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Credit Repair vs. Credit Reestablishment

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Consumers with bad credit may be interested in boosting their credit through credit repair techniques. While credit repair is effective for improving credit, it should usually be followed by the logical next step: reestablishing credit. Keep reading to understand the difference between credit repair and credit reestablishment and how to use them both to fix your credit.

What Is Credit Repair?

Credit repair, simply put, is the process of fixing bad credit. This process can take many forms depending on the reason for someone’s bad credit.

For example, someone who has been the victim of identity theft may need to do extensive credit repair to correct the damage that has resulted from the crime.

In addition, studies have shown that over one in four consumers have errors on their credit report that are significant enough to potentially affect their credit score. For example, a credit account from someone with the same name as you might show up on your report, or perhaps a family member who lives at the same address as you. Unfortunately, the credit bureaus and banks are not always 100% accurate in their reporting, so mistakes do happen.

Disputing Errors

Problems arise when erroneous information on your credit report damages your credit, which can result in you getting denied for credit or having higher costs associated with getting credit. Credit repair aims to fix bad credit resulting from errors in your credit reporting by disputing these errors with the credit bureaus.

The Fair Credit Reporting Act protects the rights of consumers to dispute and delete items on their credit report that are inaccurate, misleading, biased, untimely, incomplete, or unverifiable. When you dispute an item on your credit report, the credit bureaus must conduct an investigation to verify whether the item should be listed on your credit report. If they cannot verify it, they have to correct or delete the item.

Negotiating With Your Creditor

Another credit repair tactic is to work directly with your creditors to remove negative information from your credit report. For example, if your credit card company incorrectly reported a late payment, you can ask them directly to remove the negative mark.

Alternatively, if you actually did make a late payment, you could try to negotiate with your creditor. Often, they may be willing to remove the late if you made the payment soon after and have otherwise been a good customer.

The common thread in all these examples is removing negative information from your credit report. But what happens after the negative information is deleted? There is still work to be done to build good credit, especially if the credit repair process leaves you with a lackluster credit file.

Credit Reestablishment

Once you have removed all inaccurate and unverifiable information from your credit report, you may need to reestablish your credit. Credit reestablishment means rebuilding your credit file with positive credit history. To do this, you will need to add more accounts to your credit mix.

The goal is to open primary accounts in your own name and establish a positive credit history with those accounts. However, opening new accounts can be challenging when you are trying to rebuild your credit, especially if you are left with a thin credit file. Credit cards and loans may have high interest rates, if you get approved for them at all.

Yet, building a good mix of several different credit accounts is crucial for reestablishing credit. So what are some options for those trying to rebuild their credit after credit repair?

High-Interest Rate Credit Card

Opening a credit card can help rebuild credit because with enough on-time payments, it shows that you can manage credit responsibly. However, the terms of an unsecured credit card for someone reestablishing credit likely won’t be ideal. It may come with a steep interest rate upwards of 20%. If you choose to go this route, you’ll want to pay off your charges in full every billing cycle to keep your credit score up and to avoid paying high interest fees.

If you can’t get approved for a major credit card, you could try applying for a retail store credit card. They are known for approving applicants with limited credit history.

Secured Credit Card

If you have trouble getting approved for an unsecured credit card while reestablishing credit, a secured credit card allows you to put a deposit down as collateral. Since these cards are secured by your deposit, even those in the process of rebuilding credit may be able to get one. Making payments on time will help rebuild a positive credit history. Again, be sure to pay your balance every month to avoid paying interest.

Apply for Credit With a Cosigner or Joint Account Holder

Another effective way to reestablish credit is to “piggyback” on someone else’s positive credit history. If you can find a trusted cosigner or joint account holder to sign onto an account with you, you may be able to get approved for credit that you wouldn’t have qualified for on your own or get better terms.

Become an Authorized User

If you know someone with good credit, you can ask them to add you as an authorized user to one of their credit cards. This can be an ideal way to build credit fast because often (with some exceptions depending on the bank), the account’s full history is shown in the credit reports of both the primary cardholder and the authorized user, regardless of when the authorized user was added to the card.

Therefore, this method has some advantages over opening a new account, which can actually hurt your credit at first.

For those that do not have the privilege of knowing someone who can help them build credit, there is a marketplace in which consumers can buy authorized user tradelines. In other words, they can pay a fee to “rent” authorized user positions on accounts with positive credit histories. While this industry of people buying and selling tradelines has existed for quite a while, many consumers have been unaware of this option. By doing a simple Google search for “tradelines” you can research more about the topic.

Credit Repair vs. Credit Reestablishment: Conclusion

Credit repair and credit reestablishment go hand in hand. While repairing your credit by removing negative information from your credit report may help boost your credit score, you may also need to reestablish your credit by adding positive accounts back into your credit file.

On the other hand, if you add more accounts to your credit profile without repairing bad credit, the negative accounts are still going to heavily impact your credit and dampen any positive effect from the additional accounts.

While both strategies can be beneficial on their own, together they can create a synergistic effect that neither one nor the other strategy can achieve on its own. To make the best of your credit, be sure to consider all your options when it comes to credit repair and credit reestablishment.

