Bad Credit Resource Center

There are a few things that people do without realizing that it will have a negative effect on their credit score.  Follow these tips to avoid the common traps that can drop your credit risk rating:

Tip #1: Beware of debts and credit you don’t use.

It is easy today to apply for a store credit card that you forget all about - but that account will remain on your credit report and affect your credit score as long as it’s open.  Having “emergency” credit lines and credit cards you don’t need makes you seem like a worse credit risk because you run the risk of “overextending” your credit. 

Also, having many accounts you don’t use increases the odds that you will forget about an old account and stop making payments on it.  Keep only your active accounts and make sure that all other inactive accounts are closed.  Having fewer accounts will make it easier for you to keep track of your debts and will increase the chances of you having a good credit score.

However, realize that when you do close an account, the record of the closed account remains on your credit report and can affect your credit score for a while.  In fact, closing unused credit accounts may actually cause your credit score to drop temporarily, as you’ll have higher credit balances spread out over a smaller overall credit account base. 

For example, if your unused accounts amounted to $2000 and you owe $1000 on accounts that you have now (let’s say on two credit cards that total $2000) you have gone from using one fourth of your credit ($1000 owed on a possible $4000 you could have borrowed) to using one half of your credit (you owe $1000 from a possible $2000).  This will actually cause your credit risk rating to drop.  In the long run, not having extra temptation to charge and not having credit you don’t need can benefit you.

Tip #2: Be careful of multiple online loan rate comparisons.

Online loan rate quotes are really easy to get - type in some personal information and you can get a quote on your car loan, personal loan, student loan, or mortgage in seconds.  This is free and convenient, leading many people to compare several companies at once in order to make sure that they get the best deal possible. 

The problem is that since online quotes are a fairly recent happening, credit bureaus count each such quote estimate as an “inquiry.”  This means that if you compare too many companies online by asking for quotes, your credit score will fall due to too many “inquiries.”

This does not mean that you shouldn’t seek online quotes for loans.  In fact, online loan quotes are a great resource that can help you get the very best rates on your next loan.  What this information does mean, however, is that you should research companies and narrow down possible lenders to just a few before making inquiries.  This will help ensure that the number of inquires on your credit report is minimal - and your credit rating will not take a hit.

Tip #3: Be careful of excessive inquiries on your credit report.

Every time that someone looks at your credit report, the inquiry is noted.  If you have a multitude of inquiries on your report, it may appear that you’re shopping for several loans at once - or that you have been rejected by lenders.  Both make you appear a poor credit risk and may affect your credit score.  This means that you should be very careful about who looks at your credit report. If you’re shopping for a loan, shop around within a short time period, since inquiries made within a few days of each other will generally be lumped together and counted as one inquiry.

You can also cut down on the number of inquiries on your account by approaching lenders you have already researched and may be interest in doing business with - by researching first and approaching second you will likely have only a few lenders accessing your credit report at the same time, which can help save your credit score.

The next few posts on this topic will continue with more tips.

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You’re more likely to notice problems and inconsistencies if you check your credit score regularly - at least once a year and preferably three times a year.  Be sure to check your credit rating with each major credit bureau, too. If you notice anything unusual or anything you don’t recognize (such as a charge account you did not open) report it right away. 

Sometimes, these errors are caused by mistakes made at the credit bureau, but they could also be an indication that someone is using your identity.  Either case, such mistakes could hurt your credit score and fixing them will improve it. 

If you think you have been the victim of identity theft, take action at once:

1) Contact the three major credit bureaus and ask to speak to the fraud department.  Explain that you have been the victim of identity theft (or believe you may have been) and ask that an “alert” be placed on your file. This will let anyone looking at your report know that you may have been the victim of fraud.  It will also mean that you will be alerted any time a lender asks to look at your file - each time a lender does look at your file, it may be an indication that the identity thieves are trying to open a new account in your name. 

When the lender sees that the person applying is not you, they will deny the thieves credit and in most cases the criminals will stop trying to access your identity.  Most alerts on your file last 90 or 180 days but you can extend this period to several years by asking the credit agencies for an extension of the “fraud alert” in writing. 

In some states, you can even ask for a freeze to be placed on your credit score and credit report which will prevent anyone but yourself and those creditors you already have from accessing your file.  Any lenders the thieves contact to set up a new account will be refused access and the thieves will not be able to get any more money in your name.

You’re entitled to a free copy of your credit report if you have been the victim of identity theft.  Be sure to take advantage of this offer so that you can check exactly how your credit has been affected.  Dispute those items that aren’t yours.

2) Call the Federal Trade Commission (FTC) at 1-877-438-4338.  This is the special hotline that the FTC has set up to help customers deal with fraud and identity theft.  You’ll be able to get up-to-date information about your rights and advice as to what you can do to improve your credit score and keep it safe in the future.

