There are so many credit repair tips to give these days, especially with this economy.
This article will focus on the 4 top credit repair tips for 2011 that will have the biggest impact in raising your credit scores.
#1) Check your credit reports and credit scores (THE REAL ONES)
This may seem obvious, but unfortunately statistics show more than 60% of Americans check their credit less than once a year. To learn what shows on your reports go to How To Read Credit Reports
What makes it worse, is the credit scores you get from certain companies ARE NOT the same credit scores that lenders like mortgage companies and auto dealerships use. This is the difference between FICO® credit scores and VantageScores®.
VantageScores® were created by the 3 credit bureas to attempt to overtake the FICO® score that most lenders used. It has been many years since the VantageScore® came out, and most lenders still do not use them.
FICO® uses a different score range than VantageScores®. FICO® Scores range from 350-850 while VantageScores® range from 501-990. There is a a 140point difference between a 850 top score and a 990 top score! This is where the confusion comes from.
Many people may think they have a good credit score because they have a 700 credit score, but if they find out it’s the VantageScore, they may be in for an unpleasant surprise.
So the first credit repair tip is to make sure you get your credit report and correct credit score to determine where you need to start.
#2) What accounts you can pay late
This credit repair tip probably sounds crazy and counterintuitive, eh?
Here’s the scoop: With the recession we are going through and the unemployment rate in the double digits, having enough money to pay all the bills one month, might be difficult.
Of course I always advocate making all of your payments on time, but unforseen circumstances can make that difficult. That being said, you always want the accounts that report to the credit bureaus to be on time.
If you absolutely cannot pay all the bills one month, here is a list of the bills you can be late on without it having an impact on your credit (as long as you catch up on the payment):
- Cable Television bill
- Water bill
- Cell Phone
- Medical Bills
- Lawn service/pool service
- 401k loan
- Real estate taxes
- Payday loans
These items will have a penalty for being late, but its usually better than the interest credit cards charge for recurring balances and late fees. As long as you catch up your payment with these places, it will have no impact on your credit. (If someone were to stop paying them all together, it can go to a collection company, who then reports that collection to the credit bureaus)
Of course this tip is a last resort. I have seen consumers pay for things that don’t show in their credit report before paying on ones that do report to the credit bureau. If you can’t make all the payments, make sure you pay the ones reporting to the credit bureaus.
#3) Find the negative and misreporting items on your credit report.
Many people are shocked when they find out how often credit bureaus make credit report errors.
Statistics show that 70% of reports contain a serious error that could cause a consumer to be denied for a home mortgage, car loan or credit card. These are mistakes that are on the credit reports that the consumer doesn’t even know about.
This is why that first credit repair tip about checking your credit reports and scores is so important.
#4) If creditors or collectors are harassing you, learn your rights FAST
Many people don’t know this, but collection agency laws can be your best friend.
Unfortunately creditors and collectors get away with breaking the law everyday. Many of these companies get sued, but continue to break the law because it is profitable for them.
The main law you want to learn about is the Fair Debt Collection Practices Act. American consumers have many protections under this act, yet very few know about it. Here is the link to the FDCPA government website.
Make sure you learn your rights before picking up that telephone again!
#5) Okay, so I have more than 4 tips for you! Tip #5 is keep those balances under 30% of what your credit limit!
Many consumers don’t know that 30% of their credit score is calculated on the difference between what you owe on a loan compared to what your total limit is. That is why people are confused when they have always made all of their payments on time, but have a mediocre credit score – It can be due to their Credit Utilization.
With the recession, banks have clamped down on their lending to consumers, it has become very difficult to get loans in 2011. One of the best things you can do is increase your credit scores, by keeping your balances under 30% of what the total limit is.
Paying down the account is of course the best way to accomplish this. That is not always realistic for everyone so here is another technique: Request an increased limit from your credit card company. It has become a little more difficult to get large credit limit increases in the last year, but if you have good payment history they should bump up your credit limit.
Another way to reduce your credit utilization ratio is transferring part of the balance onto another card. This will improve your per account credit utilization.
Since this one item (credit utilization) is worth 30% of your credit score, it’s important to take it seriously and also take advantage of the credit repair techniques available to all of us.
Okay, so there are 5 tips for you to use this year- hope you enjoyed!