Repairing Credit

25 October, 2014

Tips for repairing credit

If you have a lower credit score than you want, it can be easier than you think to improve your credit score.  To understand how to improve your score, it is probably best to understand how your credit score is determined.

Most agencies use your FICO score to determine your credit worthiness.  Your FICO score is a credit rating produced by Fair, Isaac and Co.  Typically, the following table is a good indication of how your score is calculated:

   – Past payment history (35 percent): bankruptcies, late payments, past due accounts and wage attachments

    – Amount of credit owing (30 percent): amount owed on accounts, proportion of balances to total credit limits

    – Length of time credit established (15 percent): time since accounts opened, time since account activity

    – Search for and acquisition of new credit (10 percent): number of recent credit inquiries, number of recently opened accounts

    – Types of credit established (10 percent): number of various types of accounts (credit cards, retail accounts, mortgage)
It’s easy to see what areas you need to focus on if you are trying to improve your credit rating or score.  Here are some tips for trying to improve your credit score:

1.    Focus on payments.  If your credit is bad, look for opportunities to make revolving payments.  Perhaps a secured credit card or a bank loan that is backed by some type of collateral is an option. 

2.    Be familiar with your credit limits on your credit cards or other credit accounts and try to lower your debt to limit ratio.  For example, if you have a credit card with a $1000 dollar limit and you owe $750, you have used 75% of the limit on that account.  You need to be below 50%.

3.    It is debatable if closing accounts really offers much help to your credit score.  However, if you are going to close out a credit card or other credit account, try and close those that you have most recently opened. 

4.    Check your credit report.  Looks for any inconsistencies or accounts that are not yours.  This could be affecting your credit.  Be especially cautious if you have a fairly common name like John Smith.

5.    If you are getting into trouble, do not ignore it.  Call your creditors and explain your situation.  They may be inclined to work with you, especially during these times, and it may not have such an adverse affect on your credit score.

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