Repairing your Credit History

A credit report shows the "credit worthiness" of an individual or a company by examining their past borrowing and repaying records. A credit report contains the credit score of the borrower. If the credit score is low, this means that the potential lender would be taking a higher risk by loaning him/her money, since in the past this person or company has struggled with the repayment of other credits. Repairing credit history is a method of increasing this credit score, thus the credit worthiness of the borrower.

The credit score that is reflected in the report is a three digit number, the meaning of which should be known by the person who is about to apply for a loan. This three-digit number is known as a FICO score. FICO stands for the Fair Isaac and Company that began credit scoring sometime in the 1950’s. Their strategy was to use 30 different factors to determine risk. The three major credit bureaus, Trans Union, Experian and Equifax, use FICO scores when making credit reports.

A credit score will help lenders to categorize applicants quickly. If the credit score is high the application will probably get a superficial but positive review. A low credit score may get a quick review and denial.

Credit scores range from 300 to 900. Most consumers score between 500 and 800. A score in the 500s is very low and experts label is as “poor credit score”. A poor credit score means that the lender will take higher risk by lending money to the given individual. Therefore it is associated with higher interest rates to compensate for the higher risk involved. When the credit score is high – at least 640, borrowers will benefit from lower interest rates, because of the low risk for the lender.

The process of repairing your credit history begins by checking your credit report. Checking your credit report regularly for errors and having misinformation corrected immediately can minimize surprises. There are three main nationwide credit bureaus that compile credit report information. By law, you are entitled to a free credit report once a year from Equifax, Experian and TransUnion, which are the three nationwide consumer credit reporting agencies. One way to make the most of this opportunity is to order a report from just one of the three credit bureaus, then wait four months to order a report from another and, four months later, order a report from the third credit bureau. In that way, you will always know your credit status and easily spot errors or use it as an alarming signal if the score is decreasing. Remember that you have the right to dispute results if the information is incorrect for some reason, like fraud, identity theft, or other problems.

There are a lot of methods for repairing credit history, but the best way is to combine all of the techniques that are available. Have patience; the repairing process takes a lot of time and effort. At least two or three years are needed to increase a credit score of 300-400. Don’t believe any of the quick-fix credit repairs offered online. There is no such thing. Credit can be repaired by demonstrating continued income stability and prompt payment patterns in a matter of two or three consecutive years. Credit repair can also be achieved through the help of a credit counseling agency. These organizations are staffed with trained individuals experienced in the credit field. They can help you negotiate lower interest rates with the lenders.

Another useful piece of advice is to use credit cards wisely. Credit cards can help you increase your credit score, but when not properly used, they can make things even worse. Try to keep your credit card balances low. If you are paying high interest rates on your current credit cards, consider a debt consolidation loan with a lower interest rate that could be easier to manage than single regular payments. A combination of credit cards and installment loans, and loans with fixed payments can increase your score if you manage credit cards responsibly.