Americans normally associate credit repair with people who have bad credit in most cases. Closer to the truth, however, is that nearly everyone needs to engage in credit repair at some time in their lives, and occasionally more than once if theiy really care about their credit.
Of course, it’s usually most necessary for those with low credit scores. But even if you have an average or good score, you may want to increase it even more, either to improve your chances of being approved for certain loan, or getting lower costs and better terms.
There may be some element of vanity in wanting to have the best credit scores possible.
But in financial terms, your credit score really does impact your bottom line. For example, a credit score of 700 might get you the lowest rate on a home mortgage, while a score of 550 may result in a decline.
No matter what your current credit situation is, sometimes you need to do more than just make your payments on time. You may need to work on getting some negative information removed, or restoring your debts to get your credit scores higher.
Each represents a form of credit repair, and that’s exactly what we’re going to discuss in this article.
What Is Credit Repair?
Credit repair starts out with two basic objectives:
Eliminating Your Negative Credit Tradelines
The process starts with getting a copy of your most recent credit report and examining each line item. If any are showing negative information, those are the ones you want to zero in on.
In looking at the negatives, the first goal is to scan for any that may be in error. These can include collections that are not yours, accounts with negative payment histories that belong to someone else, or open balances you’ve long since paid.
By getting this information corrected, or removed from your report, your credit score will get an instant boost.
One of the biggest potential negatives that’s vague to most consumers, is excessive credit utilization. This is determined by what’s known as your Credit utilization ratio. That’s the amount you owe on your credit lines, divided by your total credit limits.
For example, let’s say you have five credit cards with a combined credit limit of $20,000. If you owe a total of $15,000 across the five cards your credit utilization ratio is 75% ($15,000 divided by $20,000).
A credit utilization ratio of 75% is considered excessive, and will weigh down your credit score. Credit utilization is the second biggest credit score determining factor, behind only payment history. It accounts for 30% of your score, so keeping this number at a reasonable level is mission-critical.
A credit utilization ratio of 80% or more is considered indicative of potential default, since you’re approaching maxing-out your credit cards. The lower the rate is, the better. But a ratio below 30% is considered ideal. If you have a good credit score, and you’re looking to improve it, getting the ratio below 30% may be the most important strategy.
Increasing Your Positive Tradelines
Increasing your positive credit tradelines can be equally important. Often times, a credit score is weighed down by a lack of good credit. It can even be held down by an absence of sufficient credit.
If you already have good credit, you’ll naturally want to continue making your payments on time.
But one of the best ways to increase your score is by paying off a loan or a credit card We’ve already discussed the importance of credit utilization, and that certainly needs to be considered if you want to improve your score.
But paying off a credit card completely, Open up a small credit account at a local jewelry store or an installment loan, is a way to boost your score a few points immediately.
The credit bureaus like paid loans, because they confirm successfully completed credit obligations. The more of them you have, the better. This isn’t to say that you need to pay off all your loans. But your credit report should reflect a healthy mix of both open and paid loans.
If you have poor credit, you certainly need to work on removing as many negative items as possible. But it’s equally important to add good credit to the mix.
You can do that by taking small loans, making the payments on time, and paying them off early in most cases.
What To Do if You Can’t Get Approved for New Credit?
If you’re unable to get approved for traditional loans or credit cards, look into secured credit cards or credit builder loans.
Secured credit cards usually require that you put up an amount of money equal to the credit line as collateral.
Because the line is completely secured, the bank is highly likely to approve the credit line. But we honestly do not recommend those because it automatically flags you in the red zone when creditors look at your credit.
Credit builder loans can accomplish the same goal, except you can open one without any money at all. Many banks and credit unions offer credit builder loans.
You apply for a loan, and when the bank approves it, the funds are immediately deposited into a savings account to act as collateral for the loan.
Your monthly payments on the loan are paid out of the savings account. Since it happens by automatic draft, the payments are guaranteed to be on time.
It will happen completely out of sight for you, and will likely cost you less than $100 for the interest on the loan. Meanwhile, the bank will report your perfect payment history to the credit bureaus, as well as the paid loan status when the term ends.
Either method will enable you to add good credit that can work wonders to increase your credit scores.
Take the next step and contact us today for your free credit analysis at 1-800-998-3452