Credit Infocenter

4 Ways to Fix Bad Credit on Your Own

November 15th, 2019 · Credit Repair

Having a bad credit score can impact other areas of your life besides getting a mortgage or a credit card.  It can affect your insurance rates and your chances for employment.  If your credit could use a boost, here are some ways to do it.

Before You Start

Before we get started, there are a few pieces of information you should have in front of you.  First, you should understand what constitutes good credit, which is having a good credit score, leading to the question, how is a credit score calculated? A credit score is calculated based on 5 factors:

  • Your payment history – 35% of your score
  • Your credit utilization (amount you owe vs. your credit limit) – 30% of your score
  • Length of credit history – 15%
  • New Credit – 10%
  • Types of credit used – 10%

Second, we need to have current, accurate information on the current status of your credit.  To get your credit picture, you need your credit report and your credit score.  To get your credit report, go to annualcreditreport.com.  To get your credit score, there are a number of different ways to get them, free and paid.  Here is a complete list of the free ways to get your score.

A good credit score is anything above 720 (credit score ranges are from 350 to 850, with 850 being the best score).  However, once you get to 680, many credit products will become available to you, so if your credit score is low, aiming for 680 is a good short-term credit goal. 

Bad Credit Fixing Strategies

1. Dispute inaccurate information on your credit reports.  Since your payment history is the biggest chunk of your score, the first thing to do is to make sure that bad credit history is accurate.  Review your credit report by looking at the Adverse History, Collections, and Public Records sections.  These sections will list any negative credit history entries.  Make sure that all the credit information, including the date, the amounts and the payment history, is correct.

If you find errors, even slight ones, write a dispute letter to correct the listings.  Do not dispute over the phone or online.  Most people find success with this method, as usually 10% of listings in a credit dispute letter get removed on the first try.  Once you get the results of the dispute back, check your credit score again to see what kind of progress you have made.  If you feel you need to redispute the information, make sure the disputed information in the listing is different, or supply information why the initial dispute was correct.

Sometimes even disputing the minor bits of information about an account can result in having the listing removed from your credit report, which can really boost your score.  Also, when correcting information on your credit report, make sure that your name, address, social security number and employment history is correct, as this can prevent credit merging.  Credit merging occurs when information from someone who has a similar name or address winds up on your credit report.

2. Pay down credit card balances.  Since this is the second biggest factor in determining your credit score, this is a highly effective way of getting a credit score boost.  First of all, figure out your credit utilization rate for each credit card.  It’s not that difficult:  look at your credit report and divide your balance by the total credit line.  If you are over 30% on any one or all of your cards, work on paying down those balances to no more than 30%.  This will have an immediate effect on your credit score and this method will work the fastest to improve your credit.  For the biggest improvement in score, try and get your credit utilization rate to 10%, which is the optimal amount. 

3. Open a secured credit card account.  This method hits both the payment history scoring bucket of your credit score along with the new credit credit scoring bucket:  you will open a new account and you will promise to keep the payment history on this new card as perfect as possible (don’t bother getting the card if you can’t do this).  There are a number of credit card products on the market that cater to the less-than-stellar credit population.  Some of them have competitive interest rates and low to no annual fees. 

A secured card is obtained by placing a deposit with a bank into a savings account or just having the bank hold it as a security deposit.  A credit card is issued with a total credit limit equal to the security deposit or savings account.  If the credit card holder defaults on the card, the security deposit or money in the savings account is forfeited.  This greatly decreases the risk to the bank and therefore a person with bad credit can qualify for one of these cards. 

When getting a secured card, pay attention to the fees, the amount of security deposit and the credit card interest rate.  Also, try to get one that will allow you to migrate to over to an unsecured credit card program once you prove your credit worthiness. 

4. Get added as an authorized user or open a new account jointly with someone who has good credit.   Doing this obviously requires a lot trust from your proposed credit card partner.  If you get added to an account or sign up for a joint one, the other person on the account will have responsibility for any charges that you make on the cards.  However, the results of a successful partnership will be an improved credit rating for you, and potentially the co-signor.

If you get added as an authorized user, make sure it is to an account with a low balance (you don’t want a high credit utilization rate) and a good payment history.  Being added to an established account will add age to your accounts (10% of your score) and a positive payment history (35% of your score).

If you open a new account with someone, you are hitting the new credit credit scoring bucket, and also the credit utilization rate, as most new cards start with a credit limit of $2500 or more.  Keep that balance low and you will see your overall credit utilization rates lower to improve your score.  Obviously, you will also want to make sure to pay this new account on time, so as to not hurt your co-signor’s credit rating and your own.  By establishing this new account, your perfect payment history will start to positively affect your credit in about 6 months to one year. 

Finally

There is really no quick fix to fixing your credit, this is a long-term project, taking 6 months to a year.  Time heals all credit wounds, even the most severe, as long as you make the commitment to keeping your payment history clean and your credit card balances low. 

