CREDIT REPAIR -- STEP 1

There are 4 steps to follow when fixing your credit: Identify the problem, Notify the Credit Bureaus, Fix the Problem and Keep Records. All four steps are important, however, depending upon your specific credit situation; one step may be more significant than others. Understanding the basic information about each of the 4 steps will make your efforts to repair your credit much easier and significantly more successful.

Step 1: Identify the Problem.

Whether it be from missed payments, high balances, or falsely reported accounts, the first step to repairing credit is to identify what it is that is pulling our credit down. There are 5 factors that are used when calculating your FICO score (the score most commonly used when referring to one’s “credit score”). By understanding what factors affect your credit you can more easily identify those problems, or potential problems that are keeping your credit lower than you would choose.

The most heavily weighted factor is Payment History. Representing about 35% of your score, your ability to make timely payments is the most important indicator of credit worthiness, and thus your credit score. Next in significance is Credit Balances, which comprise 30% of your score. The more you owe the more of a risk you represent. Balances that remain under 1/3^rd of the available limit will demonstrate less risk and therefore a higher score. Third is Credit History, which comprises 15% of the score. The longer you have had credit, the more likely it is that you understand how to properly use credit, thus, the higher the score. New Credit and Types of Credit represent 10%, respectively. Opening multiple new credit accounts in a short period of time, or having too many credit cards and no home loans tend to show less economic stability, and therefore can lower your score.

When reviewing credit, it is important to consider each of the 5 items that affect your credit. I suggest making a list of any items that could be affecting your credit. For items dealing with existing accounts, note the creditor, account number, type of credit, balance, payment history and available credit (all are found on the credit report). If your credit is being affected by a lack of credit history or by too many new accounts, you will want to make a note so that you can find the most effective strategy for improvement.

The most common problem my clients face is payment history. It is not uncommon for someone with otherwise good credit to have a late payment on an account which lowers the credit score. Frequently this late payment is the result of a misunderstanding, or an incorrect mailing address; occasionally payments are missed because of forgetfulness or a lack of money; every now and then a payment is listed as late when it was in fact sent and received on time. Regardless of the reasons for a reported late payment, it may be worth challenging the derogatory item, therefore, make a note of it.