How to Repair Your Credit this Summer
There are many steps that can be taken to improve a credit rating, and this summer is a good time for consumers to begin the process of increasing their credit scores. Some of these steps take longer than others, and in some cases the help of professionals may be needed. Not everything mentioned below needs to be done, but the more steps taken by a consumer to improve their ratings, the better chance there is of success.
The basic idea of repairing bad credit:
The first thing that is needed is a basic understanding of the factors that influence an individual’s score or rating. In order to improve this score or rating, it is only necessary to reverse the process. In other words, consumers need to understand why their rating is low and how to begin to reverse the process as well as any necessary steps to be taken.
Factors that create a bad credit score:
There are certain elements of a bad rating, and all of them will center around negative marks on a consumer’s report. The major factors influencing a consumer’s score are: a bankruptcy, civil judgments and liens, late payments, account that are in collections, too much money owed and too many accounts with balances.
A bankruptcy can affect a rating for as long as 10 years. After this time, the bankruptcy will be dropped from the report. There is nothing that can be done to change this, and it will have a strong negative effect on anyone’s score; however, consumers can focus on other aspects of their report and increase their scores as much as possible even with the listing of a bankruptcy on their report.
Liens - especially tax liens:
If money is owed and there is a lien on one or more assets, this can be a strong negative mark against an individual. The best approach to dealing with this issue is to satisfy the lien. If there is an asset that can be sold to satisfy the lien, then this may be the best course of action. Having a lien go away can help to greatly improve anyone’s ratings.
This is a major issue that needs to be addressed in order to begin the process of repairing bad credit. It begins by making all payments for any debt on time with no exceptions. By making payments on time, a consumer will be building up a history of responsible debt payment. The reasons that payments have been delinquent in the past need to be identified so that changes can be made to assure that debt is paid on time. One problem that is easily corrected is the payment date. Sometimes the date does not correlate well with a person’s pay period, but a creditor can often change the date to better able the debtor to pay on time. People need to be aware that late payments may only be a minor factor when scoring a person’s payment history, but if there are enough accounts with late payments, this becomes a major red flag to lenders.
An account is in collections:
Once a lender has reached a certain point where it is no longer worth their trouble to collect on a debt, they will write it off as a bad debts expense and turn the account over to a collection agency. Any account that is in collections will hurt a person’s rating, and the more accounts in collections, the worse score a person will have.
Too much money owed:
Even if a person has no major marks on their report, having a total amount of debt that is high compared to their income can hurt their total credit score. Although each lender may have a slightly different formula for determining a consumer’s rating, what is known as income to debt ratio is very influential. The only way to address this is to start paying down debt. Because the number of assets a person has is not an issue, if individuals have anything of value that is no longer wanted or needed, this asset can be sold to pay down a portion of the debt. This will increase a consumer’s rating with any lender.
Ratio of balances to credit limits is too high:
This is critical. When a lender sees that a person’s accounts are almost to the maximums, there is a reluctance to approve more lending. Consumers should never push their accounts to the limits, but if it does happen, these high balances should pay them down as soon as possible.
Too many accounts with balances:
Lenders do not like to see a lot of accounts that have money owed on them. The best way to handle a problem like this is to begin to pay off the smaller balances. This may not make a large difference in a person’s total debt, but with less accounts showing a balance, a lender will be happier and give higher ratings with applying for a loan. There is no reason to close the account; this works against the consumer. It is best to keep the account open, and the limit on an account with a zero balance will help to increase a consumer’s score. Another possibility is using a consolidated loan to pay off all of the balances of all or most of the open accounts. A consumer can then make a single payment to one lender. This also makes the process of paying bills on time easier with fewer lenders to remember to pay each month.
Length of time accounts has been established is too short:
This is usually a minor factor, and there is nothing that can be done about it except keep making payments on time. It is too easy to have a recently opened account with a zero balance and a record of on-time payments for a couple of months. More weight is given to accounts that have existed for longer periods of time than those that are more recent.
Getting professional help this summer:
There are professional credit repair services that can help remove bad marks on a consumer’s report; however, keep in mind that unless there is a mistake made, only the lender that made the negative mark can take it off. There are some good repair services that can work with certain creditors and know how to negotiate to have a negative mark removed. When negative marks are removed, score and ratings can go up substantially.
This summer is a perfect time for every consumer to begin the process of repairing a bad credit score. Of course, the first step in the process begins by obtaining a copy of the reports from all three major reporting agencies and looking at them to determine exactly where a consumer stands. From this point, action can be taken on the part of an individual or with the help of a professional company.