Credit Infocenter

How to Fix Your Credit in 5 Steps

October 25th, 2019 · Credit Repair

Your credit is worth a lot of money, and bad credit can really cost you.  If you’ve had missteps in your credit history, you may wonder how to go about getting your credit back in shape.  Before hiring a credit repair company like Lexington Law, you should take the time to do what you can yourself first.  Fortunately, it’s not difficult to do. 

1.  Pull Your Credit Report and Review Your Credit Score.

Due to the Fair Credit Reporting Act, every American is entitled to view his or her credit report once per year for free.  There are several ways of viewing your  credit report:  You can go to Annualcreditreport.com, or the three credit bureaus:  Experian, Equifax and Transunion.  Getting your credit score is pretty easy these days:  most banks are issuing credit scores for free, whether you have a traditional checking or savings account or a credit card account.  The type of credit score you get is important.  There are two credit score types, the Vantage score and the FICO score.  Most lenders use the FICO score, so if the score you get is a Vantage score, try to obtain a FICO score.

Credit scores range from 350 to 850.  A good credit score is between 680 and 720, an excellent score is anything above 720.  If you are below a 680, it’s a sure sign your credit could use some improvement. 

The types of things you will see on your credit report are:

  1. Your personal information, such as name, address, employment history and social security number
  2. Any collection accounts you may have
  3. Any public records such as delinquent child support, bankruptcies or judgments
  4. A list of all your credit accounts such as credit cards, personal loans, mortgages or auto loans. 

The areas you should pay the most attention to are negative accounts, such as public records, collections or any late pays on your credit accounts. 

2.  Dispute anything erroneous on your credit report.

Negative information can sink your credit score by up to 100 points.  Make sure everything on your report is correct.  Once you have your credit report, it helps to print it out and highlight any errors you see on your report.  This includes any errors in your name, address or social security numbers.  Having inaccurate personal information can lead to credit merging or mixing, something that happens when two people’s credit reports are accidently combined.  If your credit report gets merged with someone else’s, you could get bad credit on your credit report that takes extra effort to clear up.

To correct information on your report, the most effective way to dispute is to write a letter.  Clearly identify the mistakes you are disputing, and include any supporting documentation you may have to substantiate your claims.  Send your credit disputes return receipt requested and keep copies of your letters and documentation for your personal records.  The credit bureaus have 30 days to investigate your claims and correct mistakes. 

3. Maintain a good payment history.

Your credit history makes up 35% of your score, so it is the most important thing to monitor and correct.  Even if you have a poor payment history, negative information does not stay on your credit report forever – most bad credit marks drop off of your credit report in 7 years.  In addition, the older negative credit marks lose some of their “sting” as time goes on.  Having a recent, a positive paying record will always help your credit score – it’s never too late to start building a good credit history. 

If you find it hard to pay off your debt each month, now may be a good time to start budgeting your money so you have enough to meet your financial obligations each month. 

4.  Pay down your credit cards.

Your credit utilization is 30% of your credit.  Simply put, your credit utilization is the ratio of your total credit balance divided by your total available credit.  A “safe” credit utilization rate is 30% or below, however the best credit utilization rate is below 10%.  Paying off or down your balances will result in a near immediate credit boost if you get them below the targeted utilization rates. 

Another thing you can do besides pay down your balances is to increase your credit limit.  If you have been a customer for several years or if your overall credit history with the bank is good or excellent, the bank may be willing to increase your credit line by a significant amount.  You have nothing to lose and everything to gain by calling your creditor and asking for a “raise”. 

5. Keep a Good Mix of Credit and Don’t Close Old Accounts

The “mix” of credit on your credit report is 10% of your credit score.  There are two different types of credit accounts, in the eyes of the credit bureaus:  installment accounts and revolving accounts.  Revolving accounts have a credit limit – the amount up to which you can borrow money, whereas an installment account starts with a balance of a set borrowed amount and regular periodic payments are made over a set amount of time to pay it off.  A good example of a revolving account is a credit card or an equity home line of credit.  Installment loans are usually mortgages, personal loans or auto loans.  If you are looking for ways to get extra points, opening a new credit card if your only accounts are installment loans will help boost your score.  Likewise, opening a small personal loan or buying a new (or newer) car will help round out your credit balance if the only things are your reports are revolving accounts. 