3) Contact the police.  Identity theft is a crime and you need to file a police report (be sure to keep a copy of this report) so that you can help the police potentially catch the criminals responsible.  Contacting the police will also give you a paper trail and proof that a crime has been committed. Keeping a paper trail of the crime and your response will make it easier for you to repair your credit if it has been damaged by identity thieves.

4) Contact your creditors or any creditors that the identity thieves have opened an account with.  Ask to speak to the security department and explain your predicament.  You may need to have your accounts closed or at least your passwords changed to protect yourself.

You may also need to fill out a fraud affidavit to state that a crime has been committed - be sure to keep a copy of this form for your records. The security team of the creditors should be able to advise you as to what you can do.  Be sure to note down who you contacted and when so that you have records of the steps you have taken to deal with the crime.

If you have been the victim of identity theft and you are deeply in debt to creditors you never contacted, you will not be held responsible for the charges - but you will have to prove that you have been the victim of identity theft, which is tricky since the thieves are using your name and claiming to be you. 

It is a frustrating experience because lenders will want to be paid and you will want to avoid paying for charges you did not run up.  Being persistent and keeping good proof that you have been the victim of a crime will help to clear your credit score.  In the meantime, however, you will be faced with a much lower credit rating than you deserve and you may have to put off larger purchases that may require a loan.

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If you have a lower credit score than you think you should have, it’s possible that the lower the score is caused by some small financial mistake or oversight you have made in the past.

Not every person with bad credit has a low credit score caused by something they did. Sometimes, other people’s credit history and even criminal activity can affect your credit score. 

Many people who are careful about paying bills on time and have minimal debt are shocked to find that they have low credit scores.  In some cases, this happens as a result of identity theft.  Identity theft is a type of crime in which people take your personal information and steal that information to pose as you to get access to your accounts or identity.

As an example, someone who has stolen your PIN numbers can remove small amounts of money from your bank account each month or someone can use your name and personal information to get credit cards in your name and use those credit cards with no intention of paying back the money.  When this information gets back to the credit agencies, your credit score is lowered.

To prevent identity theft, always carefully check your account statements each month.  Report any suspicious activity or any unrecognizable charges immediately.  Also check your credit report at least once a year and immediately investigate any new credit accounts you do not recognize - this is the best way of detecting and acting on identity theft.

If you have been the victim of identity theft, report it to the police at once and get a police statement.  Send copies of the statement to your bank and credit bureaus.  Better yet, get the credit bureaus to attach the report to your credit report, if possible.  Then, close all your accounts and reopen new ones.  You should not have to pay for someone else’s illegal activity.

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The types of credit you have are a factor in calculating your credit score.  Generally, lenders like to see that you’re able to handle a range of credit types adequately.  Having some form of personal credit, such as credit cards; and some larger types of credit, such as a mortgage or auto loan, and paying them off regularly is better than having only one type of credit.

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If you’re carrying a large debt load, your credit score will suffer.  Paying down your debts to a minimum will help boost your credit score. 

For example, if you have a $1,000 limit on your credit card and you regularly carry a balance of $900, you’ll be a less attractive credit risk to lenders than someone who has the same credit card but carries a smaller balance of $100 or so. 

If you’re serious about elevating your credit score, then start with the largest debt you have and start paying it down so that you’re using a lesser percentage of your credit total.

Generally, try to make sure that you use no more than 50% of your total credit. 

For example, if your credit card has a limit of $5,000, make sure that you pay it down to at least $2,500, and work at carrying no larger balance for that card.  If possible, reduce the debt even further. 

If you can pay off your monthly credit card balance in full… that’s even better. What counts here is what percentage of your total credit limit you are using - the lower the better.

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This post addresses another key issue regarding fixing bad credit. A careful reading of this material could make a big difference in improving your credit score.

If you have many lines of credit or several huge debts, you’re a worse credit risk because you are close to “overextending your credit.”  This means that you may be taking on more credit than you can comfortably pay off.  Even if you’re making payments regularly now on current bills, lenders know that you’ll have a harder time meeting your debt obligations if your debt load grows too much. 

The higher your debt the greater your monthly debt payments, and so the higher the risk that you will eventually be unable to repay your debts.  Plus, statistical studies have shown that those with high debt loads have the hardest time financially when faced with a life crisis such as unemployment, a divorce, or sudden illness. 

Lenders (and the credit bureaus who calculate your credit score) know that the more debt load you carry, the greater problems you’ll have in case you do run into a life crisis. 

To have a great credit score, avoid carrying excessive credit.  You should stick to one or two credit cards and one or two other major forms of debt (car loan, mortgage) in order to maintain the best credit rating.  Do not apply for every new credit line or credit card just “for emergencies.”  Borrow only when you need it and make sure your debt payments are.

