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Fixing bad credit isn't the most fun thing you'll ever do, but it can be one
of the most rewarding. Bad credit affects not only financing, but can cause
you to be denied jobs, insurance, or housing. So as you rebuild your credit,
remember that better credit means greater convenience and more money in your
pocket.
Where to Start in Fixing Bad Credit
Before you start repairing your credit, you need to know what the damage is.
Late or missed payments? Loan default? Unpaid child support? Bankruptcy?
Whatever it is, you need to get your credit report to find exactly what needs
correcting. If you've had a credit, job, or insurance application denied in the
last 60 days because of your credit, you can get a free copy. But more importantly
you have the right to be told what item in your credit report caused the denial.
The three credit bureaus that supply most credit reports are:
Equifax 800-685-1111
Experian 888-397-3742
TransUnion 800-888-4213
It's helpful to get a credit score report along with your credit report.
A credit score lets you easily see how your credit compares to others. And as
you improve your credit, you can measure your progress with the rising score.
What to Look for in Your Credit Report
Your report shows the record for your credit accounts over the last 7 years.
It also shows bankruptcies, lawsuits or judgments. The first thing to do it
check it carefully for mistakes. Errors on credit reports are common and may
cause your credit to rate worse than it should. The report will have the
credit bureau's contact information if you need to report an error.
Your credit report contains both personal information and financial records.
In the personal information section are listed such things as your name, age,
home and job address, and may include how long you've been at each. The longer
you been at your residence or job, the more reliable creditors see you as.
A credit report's financial section shows your record for paying bills.
And the key points that a creditor will look at are your:
- Payment History - Have you paid your bills one time? Recent or large
late payments are seen as more serious than older and smaller amounts. Recent
defaults and judgments are a serious mark against your credit.
- Amount of Debt - Both the total debt and how it's spread between your
accounts is looked at. In general, more than two of the same type of accounts,
such as credit cards or installment loans, is seen as risky. Even if the
balances are low, creditors see an excessive number of accounts as a possibility
for getting overextended.
- Credit History Length - Both how long you've had credit and the average age
of your accounts is looked at. And usually the longer you've had credit, the
better.
- New Accounts - Creditors try to predict the future to guard against possible
problems. If you've opened several new accounts recently, they'll be concerned
you might be taking on more than you can handle. The number, type, and amount
of debt are used to judge the likelihood of problems.
- Credit Types - Creditors like a balance of debt types. An even mix of
credit cards, home loans, auto loans, and retail accounts would rate well.
Fixing Bad Credit Items
The number one thing you can do to help your credit is to pay your bills on
time. When you show both the ability and determination to pay what you owe,
you'll be on your way to great credit.
In addition to timely bill payments, it helps to keep credit card
balances low and paid off in a reasonable manner. Don't open accounts you
really don't need and close those you're not using.
When you're shopping for a loan, do it over a short interval. Creditors
get worried when they see a lot of requests for your credit report. They
think this may be a sign you're opening up a lot of accounts. But if,
the requests come from the same type of sources within a few days, it will
be understood you were comparing terms.
You're the Best One to Fix Bad Credit
Despite what you may see or hear there are no legal ways to
change accurate credit report information(See
"Erase Bad Credit?").
Only in time will negative items
be removed. You may need help maintaining a budget or help in how you repay
loans. But when you're fixing bad credit, the only thing that really counts
is replacing a bad record with a good one. For more specific help in restoring
your credit, go to Clean Up Bad Credit.
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