This article was written by Tradeline Supply Company, LLC. Tradeline Supply Company, LLC provides an online platform where people can buy and sell authorized user tradelines. They also offer free educational information on the credit system to empower consumers to take control of their credit. To learn more, visit tradelinesupply.com.

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Credit Score

Does Leasing a Car Help Your Credit? Learn More About it Here

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A car lease gives you an opportunity to rent a car of your choice for an agreed period. Just like loan repayment, leasing a car requires you to pay monthly installments and is, therefore, a major contributor to your credit history.

So, does leasing a car help build your credit score? The short answer is that, if you make all your payments on time, an auto lease can improve your credit score. Here’s what you need to know about car leases and credit scores:

How Leasing a Car will Help you Build Your Credit Score

Leasing a car to improve creditWhile it is not a requirement, most legit car lenders, and dealers, report your payment activity to the three major credit bureaus: Experian, Equifax, and Transunion.

Once your payments are reported, they become part of your payment history which influences 35% of your credit score.

Below, here are some highlights of what you can do to improve your score during the term of your car lease.

Late or defaulted payments reflect negatively on your credit history. This consequently lowers your credit score. To ensure that you can make your payments every month and do it on time, settle for an affordable monthly payment spread out over a longer period as opposed to higher payments over a shorter period.

  • Check out your Credit Reports Regularly

To understand your current credit health, check your credit reports regularly. By so doing you will be keeping tabs on your debts and any errors that prospective lenders might see on your report.

More importantly, getting the report is the first step towards disputing errors on your lease terms. In such cases, you can raise a dispute with the company responsible for the inaccuracy in time to ensure that your score is not affected negatively.

Besides your car lease, having varying lines of credit reflects on your ability to manage multiple lines of credit. And although a credit mix accounts for only 10% of your score, it can provide a much-needed boost to your score.

With that in mind, it’s worth noting that a car lease is classified as an installment account. This makes a lease different from revolving accounts such as credit and gas station cards.

  • Minimize Credit Card balances

Boosting your score with a car lease would not make sense if you hurt it in other ways. Credit card utilization ratio, or the percentage of the money you are using out of the credit you have available, accounts for 30% of your score.

It is calculated for each of your credit cards and also across all of them. Even as you go for a credit mix, it is paramount to keep your credit utilization ratio at 30% or below.

Keeping old lease accounts open will help your score by increasing the age of your credit, also known as credit history. This accounts for about 10% of your credit score.

Can you Lease a Car with Bad Credit?

Despite the fact that leasing companies mostly consider consumers with good credit, you could improve your odds of getting approved for a lease and get an opportunity to start rebuilding your score. Here’s how:

Make a Down Payment

Making a huge down payment not only shows your commitment to the leasing agreement but it also helps to reduce the overall amount of the lease. This also means lower monthly payments.

Consider a Cosigner

If you are not financially stable, consider asking someone with a positive credit history to co-sign the lease with you. Since both of you share responsibility for the account, it affects both of your credit reports. Good payment history will, therefore, help rebuild your score.

Improve your Debt to Income Ratio

Debt-to-income-ratio is the comparison of how much you owe against how much you earn. A high DTI ratio indicates that you have trouble meeting your debt obligations.

So, before you attempt to get a car lease with bad credit, reduce your DTI. Among the measures, you can employ include getting a second job or clearing credit card debts.

Conclusion

It is apparent that leasing a car can help build your credit score. However, this works hand in hand with your other lines of credit as they together make up your credit report. As such, put all your financial obligations into consideration before you sign a car lease to avoid causing more harm to your score.

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Developing an Action Plan to Boost Your Credit

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A quick action plan to boost your credit score

Once you have your credit report and your credit score, you will be able to tell where you stand and where many of your problems lie.  If you have a poor score, try to see in your credit report what could be causing the problem:

  • Do you have too much debt?
  • Too many unpaid bills?
  • Have you recently faced a major financial upset such as bankruptcy?
  • Have you simply not had credit long enough to establish good credit?
  • Have you defaulted on a loan, failed to pay taxes, or recently been reported to a collection agency?

The problems that contribute to your credit problems should dictate how you decide to boost your credit score.  As you read through this ebook, highlight or jot down those tips that apply to you and from them develop a checklist of things you can do that would help your credit situation improve.

When you seek professional credit counseling or credit help, counselors will generally work with you to help you develop a personalized strategy that expressly addresses your credit problems and financial history.  Now, with this ebook, you can develop a similar strategy on your own – in your own time and at your own cost.

When developing your action plan, know where most of your credit score is coming from:

credit score1.Your credit history (accounts for more than a third of your credit score in some cases).

Whether or not you have been a good credit risk in the past is considered the best indicator of how you will react to debt in the future.  For this reason, late payment, loan defaults, unpaid taxes, bankruptcies, and other unmet debt responsibilities will count against you the most.  You can’t do much about your financial past now, but starting to pay your bills on time – starting today – can help boost your credit score in the future.