The age of your accounts comprises 10% of your score.  Opening a new account will definitely help your score, as the credit bureaus reward new accounts on your credit report with higher scores but if you have older accounts on there as well, don’t close them, even if you are not actively using the account.  While closing an account does not remove it from your credit report, open accounts in good standing are weighted more heavily and positivity towards your credit score.

In conclusion

Before you hire a credit repair company like Lexington Law, it makes sense to see what you can do to reduce the overall costs by fixing your credit yourself.  Fixing your credit can take 6 months to a year and the less that needs to be done means the cheaper the cost. 

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5 Things You Didn’t Know Could Hurt Your Credit Score

October 18th, 2019 · Credit Repair

Most people know the conventional wisdom for keeping and maintaining your credit score at the maximum level:  pay your bills on time and don’t max out your credit cards.  However, there are a surprising number of things that can hurt your credit score and can make credit repair much more difficult.  Here are the top 5:

1.  Waiting until the due date until you pay your credit cards.  

Your credit utilization, or the ratio of your used credit divided by your total credit line, should be kept at a maximum of 30%.  What most people don’t realize is that even if you pay your balances off in full each month, you could see high credit utilizations on your credit cards.  Why?  Because the credit card cycle often ends before the payment is due and when the credit card cycle ends, the creditors post the balance at that point.  If you owe a lot on your credit cards at the end of the cycle, this high balance goes on your credit report, even if you pay it off in full on the due date.  Your credit utilization is 30% of your credit score and having high ratios can cost you many points. 

The moral of the story:  make your payment before the credit card cycle ends, especially if you have big balances.  Not sure when it ends?  Call your creditor to find out – and you may have to do this every month, as payment cycles are typically 20 days – not an easy period to keep track of. 

2.  Closing a Credit Card

Sure, it seems like the responsible thing to do is to avoid temptation and close out cards or lines of credit that you are not using, especially when you are deep in credit repair.  However, credit utilization can rear its ugly head again in this scenario as in the last one we talked about.  Let’s say you are carrying a total credit card balance of $2500 across 3 credit cards.  Your total credit line for these cards is $10,000.  You’re sitting at 25% credit utilization rate.  You then decide to close one of the cards that has a $2500 credit line.  This brings your credit utilization rate to 33%, which is over the recommended 30% maximum, and your score takes a hit. 

The other way closing an account could hurt you is by affecting the age of your accounts.  While closing a credit account does not remove an account from your credit report, having active older accounts factor 15% into your credit score. 

3.  Applying for New Credit

Every time you apply for credit, a “hard” inquiry goes on your credit report. A hard inquiry differs from a soft inquiry in that a soft inquiry happens when you or an existing creditor requests to see your credit report and it does not affect your credit score. A hard inquiry impacts your credit score negatively, usually by 2-5 points.  While just one is not going to hurt you much, applying for multiple lines of credit within a two year period (the length an inquiry stays on your credit report) will hurt your score.  In addition, it will lower your total average age of accounts (as we saw above, it was 15% of your score) and decrease your score in this way as well.

4.  Paying for a Rental Car with a Debit Card

Many rental car companies require you to pay for a rental car with a credit card (so the rental is covered by the credit card company insurance plan, mostly standard for credit cards). They may also be suspicious that you are paying for the account with a debit card, as your credit may be poor and if you do have damages, may be more difficult to sue if you have an accident.  For those that allow you to pay with a debit card, there is a clause in their rental agreements that allows them to pull your credit if you do pay this way.  This will cause a hard inquiry to be placed on your credit report and as we saw in the last point, this can hurt your credit score by 2 to 5 points.  If you have mostly new credit on your report or you have a few other inquiries, your loss of points can be higher.

