Fix My Credit Score Overview
“Boy do I need to fix my credit score” is on the minds of many US consumers these days. Presently one in five has errors in their credit reports based on a recent report from the FTC. Consequently these errors negatively affect your credit scores. Since your credit scores are calculated solely based on your consumer credit reports, you need to get rid of these reporting errors. So, this fix my credit score guide will help you do this and adjust your financial behavior to improve your credit score.
A lower credit score indicates to a potential lender that the quality of your creditworthiness is less than ideal. Consequently this can result in limiting your availability of credit sources as well as increasing the cost of borrowing.
Fix My Credit Score Starts With Credit Repair
Credit repair or restoration refers to the process of disputing mistakes and errors in your credit reports. Basically your creditors report monthly your credit activities (payments, credit applications, etc.) to the credit bureaus.
Each credit bureau has their own proprietary version of your credit report. Consequently the information in your credit report is accurate, based on what is received from your creditors. But your creditors and the credit bureaus commit errors in reporting.
This fix my credit score guide will help you learn what to do when there are errors in your credit reports.
What Is Your Credit Score Exactly?
Your credit score is your credit history expressed as a number. Basically it is a three-digit number, typically between 300 and 850, designed to represent your credit risk.
Simply put, the likelihood you will pay your bills on time. So, you can also think of it as a grade for how responsibly you have managed loans, lines of credit and other financial obligations over the years.
Credit scores are calculated using information in your credit reports, including your payment history, the amount of debt you have, and the length of your credit history. Consequently higher scores mean you have demonstrated responsible credit behavior in the past. So potential lenders and creditors are more confident when evaluating a request for credit, like a loan or a credit card.
Credit scores are extremely important because they affect your ability to borrow money as well as the cost of doing so. Simply put, those with higher credit scores generally receive more favorable credit terms.
This will translate into lower payments and less paid in interest over the life of any of your credit accounts. Also they play a role in the car insurance premiums you pay. However, a bad credit score can even make it difficult to find a job or a place to live.
This fix my credit score guide breaks down what goes into your credit score so you focus on what is most important to improve on.
Your Credit Score Is Your Financial Report Card
A credit score is a statistical summary of the information contained in a consumer’s credit report usually graded on a scale ranging from 300 to 850. Basically your credit score represents your financial reputation. Consequently it is used by lenders, landlords, employers and others to determine your level of credit risk, responsibility, and overall character.
Credit scores are calculated using information in your credit reports, including your payment history, the amount of debt you have, and the length of your credit history. Accordingly higher scores mean you have demonstrated responsible credit behavior in the past, which may make potential lenders and creditors more confident when evaluating a request for credit, like a loan or a credit card.
Credit Score Ranges
Here is a general look at credit score ranges:
- Excellent – 800-850
- Very good – 740-799
- Good – 670-739
- Fair – 580-669
- Poor – 300-579
What Affects Your Credit Score?
Credit scores are based on the information in our major credit reports. Simply put, they represent a numerical weighting of different categories found in a credit report. Furthermore, there are two major providers of credit score reports in the US: FICO Score and VantageScore. While the credit scores may be calculated a bit differently, they will likely produce very similar results for you.
Your credit score is calculated only from the information in your credit report. However, lenders may look at many things when making a credit decision, such as your income, how long you have worked at your present job, and the kind of credit you are requesting.
If you have good marks in each of the following credit categories (using FICO Score as reference), your credit should be good no matter which credit score report is used. These percentages are based on the importance of the five categories for the general population. The importance of these categories may vary from one person to another.
Payment history is the most important part of any credit score. The first thing any lender wants to know is whether you have paid past credit accounts on time. This helps a lender figure out the amount of risk it will take on when extending credit.
Having credit accounts and owing money on them is the second most important category of a credit score. It is an indicator of whether your spending habits are sustainable and if you are likely to face serious financial problems in the future. If you are using a lot of your available credit, this may indicate that you are overextended-and banks can interpret this to mean that you are at a higher risk of defaulting.
In general, a longer credit history will increase your credit report. The length of time using loans, credit cards and lines of credit is important in accurately forecasting a borrower’s future risk behavior. However, even people who haven’t been using credit long may have credit scores depending on how the rest of their credit report looks.
This category measures your mix of different types of credit accounts (credit cards, retail accounts, installment accounts, auto and mortgage loans) and how recently you have used them. The types of credit you have used shows how experienced a borrower you are. It is not necessary to have one of each.
On a credit score, this category emphasizes your recent financial performance. This is one of the best predictors of your future financial activities. Research shows that opening several credit accounts in a short period of time represents a greater risk, particularly for people who do not have a long credit history. If you can avoid it, try not to open too many accounts too rapidly.
What Are Your Credit Reports & Credit Scores?
There are three major US credit bureaus: Experian, TransUnion and Equifax. The credit bureaus maintain records of your credit data and other identifying information. These are your consumer credit reports.
There are two major US credit score providers: FICOScore and VantageScore. FICOScore is the market leader and are used in over 90% of US lending decisions. These are your consumer credit scores.
When you get a new loan or credit card, make or miss a payment, apply for a car loan, etc., your lenders will report this information to the credit bureaus. Since it is up to your lenders what information they report to the credit bureaus, and which credit bureaus they report to, it is not uncommon for your credit reports to be slightly different at each bureau.
All consumer credit reports contain the same four categories of information.
Personal Information – Your name, address, Social Security number, date of birth and employment information. This information is NOT used in calculating your credit score.
Accounts – Your credit accounts, organized by type (bankcard, auto loan, mortgage, etc.), date opened, credit limit or loan amount, account balance and payment history.
Inquiries – Requests for your credit report within the last two years. There are two types of inquiries: hard inquiries and soft inquiries. A hard inquiry occurs when a lender or other third party checks your credit report or score when you apply for credit with them. A soft inquiry typically occurs when your credit reports and scores are pulled without you applying for credit (like when a credit card issuer sends you a pre-approved offer), or when you pull your own credit reports. Your credit scores only consider hard inquiries.
Negative Items – Delinquency information from missed payments that have been reported by lenders. This also includes information on overdue debt from collections agencies, and public record information (bankruptcies and foreclosures).
And since your credit scores are calculated from the credit data on your credit reports, it is also common for your credit scores at each credit bureau to be slightly different. Yes, you have multiple credit scores. And, different lenders use industry specific credit scores when evaluating your credit. For example, there are credit score versions for auto, home mortgage and credit cards.
Fix My Credit Score Repair Process
The fix my credit score repair process identifies reporting errors on your credit reports. Then dispute letters are sent to the credit bureau that issued that report. Finally if the information cannot be verified within 30 days, the credit bureau must remove the disputed item.
You or a third-party credit repair company can do this. Basically there’s nothing a credit repair company can legally do for you, that you can not do for yourself. However, you must have the knowledge, dedication and discipline to do this yourself. Also it takes lots of time.
There is no quick repair fix to improve your credit score. So, information that is negative but accurate (such as late payments and delinquencies) will remain on your credit report and affect you credit score for up to seven-years. However, there are steps you can take to repair and improve your credit scores over time.
Dealing with the credit bureaus can be challenging. However this fix my credit score guide is a starting point for you to take your first steps.