the potential borrower. Be aware of the relationship between your non-mortgage debt payments and your total income after taxes each month. Debt payments should not exceed 15% of your total income; if it is, you might examine ways to pay down your balances before submitting a loan application. For credit cards, you can impress creditors by keeping your balances at or below roughly 25% of your credit card limit. Finally, avoid moving existing debt to new accounts; it simply demonstrates to lenders and brokers that your debt is not in your control.

3. Limit the Number of Credit Inquiries
Anytime you allow a lender, employer, or business to check your credit report, an “inquiry” is added to your credit profile, and remains there for up to two years. Sometimes creditors will check the number of inquiries and when they occurred. If there has been a significant rise in the number of inquiries in a short period of time, a creditor might be led to believe that you are applying for additional credit because of financial hardship. An additional loan then, from the creditor’s point of view, may just financially burden you even further. Don’t authorize every lender or broker to check your credit. It makes sense some of the time to accept lender estimates, since an elevated number of inquiries might result in a lender or broker giving you a less-attractive loan offer. It should be noted that if you make a request to view your credit report, it does not count as an “inquiry”.

4. Erase Excess or Unnecessary Credit
Although it helps to have multiple lines of credit with high limits when you’re building credit, it’s not always a good sign to lenders and brokers. Multiple lines of credit could suggest to a creditor that you have multiple ways to overextend yourself in the future, even if your past credit history is impeccable. Bearing this in mind, you may want to close any accounts that are unnecessary before applying for a big loan. Some financial managers argue that closing unused credit accounts can actually raise your balance to limit ratio, which could hurt your credit score. If you are concerned about this, you may just ask to have some of your credit limits reduced. If you choose either of these options, be sure to indicate to the creditor that the account was closed or changed at your request so as to make clear to future creditors that the account did not close because of poor financial habits. Do not, under any circumstances, open brand new accounts before applying for a large loan.

5. Correct Errors on your Credit Report
Review your credit reports from all three major reporting bureaus at least once a year, and three to six months before applying for a major loan. Credit reports sometimes include accounts that do not belong, or other inaccuracies such as out-of-date information.
After seven years, most late payments, delinquencies, liens, and judgments against you should be dropped. Bankruptcies however, can stay on your report for up to ten years. Ask the bureaus either by mail, internet or phone to investigate what you believe to be an inaccuracy on your credit report.For a list of the major credit bureaus and their contact information, please click here.