If you have bad credit and are looking to find ways to figuring out how to fix it, it is easier than it seems. There are six simple steps you can follow to turn your life around and get your credit back where it should be. That doesn’t mean that the following six steps are only meant for those with bad credit to follow. People who have good credit, even people who have always had good credit, may have that credit without knowing the real reason why. And without checking your credit, no matter how good it is, you are putting yourself at a risk for identity theft or other serious credit problems. Keeping tabs on a credit report is something that everyone – celebrities, average people, all both young and old – need to keep track of if they want to protect themselves and basically know what their history entails. The following six steps should be followed in order to keep all of your information at your fingertips:
1. Know Your Credit Score
A credit score is a number based on an analysis of a person’s credit history. It is a way of determining if a person has good or bad credit, as well as the reasons why. It is also a way of statistically predicting how well a person will pay back a loan given to them. There are a multitude of reasons why a credit score is important to everyone and why it is very important to find out what yours is. These reasons include:
* Knowing your credit situation. Maybe you put a bad mark on your credit a few years ago but you aren’t sure what the damage actually was.
* If you are applying for a job, trying to get a new car, trying to get a cell phone, attempting to purchase a home or anything else that would require someone else to check your credit score, it is better that you know what it is before they do. If you find out before the will, that gives you time to potentially fix any bad marks on your credit.
In the United States a credit score range is from 300-850. The higher the number, the better the credit is. For example, a person with a high credit score (typically above 700) would have a very easy time applying and achieving a credit card with a high credit limit. A person with a medium credit score (on average above 400, but still below 700) would be accepted for loans or credit cards, but may have a lower limit. Finally, someone with bad credit (generally a score below 400) would typically not be accepted for loans or credit card applications.
A person can obtain a free credit report once every twelve months according to a United States law. When a credit report is given directly to the person it belongs to, it is called a Consumer Disclosure. Obtaining a credit report can put a small negative impact on the credit score. The smaller amount of credit history a person has, the more negative impact an inquiry has on it. When a consumer disclosure is done, some impact can occur, but is typically very small. When a lender checks your credit score, it is called a Soft Inquiry. A soft inquiry has no impact on a credit score.
Quick Checklist:
1. Check your credit score at least once a year
2. Work towards keeping your credit score in the medium or high level
3. Consumer Disclosure vs. Soft Inquiry
2. How To Get Your Credit Score
So you’ve decided to obtain your credit score and check out what is going on with your credit history. How do you do that? There are a variety of companies located in the United States with which you can work with to find out your credit report. The top three companies for doing this include:
*Experian: Founded in the U.K. in 1980 and now available in 36 countries
*TransUnion: Founded in 1968, available in over 20 countries, with 200 U.S. offices
*Equifax: The oldest of the three companies, founded in 1899. Currently helps over 400 million credit holders in 14 countries, while based in Georgia.
A credit score will contain the following information for you:
*Personal credit history – a detailed list of all credit cards and loans you have had, how/when they were paid off, a list of types and amounts of debt you have, creditors that have made inquiries on your account, and personal information about yourself.
When looking over your credit report, there are certain things you need to look for in order to insure there is nothing wrong with your report:
*Accounts you don’t recognize
*Credit inquiries by companies you don’t recognize
*Any changes or false information on your personal information
Quick Checklist:
1. The top three credit report agencies:
Experian: www.Experian.com
1-888-397-3742
TransUnion: www.transunion.com
1-877-322-8228
Equifax: www.equifax.com
1-888-202-4025
2. Check for any false or questionable information on your report
3. How To Fix Errors In Your Report
If you notice any false information in your credit report, you could be a victim of identity theft. Identity theft is a crime in which a person steals another’s name and social security number for the purpose of opening credit card accounts or taking out loans. The person committing the crime will typically change the phone number or other personal contact information so as not to have the calls from the lender go to the real person. You should be sure to view your credit report at least once a year to double check all of the information and be able to stop identity theft from happening to you.
If you are a victim of identity theft, there are a few contact options you can follow to take care of the situation:
*The Federal Trade Commission – they want information on the wrongdoings of credit report agencies and will work with you to fix your problems.
*Contact Experian, TransUnion or Equifax
*Contact the creditor directly – find out if they are updating your information in a timely manner, this is a crucial element for keeping your credit report up to date.
When contacting any of the above, sending a certified letter is the best method. Calling is the second best but either option needs to be done in regards to a specific person. Keeping contact with someone who’s first and last name you are aware of, makes it easier to make sure things are being done the right way. Anytime you are in contact with someone from a company, make sure you get their first and last name, and position in the company if possible. It is better to know more names than you need to, instead of being sorry you didn’t catch a name later on.
Quick Checklist:
1. Check your credit report for false information
2. Stop identity theft before it is too late by checking your report annually
3. Contact someone immediately if you detect any fraud in your report
4. Manage Outstanding Debt
The longer a debt goes unpaid, the more points are deducted from your credit score. Negative information such as outstanding debt can remain on your credit report up to 7 years. But when the 7 years end, it doesn’t mean your bad credit ends at the same time. Debt will continue on your report due to collection agencies working on getting you to pay.
Consolidation of debt is an effort you can make to make payments easier on yourself. The quick answer to consolidation for many is to open a new account, transfer the balance to that account and close the old ones, to make a simple, one payment a month plan. This works because of having one payment to make, but is harmful due to closing other accounts to open the new one.
