With the heavy burdens of debt loads and stretched credit limits, many people are beginning to realize that their high interest costs are due to a low credit score. A few years ago the concept of having a credit report was fairly unknown, but today it is common knowledge. And with that knowledge comes misconceptions and wrong information from companies promising quick fixes and secret methods to dealing with credit agencies. Not only are there no secrets, there are also very dangerous methods that could get you into a lot more trouble.
Before attempting to tinker with your credit report, you must learn about a few pitfalls. Doing so will leave you less likely to encounter more problems down the road.
Bad Credit – If It’s Accurate, It Can’t Be “Fixed”
The lower your credit score, the higher interest you have to pay on your loans. You are seen as a higher risk of not paying money back on time, and to compensate for this unfortunate black mark, lenders will charge you higher rates. Bad credit lowers your score, and can be everything from a history of bankruptcy to not paying your bills on time to having too much debt.
Bad credit is bad credit. If it’s accurate and less than seven years old, it cannot be erased, no matter what a credit repair service promises. If the proof and documentation exists, the credit agency will not erase it. The only way to combat bad credit is to dilute it with good credit. Pay your bills on time and begin to lighten your debt load. Over time, your score will improve.
If you are thinking of using a credit repair service, run away from those promising “100% guaranteed” bad credit fixes or advice to create a new credit identity legally (it is definitely not legal). Professional credit repair agencies will work with you to formulate letters and strategies to deal with inaccurate or expired bad credit.
Cancelling Old Credit Cards
Your credit score is a culmination of several factors, including the history of your credit payments. How will lenders know you can pay your bills if you do not have a proven historical track record? If you think you can raise your score by eliminating some credit cards, you may actually do more harm. You cut off this stable historical pattern.
The credit limit on your credit card is also a major factor in your score. Say you have a card with a $5,000 limit, and another, also with a $5,000 limit. According to your credit report, you have a $10,000 credit limit, end of story. Say you spend $3000 on your cards every month. That means you use about 30% of your limit, a very safe margin.
Now, you decide to cancel one card. Suddenly, your credit report shows that you have a total limit of $5000. If you still place $3000 on your card, you are suddenly using 60% of your limit! Your credit score will plunge.
If you only wish to use one credit card, place the other in a safe and secure place, instead. Use it one or twice a month on small purchases to keep it active, and pay your bill on time. That way, you will still have a good credit history on that card and the number crunchers that calculate your score will still factor in your credit limit on both cards.
Disputing Older Items
If you decide to dispute some items in your credit report in an attempt to raise your score, make sure they are more recent items. The older the bad credit, the less it affects your score. Worse, if that bad debt has not been paid off, but you no longer receive harassing phone calls, leave it alone! By disputing it, you bring it to the attention of the credit agency. They have every right to report unpaid debts, and suddenly creditors will be interested in that nearly forgotten debt all over again!
You may dispute it if it is past the statute of limitations, but tread with caution. Remember, if it is quite old, it will not affect your score as much as if it is recent. It is probably not worth disputing.
With the credit bureaus processing millions of pieces of data per day, there’s bound to be errors. Your financial reputation is imprinted on your credit report, so it’s definitely worth your time to make sure it is correct. Whether you do it yourself or join a credit repair program, clearing even just a few inaccurate items can potentially save you thousands of dollars in interest charges.
Brought to you by CreditRepairAbility.com, a guide to bad credit repair.