For the complete guide to fixing your credit, review our credit repair guide

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5 Things You Should Know Before Getting a Student Loan

November 8th, 2019 · Credit Repair

Making it through college is hard enough without having to deal with student loans and debt. Luckily, we live in a world where student loans are easy to apply for and easy to get. In part, this is a beautiful thing, because it enables people who otherwise wouldn’t be able to afford a higher educational degree the chance to earn one. 

On the other hand, taking out student loans can be dangerous. There are a lot of loopholes and complicated financial strings that are usually attached to loans. So take a minute and keep reading to learn more about 5 important things you should know before getting a student loan. Armed with more knowledge, you’ll be better able to make smart financial decisions as you navigate the world of student loans. 

1. Know What You Need

First off, don’t borrow more than you need to. Student loans are meant to help you live within your means while you’re busy with school and aren’t making much at work. You can actually calculate what the right amount is for you. Try to borrow an amount that will keep your payments low–around 10%–of your monthly income, after taxes. 

This will help you avoid overreaching and paying more than you need to on your monthly payments. 

2. Choose Federal Loans Over Private Loans

Before exploring any other avenues, try for a federal loan first and fill out your FAFSA. There are two types of federal loans: subsidized and unsubsidized. Subsidized federal loans don’t build up interest while you’re in school, while unsubsidized do. 

Federal loans are easier to get because they don’t require good credit history, and the repayment plan is based on your income. We recommend taking out a private loan only after you’ve taken out as many federal loans as you can. 

3. Your School Will Help

Talk to your financial aid office. They’re familiar with the ins and outs of loans and can help you with any questions or concerns you may have. After you’ve applied and been approved for a loan, your school takes care of the rest.

The money comes to the financial aid office and is applied to your student account. You’ll be refunded any excess money after all the initial fees are met. 

4. Loans Come with Fees and Interest

This is a fundamental thing to understand about student loans: you will pay and owe more than whatever amount you received. This is due to fees and interest rates that always come with loans, no matter what. Federal loans have a fixed rate on fees, whereas private loans will determine the interest rates and fees for each individual. 

5. Student Loans Are Limited to Certain Things

While a student loan can seem like a big relief for your finances, keep in mind that student loans can only be used for educational expenses, meaning anything that is needed for you to pursue your education. This could be clothes, books, rent for housing, or a laptop.

Now that you understand these important facts about student loans, you will be ready and equipped to find one that is right for you and your unique situation.

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Pros and Cons of Auto Loans

November 1st, 2019 · Credit Repair

Very few people have enough liquid cash on hand to pay for a car or other vehicle in full. That’s why there are car loans. As with most loans, car loans come in enough variety and with enough options that you’ll have to make a decision about which fit is the best one for you. 

There are longer and shorter auto loans, and each comes with different strings attached. But when your best option for financing your vehicle is an auto loan, it’s better to be educated on your options than completely ignorant. That being the case, there are a few things you should know about the pros and cons of auto loans. Keep reading to discover them. 

The Auto Loan Pros

Let’s take a look at the pros associated with getting an auto loan.

Affordability

To begin with, you likely don’t have thousands of dollars you can just give a dealership in exchange for a car. With an auto loan, you’ll be able to make monthly payments you can actually afford in exchange for driving a vehicle you could never have paid for upfront. 

Access to Better Vehicles

Going along with affordability, the ability to take out an auto loan to finance a vehicle gives you access to many nicer and better-quality vehicles than you would normally have if auto loans didn’t exist. 

Building Credit

As long as you stay on top of it, taking out an auto loan is a great way to establish a steady, consistent habit of regular payments that will help build up your credit score and qualify you for better loan offers in the future. 

Cons of an Auto Loan

Unfortunately, there are some negatives associated with getting an auto loan. 

Interest

As with all types of loans, you’ll wind up paying more than the amount you took out on the loan. This is due to interest rates that loan companies place on the loans they give out. The amount of interest you pay will vary depending on your personal credit history and score, as well as who you’re borrowing from and the current state of the economy. 

With a poor credit score, it’s possible to pay less for a greater period of time. Just realize that this will cost you even more in the long run. 

Insurance

Insurance can go up drastically when you take out an auto loan, especially if you’re purchasing a nicer vehicle with a higher value. If you borrow from certain companies, you’ll be required to pay extra on insurance in the case of accidents or damage to the vehicle in an effort to protect your lender’s interests.

Finances

It’s all too easy to be swept up in the grandeur of purchasing a brand new, top-of-the-line model. It’s also easy to rationalize the higher monthly payments with thoughts of being frugal and careful with expenses as you work to pay off the auto loan. Those rationalizations on the lot don’t always translate into reality at home. 
Have you decided yet? It pays to arm yourself with as much information as possible. Learn more about auto loans and other types of loans today so you can make an informed decision.

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