Lenders, insurance companies, recruiters, and landlords use it to make decisions. Consumers with excellent status access the best offers, cheap borrowing, and premium services. So, what should you do if your current total is disappointing? There are two ways to improve it — by repairing or rebuilding it.
The indicator is based on three versions of your financial history. Reports from the nationwide bureaus (Experian, Equifax, and TransUnion) detail various aspects of your borrowing experience. These records are not always accurate, which is why credit repair companies are flourishing. You, too, may need their services.
Where You Stand
Begin by collecting and analyzing the score and the three versions of your history. Note that most negative items on a credit report stay on the records for seven years, so you should not let mistakes tarnish your status. To check the total, you may use My FICO or finance apps like Credit Karma.
The reports are available on www.annualcreditreport.com. Note that this is the only authorized source, and the documents are provided for free on a weekly basis. This is an emergency measure valid until April 2012. Previously, a consumer was entitled to one free copy per bureau per year.
Examine the documents closely to find suspicious entries. You may discover an account that does not belong to you or an event (e.g., late payment) that never happened. Positive information may be missing. The amounts may be wrong. Negative events are known as derogatories, and they include such items as:
- missed and late payments
- charge-offs, etc.
If any of the details look suspicious, you may dispute them formally, or delegate this job to professionals. Unfortunately, reporting mistakes are quite common. According to the Federal Trade Commission, one in five Americans has some form of inaccuracies skewing their status.
Meanwhile, under the Fair Credit Reporting Act, the bureaus are obliged to provide only verifiable information, which gives grounds for disputes.
How Many Points Can You Gain and How Soon?
This depends on the number and the nature of the inconsistencies. Information about missing or late payments is the most consequential — it affects 35% of FICO and 40% of VantageScore calculations. A repair company should give you a tentative evaluation, but there are no guarantees, as this is not a science.
Duration also varies. Typically, repair companies work between three and six months on each case. The process includes several stages: a collection of reports, analysis, preparation of evidence, and disputes.
After receiving a dispute letter, a bureau has 30 days (sometimes, 45) to conduct an internal investigation. Then, it accepts or rejects the changes. Professional services reduce the probability of redisputes, as experts collect sufficient evidence.
Repair vs. Rebuilding
Repair is not the only way to achieve a rise, and it does not work for accurate histories. When the details are correct, or you want a stronger boost as soon as possible, rebuilding is indispensable. This method is based on the readjustment of different factors underlying the calculations. For example, here are the elements of the FICO formula:
- Previous payments — 35%
- The total amount owed — 30%
- Age of History — 15%
- New accounts — 10%
- Credit mix — 10%
As you can see, each component has a particular weight. Aside from making all payments on time, you could work with your limits and balances to adjust utilization, which is included in the total debt. This is the proportion between the amounts charged across credit cards and the size of overall available credit.
Suggested Rebuilding Methods
To get results as soon as possible, consider changing your attitude to borrowing, adding more information to your reports, and limiting new applications. Here are a few ideas to help you.
1. Reduce the Balances
Try to pay off some or all of the balances on your cards. The ideal target is 10%. This means that for several cards giving $4,000 in total, the ideal sum of balances is $400. Naturally, this method is not feasible for everyone. If you cannot afford to achieve it, consider alternative methods.
2. Get More Credit
Ask for a limit extension. If the bank turns you down, try getting another card from a different issuer. Secured cards are the easiest to qualify for, as they require a deposit. Finally, you could become an authorized user on someone else’s account. If you have a family member or friend with an excellent history and they agreed to do you a favor, their limit will be included in your utilization. Thus, by reducing balances and extending limits at the same time, you may get to the 10% threshold.
3. Use Experian Boost
This free online service from the bureau allows you to include additional information for the assessment. Your phone payments, utility bills, and streaming video subscriptions may be included. This results in a 12-point boost on average.
4. Apply for Credit Sparingly
Avoid applying for different types of credit within a short period of time. Every time a financial institution accesses your records, this leaves a hard inquiry. A high concentration of these entries is a negative factor. Rate shopping, however, is fine, as applications for the same types of services are treated collectively. Thus, plan your applications.
For quicker score enhancement, use repair and rebuilding methods at the same time. Reporting errors are not rare, but you can only rebuild your history when it is accurate. The fastest ways to get a boost are based on work with various components of the total. The duration depends on your current status and objectives. Improvements do not happen overnight, so plan well in advance.
Published August 10th, 2021