Common myths about credit repair

Credit repair is very important for every individual and most of us really don’t know how it can be damaged or repaired. There are a lot of myths and misconceptions regarding credit and credit repair. Most of us don’t even bother to look into facts before it gets too late and the credit is gone beyond any possibilities of repair.

Here are some common myths about credit repair and the factual information that goes with them. It is important for everyone to understand what credit is and how it works.

You keep your credit history in good shape by paying your bills in time. If you are paying your creditors in time, they will send the positive information to the credit bureaus and this will definitely keep your credit scores up. Negative experiences and late payments cause the credit scores to go down. The higher the credit score, you have a very good chance of getting decent interest rates from the future lenders while applying for loans and credit lines.

• Common myths regarding credit repair

Myth#1: Credit can be repaired instantly:

There are many credit scams that will say that they will repair your credit instantly. Unfortunately, if you go with them, you will put yourself into many legal problems. By giving your personal information to a scammer, you will get victimized of identity theft. These scams operate by obtaining a new tax identification number for you, which is specifically reserved for businesses. This new number is a blank slate credit-wise, but if you use it instead of your own identification number you can be charged with fraud.

Myth #2: You Can’t Check Your Own Credit:

Many people think that they cannot check their credit report or order a report by calling the credit bureau. They think that they have to hire some kind of credit reporting service to get the free copy. There are many companies who offer free credit reports after you sign up for their trial service. If you don’t cancel within the trial period, they will charge you a very high price for the credit report ordered within the trail period.

Myth #3: You Can’t Fix Bad Credit:

There are many people who think that credit tarnished after a certain point cannot be fixed. The fact is that any credit can be fixed with timely and careful payments of the debts. Unpaid accounts that are past the seven years reporting timeframe will be automatically removed from your credit report. You need to concentrate on the newer debts and make sure that they are paid on time. Even the worse credit will slowly but surely begin to improve.

Myth #4 - Bankruptcy Is an Easy Way Out:

Most people think that getting the debts discharged through bankruptcy is an easy way to come out of debts. Recently, the bankruptcy laws have become strict and even if you are able to file for it, getting new credit in the beginning years will be pretty tough. Bankruptcy will bring down your credit scores and you will have to work very hard to reestablish new credit, especially when the lenders are not willing to offer any new credit.

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Any kind of financial assistance from a reputed institution will be very tough if you do not have good credit scores. You will have difficulties in getting approved for an auto loan or a credit card. It is important that you have a past good credit history to get good deals from different lenders and financial institutions. Very often, students and recently divorced or widowed women who had been having a joint account with their husbands now face serious problems because of not having a past good credit history. Follow the tips below to establish good credit.

Check with your local bank or dept. store if they report the credits to the credit bureaus. If they do, then you may apply for a small loan or a credit card from them. Keep making regular payments so that they can report it to the credit bureaus. This will help in improving your credit scores. If you take a loan or a credit card from them and they do not report to the credit bureau, then you motive of taking the credit from them to improve the credit score does not help. Opt for a loan with terms that can be satisfied without too much of financial strain. There are more chances of getting approved for a loan if you are ready to make larger down payment. Certain credit cards come with lower annual percentage rates. Read the fine prints and understand the terms and conditions that apply to your account before obtaining one. Applying for a lot of credit cards in a short span of time and then not able to make timely payments will be hurting towards your credit scores because the lenders may decide you incapable of meeting all the requirements. Hence you should be careful enough before choosing the credit cards.

To qualify for a credit card without a co-signor, you have to be above 18 years of age and have a source of steady income. You may apply for a gas card which is relatively easy to avail for the purpose of establishing good credit. Make sure that you are making regular and timely payments because your creditor is going to report your repayment history to the credit bureaus and it will have a direct effect on your credit scores.

If you are having difficulties in obtaining a loan, departmental credit card or a gas card, try to get a co-signor. Then, be regular in your monthly payments.

Open a checking or a savings account. Your lenders will give you a lot of respect seeing your financial credibility.

Do not keep your bank accounts overdrawn. Potential lenders regard bouncing checks as a reflection of the incompetent management of financial affairs.

Apart from having a good credit history, potential lenders also look at your jobs and relocate. Being the owner of an apartment or having a telephone number in your name certainly helps in establishing a good credit history.

While you are trying every possible ways to improve your credit scores, get a secured credit card at a higher interest rate after depositing an amount. Make sure that you are making timely payments and that it is getting report to the credit bureaus.

Your credit score decides your potential of getting a new loan from your credit lender. The three digit credit score will decide how much is going to be the cost of your loan. If your credit scores are high, the lenders will consider you as a low risk to their finance. This means that you will get competitive interest rates.

There are other factors that determine your potential of getting a loan besides your credit scores. The property that you are using to get the loan, how much equity you have, the cost of the loan that the lender can issue for you are reviewed.

Your credit scores are very important in front of different lenders, merchants, employers and insurance companies. They will understand your financial situation and make suitable offers. Consumers are getting more alarmed when they find their credit scores determining their insurance rates. Insurance companies review your credit scores thoroughly and predict how likely you are going to pay the premiums. This has been helpful to them to cut their losses. They use a slightly different formula from what your banks and credit grantors use to determine your credit potential. They call it an “insurance score”.

The way the insurance company have been reviewing the credit potential of the individuals is under scrutiny all over the nation. Many states have passed laws to restrict this practice. Washington, Utah, Idaho and Maryland have already done so, and 20 more states are considering it. Check your state’s department of insurance website to see the laws of your state.

