Step 3: Correcting your credit report
If you find any factual mistakes or out-of-date information in any of your credit reports, you should contact the particular credit bureau immediately, in writing, using certified mail with a return receipt requested to show when you sent the letter and when it was received. Under the Fair Credit Reporting Act, the credit bureau must investigate your dispute within 30 days. Once the agency receives your inquiry, it will check with the creditor whose information you are questioning. You should receive a written notice telling you the results of the examination within five days of its completion, as well as a copy of your corrected credit report if it has been changed because of your complaint. If you win your case, the creditor is required to notify the other credit agencies so they can correct their records.
How to fix errors: Your credit report should include information about how to go about rectifying mistakes. Each agency is different, though, so follow their instructions.
Sometimes a simple phone call will suffice. But more often than not, you’ll have to prove your claim by providing documentation. If additional information is necessary, you’ll be told what to send. You might need to provide canceled checks, for example, or other payment information. But never send original documents. Send copies, and make copies of all your correspondence with the credit bureau in question. When communicating by phone, make sure you write down the name of the person with whom you speak, the day and time of your conversation, and – if possible – their direct phone number. Good records are invaluable.
If no error is found but you still believe the information in your file is erroneous, you have the right to contact the creditor directly to try to straighten out the problem. If you are successful, make sure the creditor sends a correction to the other agencies. Even if you can’t persuade the creditor to see the light, you are allowed to have your side of the story inserted into the credit report. If you never received the merchandise, for example, or if you didn’t get a bill, you can explain that in up to a 100-word statement. The disputed item will still show up in your credit record, but at least your version will be there, too.
Finally, if you can prove there is an error in your record, some lenders will agree to turn off the computer and underwrite your application manually.
How to make good credit great credit: Believe it or not, you may have good credit and still be considered a poor risk, especially when your application is being evaluated electronically. For example, the number of credit cards in your name is held to be highly predictive. The ideal number is four to six. You will be penalized for more or less; more because you have the potential for too much credit and less because it is an indication you are unable to obtain credit. The number of sizable outstanding balances also predicts danger, as does the size of the balance to your total credit limit.
To improve your score, close out the accounts you don’t use, pay down to $100 or so those you use only occasionally, and pay down the ones you use regularly. Your goal is to bring your outstanding credit-card bills to no more than 50 percent of your potential credit balances. If you can get them down to 35 percent, your score will improve dramatically. By the way, cutting up your credit card doesn’t close your account. You should send a written request and ask for a written confirmation.
Another negative is the type of account. A credit card from a finance company is scored lower than a bank, travel or oil company card, or even an auto loan, because it is seen as an indicator of your inability to obtain credit from less-expensive sources. Also, if you are about to apply for a mortgage, avoid opening new accounts; the computer reads short-lived accounts as more risky, too.
What about bankruptcy and credit counseling? Declaring bankruptcy is certainly one way to wipe your credit slate clean and start over again. But it will stand as a black mark against you and the consequences could be dire. You will have trouble re-establishing credit for some time, and buying a house will be out of the question under most loan programs for at least a year or two, if not longer.
Before considering this step, you first should consult a credit counselor, who might be able to save your credit by working out payment plans with your creditors, perhaps allowing you to pay as little as 50 cents on the dollar. This will be on your credit report, too. But at least future creditors will see that you made an honest attempt at living up to your obligations and didn’t walk away from them entirely.
In choosing a credit counselor, consider your local community-based housing agency or other non-profit organization. They obtain their funding from donations, the government or sometimes even creditors themselves, so they are able to provide this service at little or no cost. Local colleges and universities, military bases, credit unions and banks also sometimes provide this service.
Stay away from private “credit repair” companies that promise to erase your bad credit record or give you a brand new social security number. Bad credit can’t be expunged, at least not all at once. It takes time and effort. And obtaining another social security number to hide your poor credit history is illegal.
Step 4: How to establish credit
You may not realize it, but if you have recurring bills such as rent and utilities, you already have a credit history. If they are paid in a timely manner, rent, car insurance, medical, cable television and telephone bills are all indications that you are a good risk. Keep copies of the bills and your canceled checks, and ask your landlord, insurer and power company to write letters on your behalf stating how long you’ve been a customer — two years or more is best — and that you pay on time.
If you don’t have checking and savings accounts, your next step is to open them and make sure you follow the rules by keeping adequate minimum balances. Then apply for a few credit cards. All you need is a bank card, one from a local department store or a national chain and a third from an oil company for gasoline charges.
Search for the cards with the lowest fees and rates, and use them wisely to establish a record on timely payments. Don’t charge more than you can afford, and make more than the minimum payment every month to maintain low balances. If possible, pay each bill in full every month.
Where to obtain credit and loans: Practically every business is willing to grant credit to its customers, often with few requirements. In fact, the overabundance of credit gets people into trouble almost as much as its misuse. Consequently, it is up to you find the best rates and terms so you can live within your means.
Most newspapers and consumer finance magazines as well as many financial web sites list the lowest interest rates currently available on unpaid balances. Don’t be tempted by introductory low-rate offers; they invariable mean you’ll be paying much higher rates in just a few months. And skip those cards that offer a free gift or a discount on today’s purchases. They usually aren’t very good deals, either.
If you need a loan, start with your credit union. They usually have the best rates and terms and offer the best service. Next, try your bank or savings institution. They know you and want to keep your business. You can always get a loan from your car dealer or furniture store, but at what price?
How to protect your credit: Obviously, the best way to protect your credit is to pay your bills on time. Put yourself on a strict budget and stick to it. If you have more money going out than coming in, look for ways to trim your expenses, like joining your utilities’ budget plans which spread out your payments over an extended period. Remind yourself to pay by marking your calendar when bills are due. Take advantage of a creditor’s automatic bill paying programs in which your payments are deducted on a prearranged date every month (but make sure to keep track of the payments in your checkbook). And ask your bank about overdraft protection just in case you don’t.
If you find yourself a little short one month, or if you are having trouble paying your bills, don’t hide from your creditors–call them. Perhaps they’ll be willing to wave a late fee or two and agree not to report your tardiness to the credit bureaus. Or maybe they’ll agree to restructure your debt to make it easier for you to handle your payments.
Finally, protect yourself by reviewing your credit history on an annual basis with all three credit-reporting companies. You never know when the ideal home buying opportunity will present itself, but you’ll want to be prepared when it does.
Original article from Realtor.com
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