subject: Necessity Of Credit Repair [print this page] Creditrepairmay be described as a process in which an individual or business with a poorcreditrating would intentionally take action to stop the downward spiral of thecredit score. This process would require creating a plan to incrementally eliminate outstanding debt, as well as revise the spending habits that created the initial problem. It may become necessary to work with a credit counseling service depending on the severity of the debt load, to arrive at a feasible plan of action and implementation thereafter. The recommended action to begin credit repair would first be to gather copies ofcreditreports from the threecreditbureaus namely Equifax, TransUnion and Experian as consulting only one bureau might not be adequate. There might be a possibility of some negative comments being logged with one bureau but not with the others. Hence to have a sound picture it might be better to scrutinize each of the credit reports and to spot and correct errors if any, review and verify each of the positive and negative comments.
To continue the process ofcreditrepair, it would therefore be necessary to determine the current level of indebtedness. This would mean listing every debt, whether current or inarrears. The debt obligations may be in the form of mortgage,creditcardbalances, bank loans or even items such as the current account balance at the localgarage. Without having a true picture of exactly how much debt exists, it would be impossible to even begin developing a workable budget. It would be advisable to seek a credit counselors advice of formulating a workable budget and having formulated one, changing ones lifestyle so as to stick to the budget and working at reducing or clearing the debt.
The creditrating bureaus may be helpful in finding a reliable credit counseling service agency. It might be a good idea to ask the bureau to recommend one. However, it would be advisable to go through the report given by the agency and understand ones credit rating. Credit rating may be understood as a number which creditors use to determine whether a loan or line of credit may be advanced to an individual or not. This number would be calculated by using a statistical algorithm, developed by the Fair Isaac Company (FICO) that takes various factors into account. A credit rating around 500 would be considered high risk and many lenders might refuse a line of credit, and those that do grant one would in all probability penalize the borrower with highinterestratesand difficult terms. A credit rating above 750 would generally grant the lowest possible interest rates and a very smalldownpaymentwhere applicable. A credit rating of over 650 would usually be good enough to get favorable terms and be accepted for new lines of credit.
Creditscore or FICO score that determines the credit rating of an individual would be calculated based on the percentage of the total credit that might be under current utilization (approximately 30% of the FICO score), how long the lines of open credit have been open (15%), the types of credit lines held (10%), how large the past lines of credit have been (10%), and the number of delinquent payments (35%). A credit score may be based on factors from as far back as seven or eight years. A credit score would be used by financial institutions and banks to determine the terms and rate of interest at which a loan or service may be provided. The premiums that might need to be paid on auto or home insurance would be dependent on an individuals credit score. A credit score of 650 and above would have a potential for fetching favorable offers such as low rate interest loans, low premiums for insurance, a lower interest rate on credit cards, maybe even a higher credit limit on the credit cards. Since every financial activity would require a credit rating, it would
be recommended that an individual accesses his or her credit report every year, reads it carefully and gets corrections done in case of any discrepancies or misinformation on the report. Even a slight change in any one aspect of the report might indicate a major change in the credit score. In order to repair ones credibility in the market, it might be a great idea to work towards building a favorable credit score.
