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How to Fix My Credit Score to Buy a House

Credit repairBad credit can affect every aspect of your life. Bad credit means higher interest rates for mortgages, car loans, credit cards and installment loans. Bad credit can also cost you a job. Federal law permits prospective and current employers to see a customized version of your credit report for employment purposes, including hiring and promoting. Insurance companies are also using credit reports to determine insurance rates. Repairing your credit doesn't have to take a long time. It's really a combination of disputing the derogatory credit items and establishing new and good credit.

The first step in repairing your credit report is to determine the extent of the damage.

Open up a free account with Equifax and Experian and request your annual credit report from annualcreditreport.com, the official website for free credit reports, or you can call 1-877-322-8228. Like an x-ray, you should have a good starting point.

Where do your credit scores fall:

Credit Score Rating
300-579Very poor
580-669Fair
670-739Good
740-799Very Good
800-850Exceptional

If your credit score is below 580, the best course of action Is an appointment with Consumer Credit Counseling Service. The cost is nominal, and possibly free. The folks at Consumer Credit Counseling will contact your creditors and seek to reduce your outstanding loan balances, request an interest rate reduction and do all the things that seem overwhelming. Your monthly payments will most likely be consolidated into one manageable payment.

If your credit score is 580 to 669, you may be able to restore your credit profile yourself.


Here are the steps to repair your credit report

1. Pay your bills on time

It should go without saying that you have to start this odyssey by simply committing to pay all of your monthly obligations when due. If you're behind on your monthly payments, contact the creditor and ask the company representative if the creditor can do anything to help. For example, can the company reduce the interest rate; knock off some of the loan balance.

2. Pay down on your credit balances and DON"T CLOSE THE ACCOUNT

The credit reporting companies use a term called "credit utilization ratio". This formula balances the lending limit against the loan balance. For example, if a credit card has a $1,000 credit limit and the amount owing is $500, then the credit utilization ratio would be 50%. To determine the utilization on your credit card, divide the loan balance by the credit limit (i.e. $500/$1,000 = 50%. The credit reporting companies favor a 30% credit utilization ratio. Using the above example, that means if the lending limit is $1,000, then the loan balance should be $300 (or less). The Credit card utilization calculator will estimate your utilization ratio.

One of the elements of the credit score formula is the length of credit history. In fact, a longer credit history will increase the credit score. The time span on an account(s) represents 15% of the credit score. Pay down on your revolving accounts . . . doesn’t close.

3. Thoroughly inspect your credit report for erroneous entries.

If you see any errors, contact the creditor and ask the lender (nicely) to make a correction. If the creditor blows you off, dispute the problem with the credit agencies. File a dispute with Equifax, Experian and TransUnion.

When you make a credit dispute, you will need documentation that the creditor has made a mistake. The credit agencies are not advocates. And they're not credit judges. Telling the customer service representative that "they told me this", or "she said that". Again, the credit agencies are not credit arbiters. The credit companies will investigate your complaint and by law, they will make a determination within 30 days. Sample Letter for Disputing Errors on Your Credit Report

4. Late payments

Late payments are serious notations on your credit report; and unfortunately, they stick to your credit report like glue. A late payment can stay on your credit reports for as long as seven years; and might affect your credit scores during the entire time period. Ouch! But here's the good news, creditors are not going to require you to wear a scarlet letter for 7 years before offering you credit. Lenders are most concerned with your recent payment history. Think one year, but, you should make an effort to have the late payments expunged (removed) from your credit report. Call your creditors and simply ask them if they would be so kind to remove your late payment(s). This technique is called "goodwill adjustment". Goodwill adjustment letter

5. Collection accounts, judgments, and other bad things

Obviously, the collection companies want the delinquent debt paid in full, but because of the Fair Debt Collection Practices Act, collection companies are restrained from annoying phone calls at all hours of the day and night threating people with a visit from the police. As such, collection companies and attorneys may be willing to discount the delinquent debt. You just have to ask. If the debt collectors agree to a settlement, it's important that you stipulate that the debt on your credit report be removed and you want a letter confirming the deletion. Without a deletion, the collection company will note the credit report with "the account was settled for less than the full amount". You want the bad thing to disappear.