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Credit Repair and Credit Reports

In today's world your credit history has an increasingly significant impact on your life. A good credit record can open doors, while a poor credit record will tend to make your life more difficult. Lenders use your credit report to judge your credit worthiness and decide whether or not you're an acceptable credit risk. Cell phone companies, insurance companies, landlords, even potential employers often make decisions about your future based on your credit history.

It's therefore critical to know how to manage your credit wisely. Whether your credit is excellent, average, or so bad the hope of getting approved for any sort of loan is a pipe dream, knowing how credit works, and how to make it work for you is critical for your financial future. Having credit that is less than perfect does present distinct challenges, but take heart. The information and tips found in this section are designed to help you strengthen your financial health.

Credit reports and credit scores

A credit report contains a person's credit activities for the previous 7 years (the exception is a bankruptcy - which can remain on a credit report for up to 10 years). In the U.S., there are three main credit bureau agencies - Equifax, Experian, and TransUnion. These agencies collect credit related information from various lenders, including credit card issuers, banks, and mortgage companies. This information is made available to lenders and other businesses which then use the information to determine whether to extend credit. The credit information on the report consists primarily of account balance, account status, monthly payment, credit limit, late payments, and credit inquiries. Your credit report also includes information about your residence, employer, whether you've filed bankruptcy, and if you've been sued.

Every credit report includes a credit score, which can be thought of as a number that represents the quality of your credit. Various methods are used to calculate this credit score, but the most widely used version is the FICO score, named for the Fair Issac Corporation, the company which first developed the score. Each of the three main credit bureaus has their own proprietary rendition of the FICO score. Equifax employs the Beacon score, Experian has the Experian score, and TransUnion uses the Empirica score. Each version produces comparable scores.

Credit scores typically range from 300 to 850. The higher the credit score, the better your credit. Consumers with credit scores in the upper range are able to get better loan terms, such as more attractive interest rates or larger loan size. On the other side of the scale, people with lower credit scores will normally have less attractive interest rates and may even be turned down for loans, credit cards, and other credit related products.

The Fair Credit Reporting Act (FCRA) is the federal law that regulates the credit reporting industry and is designed to ensure accurate and fair credit reporting practices. The Fair and Accurate Credit Transactions Act (FACTA) of 2003 extended the scope of the FCRA by adding sections to address, among others, the following: prevention of identity theft, improving the resolution of consumer disputes, and improving consumer access to credit reporting information. The latter topic specifically addresses the right of every consumer to get a free credit report.

Review your credit report periodically to ensure it contains complete and accurate information. The FCRA entitles you to obtain a free copy of your credit report from each of the three credit bureaus each year. The credit score, unfortunately, is not included in this benefit. To obtain a copy of your credit report with your credit score, you can purchase your credit report directly from the credit bureau agencies. Additionally, the Fair Issac Corporation maintains a website, MyFico.com, where you can get your credit score.

Credit repair

By this point you should recognize the impact your credit report has on your life and why you need good credit. But what if you have a bad credit history, or even what we may call less than perfect credit? There are steps you can take to improve your situation.

Tips to repair credit on your own

  • Get and review a current copy of your credit report
  • Dispute any inaccurate information
  • Lower balance on credit card that are at or near maximum balance
  • Put an emphasis on paying mortgage and car payments
  • Build new credit (consider a secured credit card)

The internet is rife with companies vying for your attention to repair your credit. Be wary of these claims and see how credit repair services operate. Credit repair scams come in many flavors so be on the lookout.

How to detect a credit repair scam

If you are considering a credit repair service, here's how to tell if the company behind it is a scam:

  • You are asked to pay in advance. Under the Federal Credit Repair Organizations Act, credit repair companies cannot demand payment until they have performed the promised service.
  • You are told to dispute every item in your credit report regardless of its accuracy.
  • You are not told that you could repair your credit report yourself for free.
  • The company asks you to apply for credit under a different identity. This could be a felony!
  • The company insists that you do not contact any of your creditors directly.

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