Also, be aware that taking on several new credit accounts in a relatively short period of time will cause your credit score to drop because it looks as though you’re being financially irresponsible.

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The only way to keep up with the latest about improving bad credit is to constantly stay on the lookout for new information. If you read everything you find about fixing bad credit on this blog, it won’t take long for your credit score to be something to brag about.  

One of the best ways to raise your credit score is to pay your bills on time.  This may sound simple to you, but works very well because nothing shows lenders that you take debts seriously as much as a history of prompt payment.  Every lender wants to be paid in full and on time. 

If you pay all your existing bills timely, then the chances are good that you will make the payments on a new debt on time, too, and that is certainly something every lender wants to see. Experts think that up to 35% of your credit score is based on your timely payment of bills, so this simple step is one of the easiest ways to raise your credit score.

Paying your bills on time also ensures that you don’t get socked with late fees and other financial penalties that make paying your bills off even harder.

Of course, if you have had problems making timely payments in the past, your current credit score will show this.  It will take a number of months of timely payments to impact your credit score again, but the effort is well spent when your credit risk score rebounds!

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The best course of action to take sometimes isn’t clear until you’ve listed and considered your alternatives. So this is the first step.

Once you have your credit report and your credit score, you’ll be able to tell where you stand and where many of your problems lie.  If you have a poor score, try to see in your credit report what could be causing the problem. Following are factors that affect your credit score.

- Too many unpaid bills? 
- Do you have too much debt? 
- Have you not had credit long enough to establish a good credit history?
- Have you recently faced a major financial setback such as a bankruptcy? 
- Have you defaulted on a loan, failed to pay taxes, or been reported to a collection agency?
 
The problems that contribute to your credit problems should dictate how you decide to boost your credit score.  As you read some of the posts in this blog, highlight or jot down some of the tips that apply to you, and from them develop a checklist of things you can do that would improve your credit situation. 

When developing your action plan, know where most of your credit score is coming from:

1) Your current debts (usually accounts for approximately a third of your credit score).  If you have lots of current debt, it may indicate that you are stretching yourself to thin financially so you will have trouble paying back the debt in the future.  If you owe a lot of money right now - particularly if you have borrowed a great deal recently - this fact will bring down your credit score.  Boost your credit score by paying down your debts as much as you can.

2) Your credit history (usually accounts for more than a third of your credit score).  Whether or not you have been a good credit risk in the past is considered the best indicator of how you will react to debt in the future.  For this reason, late payments, unpaid taxes, loan defaults, bankruptcies, and other unmet debt responsibilities will count against you the most.  You can’t do much about your past payment history now, but paying your bills on time - starting today - can help boost your credit score in the future.

3) How long you have had credit (usually accounts for up to 15% of your credit score).  If you have not had credit accounts very long, you may not have enough history to let lenders know whether you are a good credit risk.  That’s why lenght of credit history affects your credit score.  You can counter this by keeping your accounts open rather than closing them as you pay them off.

4) The types of credit you have (usually accounts for about one tenth of your credit score).  Lenders like to see a mix of financial responsibilities that you are handling.  Having bills as well as one or two types of loans can actually improve your credit score.  Also having at least one credit card that you manage well can help your credit score.

As you can see, because of different weights assigned, it is possible to only estimate how much a specific area of your credit report affects your credit score. Nevertheless, keeping these four areas in mind and making sure that each is addressed in your own plan will go a long way in making sure that your credit repair plan is thorough enough to boost your credit effectively.

The Best Ways to Boost Your Credit Score

Because of the way credit scores are calculated, some actions you take will affect your credit score better than others.  Generally, paying your bills on time and meeting your financial responsibilities will boost your score the most.  Owing a reasonable sum of money and being able to repay it will indicate to lenders that you take your finances seriously and pose little threat of defaulting on the money. 

Sometimes it’s tough to sort out all the details related to your credit score, so I hope you’ll have no trouble making sense of the information just presented.

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In the my last post, I discussed that your credit score is maintained by credit bureaus. There are three major ones.

The three major credit bureaus below are important to contact if you’re going to be repairing your credit score.  They can help you by sending you your credit report. 

If you find an error on your credit report, these are also the companies you must contact to correct the problem.  You can easily contact these organizations by telephone, mail, or through the Internet:

Equifax Credit Information Services, Inc
Address: P.O. Box 740241
 Atlanta, GA 30374
Telephone: 1-888-766-0008
Online: www.equifax.com
 
TransUnion LLC Consumer Disclosure Center
Address: P.O. Box 1000
 Chester, PA 19022
Telephone: 1-800-888-4213
Online: www.tuc.com

Experian National Consumer Assistance Center
Address: PO Box 2002
 Allen, TX 75013
Telephone: 1-888-397-3742
Online: www.experian.com

It’s wise for you to note this information wherever most of your financial information is kept. This way you can easily contact the bureaus whenever you need to.  Your local yellow pages should also have the contact information of these three credit agencies too.