2.Your current debts (accounts for approximately a third of your credit score in some cases).  If you have lots of current debt, it may indicate that you are stretching yourself financially thin and so will have trouble paying back debts in the future.  If you have a lot of money owing right now – and especially if you have borrowed a great deal recently – this fact will bring down your credit score.  You can boost your credit score by paying down your debts as far as you can.

3.How long you have had credit (accounts for up to 15% of your credit score in some cases).  If you have not had credit accounts for very long, you may not have enough of a history to let lenders know whether you make a good credit risk.  Not having had credit for a long time can affect your credit score.  You can counter this by keeping your accounts open rather than closing them off as you pay them off.

4.The types of credit you have (accounts for about one-tenth of your credit score, in most cases).  Lenders like to see a mix of financial responsibilities that you handle well. Having bills that you pay as well as one or two types of loans can actually improve your credit score.  Having at least one credit card that you manage well can also help your credit score.

As you can see, it is possible to only estimate how much a specific area of your credit report affects your credit score.  Nevertheless, keeping these five areas in mind and making sure that each is addressed in your personalized plan will go a long way in making sure that your personalized credit repair plan is comprehensive enough to boost your credit effectively.

 

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Understanding the Factors that Affect Your Credit Score

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credit score basics

What factors affect your credit score?

If you are going to improve your credit score, then logic has it that you must understand what your credit score is and how it works. Without this information, you won’t be able to very effectively improve your score because you won’t understand how the things you
do in daily life affect your score.

If you don’t understand how your credit works, you will also be at the mercy of any company that tries to tell you how you can improve your score – on their terms and at their price.

In general, your score is a number that lets lenders know how much of a credit risk you are. It’s a number, usually between 300 and 850, that lets lenders know how well you are paying off your debts and how much of a credit risk you are.

In general, the higher your score, the better credit risk you make and the more likely you are to be given credit at great rates. Scores in the low 600s and below will often give you trouble in finding credit, while scores of 720 and above will generally give you the best interest rates out there. However, scores are a lot like GPAs or SAT scores from college days – while they give others a quick snapshot of how you are doing, they are interpreted by people in different ways. Some lenders put more emphasis on scores than others.

Some lenders will work with you if you have the scores in the 600s, while others offer their best rates only to those creditors with very high scores indeed. Some lenders will look at your entire credit report while others will accept or reject your loan application based solely on your score.

The score is based on your credit report, which contains a history of your past debts and repayments. Credit bureaus use computers and mathematical calculations to arrive at a score from the information contained in your credit report.

Each credit bureau uses different methods to do this (which is why you will have different scores with different companies) but most credit bureaus use the FICO system. FICO is an acronym for the score calculating software offered by Fair Isaac Corporation company.

credit score

This is by far the most used software since the Fair Isaac Corporation developed the score model used by many in the financial industry and is still considered one of the leaders in the field.

In fact, scores are sometimes called FICO scores or FICO ratings, although it is important to understand that your score may be tabulated using different software.

One other thing you may want to understand about the software and mathematics that goes into your credit is the fact that the math used by the software is based on research and comparative mathematics. This is an important and simple concept that can help you understand how to boost your credit. In simple terms, what this means is that your credit is in a way calculated on the same principles as your insurance premiums.

Your insurance company likely asks you questions about your health, your lifestyle choices (such as whether you are a smoker) because these bits of information can tell the insurance company how much of a risk you are and how likely you are to make large claims later on. This is based on research.

Studies have shown, for example, that smokers tend to be more prone to serious illnesses and so require more medical attention. If you are a smoker, you may face higher insurance premiums because of this.

Similarly, credit bureaus and lenders often look at general patterns. Since people with too many debts tend not to have great rates of repayment, your credit may suffer if you have too many debts, for example. Understanding this can help you in two ways:

1) It will let you see that your credit is not a personal reflection of how “good” or “bad” you are with money. Rather, it is a reflection of how well lenders and companies think you will repay your bills – based on information gathered from studying other
people.

2) It will let you see that if you want to improve your credit, you need to work on becoming the sort of debtor that studies have shown tends to repay their bills. You do not have to work hard to reinvent yourself financially and you do not have to start making much more money. You just need to be a reliable lender. This realization alone should help make credit repair far less stressful!

Credit reports are put together by credit bureaus, which use information from client companies. It works like this: credit bureaus have clients – such as credit card companies and utility companies, to name just two – who provide them with information.

Once a file is begun on you (i.e. once you open a bank account or have bills to pay) then information about you is stored on the record. If you are late paying a bill, the clients call the credit bureaus and note this. Any unpaid bills, overdue bills, or other problems with credit count as “dings” on your credit report and affect your score.

Information such as what type of debt you have, how much debt you have, how regularly you pay your bills on time, and your credit accounts are all information that is used to calculate your credit.

Your age, sex, and income do not count towards your credit score. The actual formula used by credit bureaus to calculate credit scores is a well-kept secret, but it is known that recent account activity, debts, length of credit, unpaid accounts, and types of credit are
among the things that count the most in tabulating credit from a credit report.

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