Maintaining a positive borrowing history is easier than fixing a bad one. A poor score will not only cause your loan applications to be rejected. It may prevent you from getting the best credit conditions, renting the best apartments or even getting the job you want. This indicator is checked by different institutions in and beyond the banking segment. Insurance companies, recruiters, and landlords use it to compare and evaluate applicants. What can you do if your status is far from perfect?
Deterioration of credit scores is caused by different factors. Both FICO and VantageScore, the most common assessment systems in the country, consider similar factors (e.g., prior payments, age of history, and the size of overall debt). One missed payment will tarnish your score for 7 years! At the same time, the data for calculation may be untrue.
A disappointing history may be fixed or rebuilt depending on its accuracy. Every consumer has three versions of their borrowing records — reports compiled by TransUnion, Experian, and Equifax. These documents are generated separately, and the organizations do not share data with one another. Your lender may report to any of the agencies. As a result, a consumer may find that some or all of their reports need fixing.
This requires meticulous analysis, preparation of evidence, and launching of formal disputes. A complicated process with legal intricacies, it may be delegated to experts. For example, Texas Credit Repair services let consumers entrust experts with the task and get results faster.
Fixing, professional and DIY, is possible thanks to the Fair Credit Reporting Act. It obliges bureaus to use only verifiable information. Check this review on Lexington Law to see what such companies can do for you.
To verify your status, gather all three versions of the financial history. Go to the only authorized source — www.annualcreditreport.com and submit a request (basic personal details are required). This service is absolutely free, and it is now available weekly until April 20, 2022. If any of the reports contain mistakes, the score is unfair, and you have legal grounds for a dispute. If not, skip to the rebuilding section.
Unfortunately, it is not possible to require changes without evidence, and the procedure includes a formal dispute process. The service provider will identify mistakes and prioritize them based on the damage. This is determined based on the official breakdown provided by FICO and VantageScore.
You may find that the bureau has included a wrong amount of debt, an account that does not belong to you, or events that never happened. Any negative entry, known as derogatory, may stay on your records for 7 years. Chapter 7 bankruptcies are an exception, as they continue to affect the score for a decade. Derogatories reflecting missed or late payments are the most consequential, as they determine 35% of FICO and 40% of VantageScore.
After the errors are identified, it is time to start the investigative work. You or the company acting on your behalf must contact the lenders involved to establish the truth. Professionals send debt validation letters asking the institutions to prove that their client owes the amounts reported. Acceptable evidence includes any formal documentation from the entity (e.g., bank statements).
Finally, it is time to open a dispute. This is a standardized process, and you can even find a free template on the website of the Consumer Financial Protection Bureau. It is recommended you use certified mail with a return receipt requested. This way, you will have hard evidence of the formal communication and will know when a response should be expected.
The law gives every agency 30 days (in special cases, 45 days) to investigate each claim. Eventually, the organization will accept your changes, reject them or ask for more information. As you can see, insufficiency of evidence will prolong the process. One of the biggest advantages of professional repair is that experts collect sufficient proof from the start, so you can avoid re-disputes.
When the status stems from irresponsible financial behavior, you should adjust different components of your score to get a boost. Note that there is no legal way to remove negative information when it is factual. At the same time, you may acquire points by becoming a conscientious borrower. Here are a few ideas.
All of your credit cards, whether you use them or not, determine the credit utilization ratio, which affects 1/5 of your score in FICO. This is the proportion between the sum of balances and the sum of limits. For example, someone with four credit cards giving $5,000 in available credit will have utilization of 50% if $2,500 is charged across them. This is way higher than what experts recommend — around 10%.
In our example, the goal may be reached by bringing the balances down to $500, or extending the limits to $25,000. The former is a more likely scenario, but you could also work on both fronts. If you cannot afford to pay $2,000, make at least minimum payments and try to get more available credit. There are several ways to achieve this.
First, you could ask the bank for a limit extension. If this does not work, try getting a card from another issue. Secured credit cards are the easiest to qualify for, as they require a deposit. Finally, you could try to become an authorized user on the account of your friend or relative. If you know someone with a positive credit history who can do you such a favor, go for it.
Overall, any credit cards linked to your history work towards credit utilization. For this reason, it is not advisable to close any cards — keep the accounts open. Finally, you could make payments more frequently to cover the gap between your current credit utilization and the target.
Making all payments on time is absolutely crucial. Set reminders or automatic transfers to avoid damaging your score. If you are just a few days late, the bank may not report this — generally, missed payments only appear on your records in 30 days. If you run into financial problems, negotiate with the lender as soon as possible. They may agree to let you restructure or refinance your debt.
This free service from the nationwide bureau may help you add a few points to your score. The agency suggests adding utility bills, phone bills, and subscriptions to your credit history, so they are also factored in. On average, consumers see a 12-point increase.
Whenever you apply for any credit service, the institution excesses your reports, thereby leaving a so-called hard inquiry. A high concentration of these items is bad for the score. However, if you apply for the same type of service from different banks, the hard inquiries are treated collectively. Thus, ask for more credit only if you really need to. Otherwise, your attempts will look like desperation.
Your credit score is not static. It is constantly changing based on the contents of your reports. If their contents are incorrect, you may eliminate the errors through professional or DIY disputes. Otherwise, rebuild your reputation. Use as little of your available credit as possible, make all payments on time, and use Experian Boost to expand the range of data for calculation. Fixing a reporting error takes over a month. In comparison, rebuilding a disappointing history may take years.