Credit scores are very important for someone who is trying to improve his financial worthiness. Experts say that a person’s credit potential is determined on the basis of how he is managing his finance. There are still many people who are not aware of how their credit scores can affect their credit worthiness. It is important that you browse through the internet and read the credit card news and articles so that you can get the right education and be an informed consumer.

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According to the recent survey, many people had questions regarding their FICO scores. There were a variety of concerns amongst many people, like inactive credit cards they had, low interest rate cards, how many credit cards they should be having on an average, how to use the 0% APR credit cards and knowing ways to improve the credit ratings. If you are looking to buy a house sometime in the future and you are using one card while there are few other cards that have not been used for quite some time, it should be a good idea to start using the other cards and paying off the bills. You don’t have to apply for a new credit card and get hit with new inquiries, since you already have a past history. You need to make sure that all these accounts are showing a good history on your credit report. This will help to boost up your credit scores. Call the credit issuer and request for the updated monthly statement and check the limit on the card. You can also request the credit grantor to increase the limit after you start making timely payments. These timely payments will help in the long run especially if you are looking to buy a home in the future.

Credit cards can be kept active if you are using the cards once at least six months. If you are having multiple cards, like more than 15 and you are applying for a mortgage anytime soon, closing some of the cards will not help if you have been having such thoughts. You should be having a good credit mix on your credit report. Whether you have open or closed accounts, low balance cards or high balance cards, old or new, your scores matter if you have a variety of accounts. Closing an account does not have anything to do with your credit scores. Instead, it may go off your credit report sooner and negatively affect your lengthy credit history.

The first question that comes in mind is that “is it really possible???” Yes.. It is possible. There are ways to do it but it can be done. You just have to follow few steps to see your credit scores going up while reducing the debts. You need to be a little more dedicated and do careful planning. Once you have the perfect control over your finance, you can turn your financial life and status around.

Most of the people focus on one aspect only and that is reducing debts? Why do you need to think about one aspect only when you can focus on reducing debts as well as increase your credit scores?

• The spin down method.

Most people use the “roll down” method while eliminating their debts. The better and easier option is to spin down all your debts and make it more manageable and realistic. Recent statistics show that this method has been very helpful to the average consumer.

1. Determine your percentage of obligation (POO) for each card/account: It sounds fancy (and a little humorous in a childish way!), but it’s very easy: Simply divide how much you owe by your total credit line. For example, if you owe $800 on your primary card and your total credit line is $1000, then your percentage of obligation is 80 percent. You mind will get immediately focused towards your obligations and you will make every effort to pay back
   
   
2. Decide on a monthly payment amount: Set aside the same amount each month (as much as you can afford) to put towards eliminating debt. It doesn’t matter if it’s $100 or $1000, as long as you know it’s consistent and, preferably, automatic.
   
   
3. Get the POO for each account to 50%: While exact details of how your credit score is determined are unknown, it is accepted that a POO of 50 percent or above will negatively affect your score. So, starting with your highest POO account, make your monthly payments until it’s at 50 percent, and then move to your next highest POO account.
   
   
4. Now, go for 30%: Once you have all of your accounts down to 50 percentage of obligation, commit your monthly payments to getting them all to 30 percent, starting with the largest. If you have come this far, you have to have the faith in yourself that you can do it and achieve your final aim.
   
   
5. The home stretch: Now that your debt is significantly reduced, you can begin using the more common roll down technique of paying off each remaining card, starting with the one with the highest interest rate.

By using this method, you are not increasing your credit scores significantly, but you will also reach your goals sooner than if you simply stuck with the traditional roll down method the entire way.

That’s why the spin down method is the best if you are looking to increase your credit scores while reducing your existing debts.

Fallacy: My scores determines whether I will get credit or not!Fact: There a number of facts that a lender will consider before making a credit decision. This well includes your FICO scores. They look at the amount of your debt and figure out whether you will be a potential risk to their finance after extending new credit. They also go through your employment history and credit history. Based on their perception of this information and the specific underwriting policies, lenders may grant credit to you even if the scores are low, or decline your request for credit even if you have high scores.

Fallacy: A poor score will haunt me forever.Fact: This is not true. Your credit scores depict your financial picture at a particular point of time. It keeps on changing when new information is added to your bank and credit bureau files. Your scores will keep changing after your creditors report your account status to the bureaus. Lenders request a credit score when you have submitted a credit application. They will get the most recent information from the bureaus if you have already been paying regularly to your other creditors.Fallacy: Credit scoring is unfair to minorities.Fact: Scores are based on credit related information only. Gender, race, nationality and marital status do not put any affect on your credit scoring module. Equal Credit Opportunity Act (ECOA) prohibits lenders from taking this information when issuing credit. The policies should be same for minorities or people with little credit history.

Fallacy: Credit scoring infringes on my privacy.

Fact: Any lender will have to evaluate your credit potential on the basis of your credit bureau report, credit application and/or your bank file. They don’t need to go through any other information to decide whether to offer credit or not. Lenders using scoring sometimes ask for less information - fewer questions on the application form, for example.

Fallacy: My score will drop if I apply for new credit.

Fact: If it does, it probably won’t drop much. If you are applying for too many credit cards within a short time, there will be inquiries showing on the credit report. Looking for new credit might equate with higher risk. If you are having inquiries from auto or mortgage lenders, it will have a least affect on your credit scores and will show up as a single inquiry.