As we rapidly went from a healthy economy to worry about paying bills, more than ever, people need good credit. But three out of five Americans have inaccuracies on their credit reports that could make it harder to qualify for a loan or even a credit card.
Most people don’t know that they have a federal right to clean inaccuracies from their credit reports.
A single data entry mistake may cause you to pay higher interest rates and make it difficult to qualify for a home or car loan, or even get a credit card.
The Fair Credit Reporting Act gives you the right to investigate negative accounts on your credit report. If an account is not reported 100% accurately, you have the legal right to get it expunged.
Errors might include an inaccurate payment amount, which can affect your debt-to-income ratio. Or, your report might have negative accounts that aren’t even yours! Expunging these inaccurate negative accounts and moving credit scores from the 500s to the 700s enables people to qualify for homes, new cars, business loans and credit cards sooner. Persistence is essential.
Credit repair frees up your credit so you can get approved for things you want. The hardest thing is finding what’s inaccurate about a negative account. But there’s nearly always something.
What is a good credit score?
The lowest credit score you can have is 350; the highest is 850. If your credit score starts with a 3, 4, 5 or 6, you have negative credit. Credit doesn’t begin to get positive until you hit 680.
To have great credit, you need to be in the 700s. No one needs 800 or better. That’s more for bragging rights.
What affects your credit score?
Debt collections, repossessions, foreclosures, judgments, tax liens and bankruptcies can all cause your credit score to decline. But most people are shocked to learn that late payments should be feared the most. Late payments can’t be fixed and can drop anyone’s credit by as much as 125 points. That’s more than a bankruptcy! You’ve got to make 24 months in a row of on-time payments for a late payment to correct itself.
Credit scores increase according to how many positive accounts you have, after the inaccurate negative accounts are deleted. Ideally, you want at least five positive primary accounts in your name. You get points for paying on time and having a healthy mix of credit. In the credit world, history is also a huge part of your score. You’re more apt to get approved for a larger loan amount when financial institutions can see a track record of borrowing money and paying it back on time.
How does credit repair work?
If you’ve tried credit repair in the past, you may know that most companies dispute only two to three accounts per month. That pace can be discouraging. We prefer a more aggressive three-round burst strategy because we don’t believe in dragging out the process.
My team has learned that sending all the inaccurate negative accounts to the credit bureaus along with our legal documents is more efficient. We do this three times, with each round lasting 40 days. With this method, we will often see 50% of the inaccuracies on negative accounts deleted in the first round and raise credit scores by as much as 100 points. Once we get 90% of the inaccurate negative accounts deleted, we start using credit-building products, which can increase scores another 50 to 100 points.
Understand that removing inaccurate negative accounts from your credit report is not a form of debt consolidation. You still owe your legitimate debts.
How to spot the credit repair scammers
The credit repair industry is on fire. That has opened the floodgates for scammers who take the money and run. It’s illegal to ask for all the money up front before they do the work, so insist on affordable monthly installments. To find a reputable company, look at the provider’s education and industry experience. There are a lot of people doing credit repair without a professional background.
Also, check the reviews and confirm that they are registered with the Better Business Bureau. Look for a company that offers ongoing continuing education so you can learn how to manage your credit score moving forward.
What other strategies can improve your credit score?
• Have your own credit, separate from their spouse. A lending institution may look only at the one with the lower credit score, so you don’t want to rely on someone else for your own rating.
• Don’t max out your credit cards. Keep your balance below 30% of the approved amount.
• Keep a healthy mix of credit. That may include a revolving line such as a credit card, and an installment loan.
We all need credit to survive. I teach people how to make the credit system work for them instead of against them. We offer get a credit analysis at alexmillercreditreport.com.
Alex Miller is founder of Alex Miller Credit Repair, based in Houston, Texas.