Effective credit repair takes a little know-how. When people try to “fix” their credit, they often make things worse than they originally were. As the old saying goes, “A little knowledge is a dangerous thing”. Many folks will read a few Internet articles, and feel empowered to take on the task of cleaning up their credit report with wanton abandon in regard to the actual consequences of the steps they are taking.
Some actions that seem logical to take in fixing your credit score are actually harmful, especially if you are trying to obtain financing for a mortgage or loan. Much of the reason for this has to do with how Fair Issac (FICO) calculates your credit score. There are multiple factors that make up your credit score, and each one weighs differently in the calculation (For more details on how your score is determined, read “About Your Credit Score”). Do your research. Learn what you can dispute, and how to go about it. Some credit repair efforts cannot be undone.
Here are some of the most common credit repair mistakes that people make when trying to fix their credit.
Canceling Old Credit Cards or Closing A Good Account
When many people realize that their credit needs work, they decide that too many credit cards are the problem. In some cases, they may be partially right. To “fix” and organize their finances, they will use or obtain a new card with a low teaser rate to transfer the balance of their old cards onto. With the old cards “paid off”, they promptly close them.
Multiple mistakes have occurred in this scenario. 15% of your credit score is based upon length of credit history. Closing your oldest accounts hurts your credit score. If you have transferred the balance, chances are, you’ve maxed out the new card. Your debt to credit ratio has just taken a hit. This makes up 30% of your credit score.
If the card had a good payment history, you’ve just eliminated a factor that accounts for 35% of your credit score. If improving your credit score is the focus of your efforts, you’ve just beaten yourself. It is much smarter to use an old card every few months, and keep the balance low.
Maxing Out A Credit Card or Opening Store Accounts
So much of your credit score focuses upon your debt to credit ratio. You want to avoid reaching your credit limit on a credit card. If at all possible, keep your balances at 10-15% of the available limit. A high balance is interpreted as an inability to pay off your debt. If you are trying to establish more credit, store cards are not always the best bet. The card generates and inquiry on your credit record, and they seldom offer a limit much higher than the purchase you intend to make. Once the purchase is made, you’ve nearly maxed out the card. Remember your debt to credit ratio. It factors into 30% of your credit score.
Using Template Letters To Dispute Items On Your Credit Report
Credit bureaus are wise to many of the methods that individual’s use to dispute their credit record. Form letters don’t often address a person’s specific issue, and are irritating to the them.
Since the credit bureaus maintain files on disputes, form letters are often flagged and deemed frivolous. Once your account has been flagged, your requests are denied and action on your credit repair can be legally halted. Since form letters don’t address your specific issue, it can appear that you lied in your dispute. At this point, your chances of prevailing on legitimately damaging data is slim.
Most credit repair companies utilize this approach to credit repair. It is easy for them to generate a generic letter, tagging your dispute as frivolous. Since most collect an indefinite monthly fee for their services, and only dispute a few items at a time, they can string you along forever.
Not Knowing The Dispute Process
When you decide to exercise your rights, under the laws that govern credit repair,
you need to make sure that you are taking the proper steps. You are requesting that creditors and credit reporting agencies comply with the letter of the law when you begin the dispute process. The dispute process is a legal matter, and your last resort is a lawsuit to correct an error. If you have not followed the legal procedure, your case can be easily dismissed. Know what you are asking for, who to ask and how to ask before you even get started.
Not Acting Like Your Dispute Is A Legal Matter
Treat your dispute as a legal matter. Send all of your requests, inquiries and disputes in writing. Furthermore, all correspondence should be sent via Certified Mail, with a return receipt requested. You must document your actions to repair your credit, and keep records. Do everything in writing, and request responses in writing. A conversation is easily forgotten or denied. A letter documenting action helps to cement your position in a dispute.
Not Validating Negative Information With Collectors
Most consumers, worried about their credit, will quickly bow to the pressure of collection agents. No wonder, the harassing calls, threats and fear of credit damage make it likely that you will pay to make the problem go away. The collectors know this.
If you make arrangements or a payment, you are saddled to the alleged debt. Even if the statute of limitations had expired on the debt, such as a lien or judgment, you just renewed the enforceability of the statute.
You are legally entitled to have a creditor or collection company validate or prove that the debt the are attempting to collect is legally yours. It is surprising how often they fail to comply with this simple request. While the law is on your side, you must make sure that you know exactly how to complete this process. You may inadvertently validate a debt by what you say.
Throwing In The Towel
Credit repair is NOT an overnight process. Your credit issues did not appear overnight, and they aren’t going to go away that fast either. Any credit repair that claims to be able to fix your credit within a few days is not to be trusted. The process does not happen that fast. You may see rapid results from your first efforts, but not all situations are the same. Fixing your credit requires patience and persistence. Following up on your actions is important to achieve your desired results.
Making A Consumer Statement On Your Credit Report
The credit reporting agencies allow you to make a dispute statement that will appear on your credit report, offering an explanation of the circumstances. Don’t be tempted to do this. Lenders will ignore your statement, and will certainly have the focus of their attention drawn to the negative item, because there is a 100 word statement attached to it.
Not Knowing What Is On Your Credit Report
Recent government surveys indicate that less than a third of Americans have viewed their credit report within the past year. Many more do not know their current credit score. Financial experts constantly advise consumers to pull their credit reports. Errors can be found on nearly 70% of the credit reports generated. You, more than likely, are one of those people with inaccurate information. If you do not know what is on your credit report, you cannot even begin to make progress in fixing your credit.
Not Working With A Professional
Your credit score is important. Chances are you are aware of it because you were recently turned down for a loan or financing. Fixing and repairing your credit score is not as simple as it seems. Many factors are used in determining your credit score. If you don’t realize how they interact, you can do more damage than good.
A professionally certified credit repair counselor comes with the years of experience in learning the credit industry. The understanding of the industry and the ability to analyze your personal credit report to achieve the most effective results in raising your credit score is worth the investment. Choose a professional that is reputable and knowledgeable.