Harmful steps that can occur when consolidating include:
*Loans – loans from consolidators seem easy to obtain (especially from ads on T.V.) but most consolidation loans come with high interest. Paying high interest on a consolidation loan could land you back where you started, in debt.
*Consolidators who promise they will take care of everything – they may be telling the truth when they say they will take care of your financial situation entirely, but they aren’t telling the truth most of the time when they say it will only cost you one payment. You will pay one initial price for the company to work with you, but you will end up paying them more later. What typically happens is a company will charge you the initial payment, and then take 10% of the amount you give them to pay to the creditor. So you will end up paying more than you would if you took care of the situation yourself.
Taking care of the situation without the help of a consolidator is easier than it may seem.
*Pay more than the minimum payment. This will impress the company, and make your payments last less time.
*Cash out your savings. Tell yourself you can go on vacation AFTER you have paid off your debt. Use the amount of money (or at least half of it) in your savings account solely for your debt payoff. Maybe you won’t be able to get that pair of expensive shoes you’ve been eying, but your future will be better once the shadow of debt is behind you instead of covering you.
*Take out a home equity loan. The interest will be lower than a consolidation loan will be, and you can take up to 15 years to pay it back.
*Try to take loans out from family and friends.
*Negotiate better terms for yourself. Call the creditor and discuss the terms with them. Explain what would be easier for you to handle, but make sure they are aware that you want to take care of your debt. The company will have an easier time working directly with you than working with a collection agency, and since the creditor wants to make money, they will work with you to make things fine for everyone involved.
*Negociate with your creditors to lower your interest rates. Do this the same as you would negociate the terms that you have with the company. Having a direct contact in the company with whom you know the first and last name makes things easier and creates a better amount of trust between the two of you.
Quick Checklist
1. Consolidate your debt only after knowing the risks and inspecting a company thoroughly. Look into customer reviews and ratings.
2. Go through the steps of working out your debt on your own before you decide to consolidate. You will pay less money if you work things out on your own rather than pay someone else to tell you things you could figure out by yourself.
3. Negotiate better terms for paying your debt.
5. New Credit
New credit will help your credit score if you are willing to keep your word on paying it back. However, applying for multiple credit cards, especially if you keep getting declined, is a very bad move to make.
Minimize your credit card applications. Every time you apply for a credit card, and every time you are declined for one, a credit inquiry is made and the inquiry is noted on your credit report. The more declines you have, the worse your credit is going to be.
Don’t close accounts unless you absolutely have to. A history with a lender looks better for everyone. If you stay with a lender for a long amount of time, you build a relationship and trust with that lender. This not only looks good on your report, but it looks good for you to other companies. The company you have built the relationship with also knows and trusts you, so if you get to a point where you need to make a late payment, the company will be more understanding.
Pay your bills on time. Don’t take loans that you know you won’t be able to repay. In general, long term responsible credit is the best way to improve your credit score.
When getting a new credit card, know the difference between secured and unsecured credit cards, as well as the benefits for each. A secured credit card is one where when you are accepted for the card, you pay a deposit. You will then be given a credit line up to 100% of the deposit you paid. An unsecured card is simply credit given to you by the company, which you will have to pay back with interest. The pros and cons to each type are as follows:
*Secured Pros: You pay the deposit for the card, so you know exactly how high your credit limit is going to be. You will not have any interest and will not have to pay for your expenses later. You are building your credit without any worry of owing someone later on.
*Secured Cons: You need to have the money up front. You can’t rely on getting a credit card when you run into an emergency if you are going to get a secured card.
*Unsecured Pros: Incase of an emergency, you can have credit given to you which you will plan to pay for later.
*Unsecured Cons: You have to pay the loan back later, putting yourself at a risk of obtaining bad credit marks on your record.
Companies that claim bad credit is okay and request that you apply for their credit card are a harmful thing to do. When you apply for the credit card, they will decline you (hampering your credit score and report) and then will offer you a secured credit card as the only option, sometimes with a minimum deposit. If you are going to try for a credit card and know that your credit is bad, don’t go for one of those tricks. Just apply for the secured credit card in the first place.
Quick Checklist:
1. Minimize credit card applications
2. Secured vs. Unsecured credit cards (deposit vs. credit)
3. Opening new credit lines can help your credit score and report if they are done on a minimal level.
6. Keep An Eye On Your Credit Score
Check your credit score at least once a year to keep yourself informed about what is going on with your history and to ensure that you haven’t become a victim of identity theft.
Ads on T.V. with catchy jingles such as www.freecreditreport.com will give you a free credit report. But when you sign up with the company you need to provide your credit or debit card information. After the trial session (which includes the credit report) ends, your credit or debit card will be charged a monthly fee.
Keeping an eye on your credit score and report shouldn’t be a hassle. You shouldn’t have to worry about collection agencies breathing down your neck and you shouldn’t feel like you need to ignore the calls or change your phone number to get away from them. Eliminating the reason for collection agency calls is simple as long as you eliminate the debt from your life. Wanting to live stressfree should be one of your top priorities, and so keeping debt going will only block that life longer. Debt cannot be taken care of overnight, but you can certainly start working on it overnight.
Quick Checklist:
1. www.annualcreditreport.com
2. Use one of the top 3 agencies – Equifax, TransUnion and Experian
3. Check your credit report and score annually to check for any good or bad changes.
4. Use common sense when attempting to fix your bad credit marks. Don’t overspend, don’t take out loans you know you can’t repay on time, and don’t let stress from bad credit take over your life.