Credit Restoration also commonly referred to as Credit Repair is the process of removing incorrect or inaccurate items from an individual’s credit report. Credit repair can also encompass adding good credit items and building a positive credit profile.

Remember that credit is money ~ Benjamin Franklin

Many consumers are looking for companies who can help rebuild credit and erase negative items from their credit reports.  The truth is, there is no one “silver bullet” or magic potion that will remedy poor credit.  Understanding how credit scoring works, implementing positive credit building strategies and an accurate report is the 1-2-3 with 4 being a very high credit score.  So before taking a look at the how to of rebuilding or fixing credit, let’s take a closer look at where credit scores come from and how credit scoring works.

 

What is a Credit Score?

The Fair and Accurate Credit Transactions Act of 2003 (FACTA) defines a “credit score” as the following…

A numerical value or a categorization derived from a statistical tool or modeling system used by a person who makes or arranges a loan to predict the likelihood of certain credit behaviors, including default (and the numerical value or the categorization derived from such analysis may also be referred to as a ‘risk predictor’ or risk score.)

This sounds complex, and what is even more confusing is when researching the subject online there are dozens of varying definitions.  A simple way of thinking about your credit score, is to think of it as your credit grade point average (GPA).  Like a GPA, your credit score can be affected both positively and negatively, is cumulative with some factors carrying more weight than others.  There is more than one method used to calculate a credit score however the method developed by Fair Isaac is the most dominate and produces what is called a FICO score.  This is the score used by major home and auto lenders, so from this point on we will specifically be talking about what makes up a FICO score as well as how to build upon and restore it.

 

What Makes Up a Credit Score?

Credit Score PieAlthough the exact mathematical formula has not been released to the public because of its proprietary nature, the five general categories that make up the FICO score have been made available.  The pie chart to the right provides a visual representation of these 5 areas.

The key is to focus on the major categories which are Payment History and Amount of Debt Owed.  Do keep the others in mind though as The Fair Isaac FICO formula takes every item into account when calculating your score.

The 3 credit bureaus that collect all credit data and report your score and personal information to lenders are Equifax, Transunion and Experian.  Why 3 do you ask?  There are many reasons but the most important is to prevent monopoly, fairness, lower prices and privacy to the consumers.  This makes tracking and understanding your credit score more complex as each bureau has slightly different methods and thus inconsistencies and inaccuracies arise.  Some lenders only use one score such as auto lenders however others like those who offer mortgages take the median score or the one in the middle.  The key is you must know all of your scores.

 

Credit Score Categories and Interest Rates

Once your credit score is calculated and assessed by the lender you fall into one of many general categories that allow lenders to make quick decisions on how to treat you as a risk.  In other words, rather or not they will approve you and what type of interest rate you will receive if they do.  The table below shows the various score ranges, which general category each range applies to and what type or rates a loan seeker can expect to receive.

Credit Score Table

Building a Positive Credit Profile

The major proactive steps you can take in order to improve your credit profile are as follows…

  1. Pay future bills on time
  2. Keep CUR to between 20%-40%
  3. Limit inquiries or new lines of credit
  4. Ensure accuracy of your credit report (Credit Repair)

For more information on how to positive credit building strategies visit our blog

 

Ensuring Consumer Credit Report Accuracy:

Monitoring / Repairing Credit and Identity Theft Protection

The Fair Credit Reporting Act (FCRA) was established in 1970 to create fairness, accuracy and privacy of personal information.  The idea was to limit the amount of data reported to credit bureaus and allow the consumer the ability to monitor and dispute their credit report.  This is done on the basis of “completeness and accuracy” and includes all items that are inaccurate, untimely, misleading, biased, incomplete or unverifiable. If the credit bureaus cannot verify that the information is indeed correct, by law, those items must be removed. These unverifiable items on the credit report must be deleted within 30 days. This has been deemed as the investigation period or the “reasonable period of time” as designated by the law.

The challenge is that three major credit reporting agencies (Equifax, Experian and Transunion) are not really helpful to the consumer when it comes to verifying credit reports.  Although they are regulated by government agencies, they have no direct connection with the US government.

Credit bureaus turn a profit by selling the information they store to lenders, employers, landlords, and insurance agencies.  What many people do not know is that they also sell your personal information to telemarketers and mailing list companies.  The more often a consumer applies for credit, the more money the credit bureaus make. A person with poor credit must apply 6-7 more times than the person with prime credit. These credit agencies will admit that there are errors in the credit report but they also state that it is not their responsibility to fix them. Why would they when it hurts their bottom line?

 

Credit (Report) Monitoring

Credit report monitoring services watch your credit activity for you and alert to any unusual or suspicious activity on your credit, based on your typical buying habits, consumer behavior and payment history. Credit monitoring can help with early detection of identity theft, letting you know to respond more quickly to any activity that is outside the norm or any suspicious changes in your credit. With identity theft and Internet fraud on the rise, many and more people are turning to credit monitoring as a way to combat online threats.

Credit report monitoring or simply referred to as credit monitoring is a service offered to consumers that both monitors credit activity and in most cases creates alerts the consumer to any unusual or suspicious activity.  The goal is help with the early detection of identity theft and fraud.

These services are typically offered on a month by month basis, and all three major credit bureaus have services they offer, as well as other private companies.  In addition to the monitoring most also give the consumer free credit scores and free credit reports, plus explanations of what factors are helping or hurting their creditworthiness.

 

Identity Theft Protection

Identity theft happens when a 3rd party uses another person’s identifying information, such as name or Social Security Number (SSN), without permission to commit fraud or other crimes.  Identity theft is a serious issue in the United States with the FTC estimating as many as 9 million Americans fall victim to this crime each year.  With the accelerated pace of the internet in the information age the problem has become more prevalent and more complicated to track and prosecute.

Credit Repair Basic Steps

  • Obtain credit reports.
  • Highlight items to dispute.
  • Dispute items with credit bureaus.
  • Repeat cycle as needed.

The concepts themselves are not that complicated; however, the legality and bureaucracy behind them are. Additionally, in today’s environment a certain degree of technology is helpful in expediting and making the process more efficient. Solid credit repair companies have state of the art technology and the understating of consumer laws to quickly and effectively dispute discrepant items on the consumer’s credit report.

 

If you would like to speak with one of our specialists about enrolling in a particular program, or just need some help deciding which solution is right for you, feel free to call us at (888) 586-7099 or complete the form on our CONTACT page.