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The more you understand about any subject, the more interesting it becomes. As you read this post you’ll find that the subject of credit score is certainly no exception.

Truthfully, the only difference between you and credit score experts is time. If you’ll invest a little more time in reading, you’ll be that much closer to expert status when it comes to your credit score.

Before you start boosting your credit score, you need to know the basics.  You need to know what a credit score is, how it’s developed, and why it plays an important role in your everyday life. 

Most lenders certainly know what kind of information they can get from a credit score, but knowing this information yourself can help you better see how your everyday financial decisions impact the financial picture lenders get of you through your credit score.  A few simple tips are all you need to know to understand the basic principles:

Tip #1: Understand where your credit scores come from.

If you’re going to improve your credit score, then you must understand what your credit score is and how it works.  Without this information, you won’t be able to very effectively improve your score because you won’t understand how the things you do in your daily life affect your score. 

If you don’t understand how your credit score works, you’ll also be at the mercy of any company that tries to tell you how you can improve your score - on their terms and at their price.

Generally, your credit score is a number that lets lenders know how much of a credit risk you are.  Your credit score is a number, usually between 300 and 850, that lets lenders know how much debt you are carrying and how well you are paying them off. 

The higher your credit score, the better credit risk you make and the more likely you will receive credit at great rates.  Scores in the low 600’s and below will often give you trouble in finding credit, while scores of 720 and above will generally give you the best interest rates.  However, credit scores are a lot like GPA’s or SAT scores from college days - while they give others a quick snapshot of how you are doing, they are interpreted by people in different ways.  Also, some lenders put more emphasis on credit scores than others. 

Some lenders will work with you if you have credit scores in the 600’s, while others offer their best rates only to those creditors with very high scores indeed. Some lenders will look at your entire credit report while others will accept or reject your loan application based solely on your credit score.

Your credit score is based on your credit report, which contains a history of your past debts and repayments. Credit bureaus use computers and mathematical calculations to arrive at a credit score from the information contained in your credit report. 

Each credit bureau uses different methods to measure this (which is why you will have different scores with different companies) but most credit bureaus use the FICO system. FICO is an acronym for the credit score calculating software system offered by Fair Isaac Corporation company.  This is by far the most used software since the Fair Isaac Corporation developed the credit score model used by many in the financial industry.

In fact, credit scores are sometimes called FICO scores or FICO ratings, although it is important to understand that your score may be tabulated using different software.

One other thing you may want to understand about the software and mathematics that goes into your credit score is the fact that the math used by the software is based on research and comparative mathematics.  This is an important and simple concept that can help you understand how to boost your credit score.  Simply, what this means is that your credit score is in a way calculated on the same principles as your insurance premiums. 

Your insurance company likely asks you questions about your health, your lifestyle choices (such as whether you’re a smoker) because these bits of information can tell the insurance company how much of a risk you are and how likely you are to make large claims later on.  This is based on research. 

Similarly, credit bureaus and lenders often look at general patterns.  For example, since people with too much debt tend not to have great rates of repayment, your credit score may suffer if you’re carrying a large debt load. Understanding this can help you in two ways:

1) It will let you see that your credit score is not a personal reflection of how “good” or “bad” YOU are with money.  Rather, it is a reflection of how well lenders and companies think you will repay your bills… based on information gathered from studying other people.

2) It will let you see that if you want to improve your credit score, you need to work on becoming the sort of debtor that studies have shown tends to repay their bills.  You don’t have to work hard to reinvent yourself financially and you don’t have to start making much more money.  You just need to be a reliable borrower.  This realization alone should help make credit repair far less stressful!  

Credit reports are put together by credit bureaus, which obtain information from client companies. It works like this: credit bureaus have clients - such as credit card companies and utility companies, to name just two - who provide them with information. 

Once a file is opened on you (i.e. once you open a bank account or have bills to pay) then information about you is stored on the record.  If you’re late paying a bill, the clients call the credit bureaus and note this.  Any unpaid bills, overdue bills or other problems with credit count as “dings” on your credit report and affect your overall score. 

Information such as what type of debt you have, how much debt you have, how regularly you pay your bills on time, and your credit accounts are all information that is used to calculate your credit score. 

Your age, sex, and income don’t count towards your credit score.  The actual formula used by credit bureaus to calculate credit scores is a well-kept secret, but it’s known that recent account activity, debts, length of credit, unpaid accounts, and types of credit are among the things that count the most in tabulating credit scores from a credit report.

Knowing enough about your credit score to make solid, informed choices cuts down on the fear factor. If you apply what you’ve just learned about credit scores, you should have nothing to worry about.

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