5. Co-signing on a Loan

If you decide to co-sign on a loan for someone because their income or credit won’t allow them to qualify for a credit card, auto loan or mortgage, you are literally putting your credit in their hands.  Sure, you want to help the person you love, but your benevolence can cost you. Most people do not understand that when you co-sign for someone, you are agreeing to be just as responsible for the loan or credit card as the person for whom you are signing.  If they miss a payment, it’s not only their credit that takes a hit, but yours.  If the person for whom you are co-signing racks up big charges on your joint card, your credit utilization will be dinged and you could lose a lot of points.

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10 Ways to Recover After Bankruptcy

September 27th, 2019 · Credit Repair

Filing for bankruptcy is difficult. It’s not just the fact that you have to go through the hard process of recognizing and accepting that you’ve reached a hard point in life, but also that you have to figure out how to work your way out of a tough financial situation.

That’s why it is crucially important to have a plan. If you know you’re going to be filing for bankruptcy and if you think that could be a possibility in the future, or frankly, even if it doesn’t seem like it could ever happen to you, having a plan is always a good idea.

Take a look at the following suggestions and strategies to fix bad credit and move forward with wiser financial decisions.

1. Take Time to Figure Out How You Went Bankrupt In The First Place

Understanding why this happened in the first place will help you know how to proceed. Did you file bankruptcy because you were between jobs and couldn’t make ends meet? Or was it because you couldn’t manage your debt? If the root of the bankruptcy isn’t addressed, nothing will change in the long run.

2. Plan How You Want to Build Up Your Credit

Take time before you start applying for loans right away. Going into debt right after bankruptcy isn’t smart. There are options out there for people with bad credit, such as a secured credit card. Figure out how to manage your cash flow before piling on any type of debt. 

3. Pay Attention to Your Credit Report

Before applying for or taking out a loan, be extra aware of the details on your credit report. Look for discrepancies and dispute any you find. You’re already going to be in a tricky place with your credit score after bankruptcy; you don’t need additional, false information and statistics making it worse. 

4. Keep Track of Your Bankruptcy Papers

Put them somewhere safe because you never know when you might need them again. You can use them as proof that you’ve paid off existing debts, and they’ll also be needed when you apply for a larger loan—or maybe for a house or car—down the road. 

5. Work With Your Bank

Talk to your bank, maintain a personal relationship with them. Tell them why you went bankrupt, why filing for bankruptcy was necessary, and why it won’t happen again. This way, you become more than a bankruptcy case; you add a human element that personalizes your experience. 

6. Be Cautious About Borrowing Money

Your credit score plummeted when you filed for bankruptcy. If you take out a loan and don’t make your payments on time, your score is going to continue to suffer. Be very certain you can pay your loan off if you decide to take one out. 

7. Be Careful Who You Borrow From

It’s usually pretty easy to find loans after filing bankruptcy. That’s because lenders will know that you have more money readily on hand than when you were in debt before the bankruptcy. But watch out for high-interest rates. And take your time looking around at your loan options. Try to find someone who will offer you a competitive rate. 

8. Create And Stick to a Budget

Know how much money you have coming in and where it’s all going. Create and stick to a budget. Know your finances inside and out and you’ll be better prepared to take on a loan. 

9. Form New, Better Habits

Making your payments in full and on time is a big deal. But don’t overextend yourself. Be cautious about racking up too much debt. Establish new limits and operate within them, and your credit score and spending habits will improve. 

10. Be Realistic

Try to think about your bankruptcy as a business decision rather than an emotionally-charged issue. If you approach it from a business standpoint and learn all you can from the experience, you’ll come out on top.

Don’t be caught off-guard by financial hardships! Have a plan in place and bankruptcy will fade into the background with each day that passes, until it’s just a part of your distant past. You can beat this! 

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