Some people find themselves with a messy financial situation and therefore credit reports are not a pleasant topic. However, credit reports provide you with the facts. And even if the information is undesirable it can be like a helpful guide on your road to financial recovery. Being well informed is important and necessary information can be found in your credit report.
Those reports are maintained – at least in the U.S. – chiefly by the three major credit reporting agencies: Equifax (PO Box 740241, Atlanta, GA 30374; www.equifax.com), Experian (PO Box 2002, Allen TX 75013, www.experian.com) and TransUnion (PO Box 2000, Chester, PA 19022; www.transunion.com).
The reports contain a multi-year history of your credit cards, home loans and other debt. They also record any late payments that occurred and how late they were, 30-day past due, 60-day past due, etc. The reports will list any current and old address, and often your phone number and social security number.
Your credit report can be requested by almost all lending institutions, banks, mortgage lenders and credit card companies. Other entities and individuals can request your report in connection with legal proceedings. The credit agencies are committed to giving an accurate report. However, despite their best efforts errors do occur.
Errors are sometimes made in recording payments made to bring a past due balance current. At times your credit report will list loans as active or credit cards as open that you have closed out or paid off some time ago. There are many different computer systems operating out there that may not always transmit information one to another accurately or in a timely manner. That leads to reporting errors.
To be sure that your credit report has accurate information you must regularly review copies of the reports produced by the three reporting agencies. If you notice an error in your report send a letter to the agency explaining the error and include proof that it is in fact an error and ask the agency to make a correction in their database.
Everyone can receive one free copy of their credit report each year. You can request your credit report on line or by phone. If requesting your credit report via the internet you can visit annualcreditreport.com
On a more positive note, having the information at your fingertips allows you to develop a debt-free plan for your future. Understanding your past credit history is the first step in creating that plan.
When you receive your credit report review it carefully for any past due balances. Resolve these quickly paying off the smaller balances first and then move along to the larger balances until all past due balances have been cleared. In time you will be on your way to a cleaner credit report.
Having poor credit can certainly impede you the next time you want to purchase something that you have set your heart upon, though lack of proper credit standing will mean having to forego such things in life. Yes, bad credit can not only mean that you dont get what you want, but you may even spend sleepless nights worrying about how to fix the problem, though there are many people that will proffer you advice as to how to go about bad credit repair; even so, the best advice would certainly be to do it yourself.
Several Steps to Take to Repair Your Bad Credit
There are several steps to take in repairing bad credit- the first of which is to take the simple step of requesting a copy of your credit report from the credit bureau. Once you have this, take a few moments to review it, and make note of any potential errors or questionable entries.
In a do-it-yourself credit repair, the next process is to visit the website of the Federal Trade Commission. Find out what consumer rights protect you and how you can use them to your advantage.
Once you are aware of your rights, you will find that you can get false and incomplete transactions removed from your credit report. This is a huge step in repairing your credit. Removing such transactions must be done by credit agencies, which they must do to keep from paying penalties.
Once this step is complete, you should write a letter to the credit reporting agencies, disputing what you’ve found to be wrong with your report. After taking this step, be sure to continuously monitor the progress of your complaint with the agency.
It may take a month or so before errors are verified by the credit agency. If you were right, the credit agency will acknowledge these claims, and the errors will be corrected. Your credit report and credit standing will thus be improved.
With persistence and hard work, repairing your own less-than-perfect credit report is doable. Following proper and sound advice on how to do so, can lead to your credit scores improving within a short time, and the only cost to you is the time and effort it took to contact the credit reporting agencies.
One of the most important factors in determining whether or not a consumer qualifies for a particular loan is the individual’s debt ratio. The debt ratio is essentially a way to determine how much of an individual’s monthly income is spoken for every month in the form of payments that are due. A debt ratio of 60%, for instance, means that 60% of your income every month is required to make your minimum payments on all of your outstanding liabilities.
For example, let’s look at an individual that makes $5000 per month. This person has an auto loan that requires a $450/month payment, student loans that require $120 to be paid monthly, and credit card debt with a required minimum payment of $200 each month. This individual’s debt ratio can be determined by adding the monthly payment amounts and dividing them into the $5000 per month income. In this case, a minimum of $770 is due each month, so the debt ratio is 15.4% (found by dividing $770 into $5000).
For a corporation, the debt ratio is defined as the amount of debt a company has on the books relative to its assets. If a company accepted a loan from a bank of $1 million and the company has $2 million in assets on their balance sheet, the company’s debt ratio is 50% ($1 million divided into $2 million). A debt ratio of great than 1 (or 100%) would indicate that a company has borrowed more money than they have assets to show for it. For a company, the debt ratio will show investors and creditors just how much the company relies on debt to finance its assets.
Why are these numbers important? Because whether you’re an individual looking for a mortgage loan, or a corporation looking for additional financing to grow your business, will find ourselves in situations where we’d like to receive a loan from time to time. When a lender is evaluating us as borrowers, they’re going to take a close look at our other obligations to ensure that they can feel confident that we’ll make our payments.
A lender who makes home loans for example, may establish a rule that they will not issue a mortgage loan that would cause an individual’s debt ratio to exceed 38%. When the lender is deciding how large a loan an applicant qualifies for, they examine all outstanding debt and determine the maximum monthly payment that individual can handle without exceeding their 38% maximum debt ratio. Thus, individuals with a lot of debt and a high debt ratio may have a hard time qualifying for the loan they want, regardless of their credit score and other factors.
Your debt ratio is an important measure regardless of your income. Lenders will only lend to those with a balance sheet that inspires confidence in the borrower’s ability to make their payments. Keeping your debt ratio low will increase your chances of getting the loan you want when you need it.
US News & World Report is reporting that Americans are all the more ignorant of their credit scores, putting their financial future in danger just because they can’t be bothered to take the time. When’s the last time you got your credit score or looked at your own credit report or both? A year? Two? Not knowing how to use this information can cost a consumer many thousands of dollars over the life of their financial dealings, and it’s simply not smart to entrust your future to a bank or a finance company.
Missing a payment or even just being late once can result in raised interest rates that can thwart many plans you may have for your own money. Not knowing what’s going on in your accounts can have nearly the same consequences. Buried deep in most credit card fine print are clauses that enable them to raise the interest rates at any time for any reason. Betcha didn’t know that, did ya? If you don’t keep an eye on things you won’t.
And just like there are ways to ding your credit for the worse, there are also ways to raise your FICO scores and qualify for better loans and rates. This can be accomplished in relatively short periods of time as well.
The bottom line here is to keep an eye on your credit reports and FICO scores. This will serve you well in the long run!
Do you know how your credit score is doing?
Most people have never actually checked their credit score themselves. They either go along with some vague idea of how good or bad their credit is, or they only know that they’re either accepted or declined when applying for any kind of credit.
Part of a good debt reduction plan is knowing your credit score. This will help you to understand what you’re doing right and what you’re doing wrong. Plus, if there are any errors on your credit report that are hurting your score you can get them corrected.
There are three national credit reporting agencies that virtually all lenders use to check your credit worthiness: Experian, TransUnion, and Equifax. You are legally allowed to request one free copy of your credit report from each of them every 12 months.
You can request your reports by calling 1-877-FACT-ACT or from www.annualcreditreport.com.
Keep in mind that the reports you order through that phone number or website are free. There are lots of websites offering to get you free credit reports, but they also want to sell you credit report monitoring and other services.
Unless you want to get your reports more often than every 12 months, there’s no need to use any other website than that one.