Your credit score is one of the most important numbers in your life. These three numbers will determine how much interest you will have to pay on your mortgage, car, or personal loan.
If you have a high score, you will have access to lower rates, which means that the cost of borrowing can be very low. Your monthly mortgage payments may be hundreds less than another person with a low credit rating. This can add up to thousands of mortgages saved over 15 or 30 years! Obviously, a high credit rating is key if you want to lock in a good loan rate.
What affects your credit rating?
Your credit score has several components. This includes:
- payment history
- Loan utilization percentage
- Length of credit history
- New loan
- Credit mix
The most important component of your credit score will be your payment history. Your creditors will most likely inform the credit bureau of any payments that are more than 30 days late. Your credit score will drop and you will look like a big risk to potential lenders if you have late payments on your credit report.
Also, the percentage of available loan outstanding has a big impact on your credit rating. If you have a $ 1,000 line as your only loan and you have withdrawn $ 900 from it, your utilization rate will be 90%. In this regard, a lower number is preferable, and a high percentage will negatively affect your rating.
Opening a large number of new accounts in a short period of time will negatively affect your credit score. On the other hand, having multiple accounts that are several years old will improve your score. Credit scores range from 300 to 850, and those with scores above 700 usually get high rates.
What about mistakes in your credit score?
There are several main types of errors that can show up on your credit score:
- The first is the mistakes that you made personally. These can include building up a huge credit card balance or not being able to pay off outstanding debt on time. Typically, you will have to solve these problems yourself. It will take years to pay off the debt on time.
- Your credit report also contains errors that are not related to your business. The account may have been inaccurately reported. This may be the account of someone with a similar name that appears on your credit report. If you are divorced and a joint debt has been transferred to your spouse, it may still appear on your report. Even if these are not your payment debts, they can negatively affect your credit rating. These are the types of errors that need to be fixed.
How to restore your credit rating
There are two ways in which you can try to recover your credit report. You can try to do the job yourself, or hire a reliable credit repair company to do the job for you. There are pros and cons to choosing any of these options.
Keep in mind that no matter which route you take, only acceptable errors can be corrected. If you haven’t made a timely payment, or you have a bankruptcy that legally belongs to you on your report, they will just need to cancel the report within a few years.
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Option 1 – Self-service loan recovery
You can restore the loan yourself. Every American citizen is legally entitled to receive a free annual credit report through AnnualCreditReport.com. It is recommended that you regularly call one of them to check if all discovered accounts really belong to you. When you receive your free annual report, be sure to check its accuracy. If there is an account that does not belong to you, write it down. It is the same with accounts in which the balance exceeds your debt. Also, accounts are sometimes reported twice.
If you find an error in your credit report, contact the credit bureau directly if you decide to try to fix it yourself. You will need to write a letter detailing your dispute, and you will want to send any documentation to support your argument. The credit bureau is required by law to investigate any disputes that may arise within a 30-day period. They should also provide you with a written report detailing their findings.
If you yourself made the mistake of processing the loan incorrectly, it will take time to restore your loan. You will need to create a history of the timely payment of the debt. In addition, it can take up to ten years for some negative assessments, such as bankruptcy, to drop out of your report. Once this happens, the negative mark will no longer appear on your report and will no longer affect your credit.
Pros and cons of do-it-yourself credit repair
One of the advantages of doing credit repair yourself is cost. It’s completely free. Another positive thing about self-employment is the education you should get. You will learn some of the intricacies of the American consumer finance industry by working with credit bureaus.
While there are positive aspects to trying to repair credit on your own, there are also some problems. First, the process is tedious and time-consuming. Chances are you are not an expert, so it may take a while to figure out what it really takes to repair your credit, or the type of letter you need to write.
An attempt to restore credit on its own is associated with opportunity costs. You could be doing something else to make extra money while you take the time to solve your credit problems. It is important to take all of this into consideration before you decide to fix the problem yourself.
Option 2 – Hiring a loan recovery company
You can also hire a lawyer or a reputable credit repair agency to fix any problems with your credit report. Again, there are pros and cons associated with this solution.
Pros and Cons of Hiring a Credit Repair Agency
One of the benefits you can find when deciding to hire someone to repair your credit history is the time it takes. Credit repair agencies can probably send a letter in minutes and they will know how to respond to a credit bureau’s response. Another benefit of working with a credit repair agency is the knowledge that it will provide. Because they focus on loan repairs, these agencies know the law and your rights.
There is one major drawback that comes with outsourcing your credit repair. This is the cost. While you don’t have to pay anything to go the DIY route, a lawyer or credit repair company will ask for payment. This will most likely be a monthly invoice that will remain in effect as long as the dispute continues. Simple fixes with a lot of documentation can be resolved fairly quickly. More complex credit repair issues may take months or years to fully resolve.
Even with the fees associated with hiring someone to fix your credit history, it’s likely that a professional can fix the problem faster than you can. This is an important consideration when you want to get a mortgage. Having to pay another one or two percent on a loan can mean thousands of percent.
Final considerations
Ultimately, the decision to hire someone to repair your credit or go it alone is yours. If you decide to outsource your loan repairs, make sure to hire a reputable company. Credit repair companies can only correct legal errors. They cannot magically force the credit bureau to remove the bad debt that you actually incurred. A reputable company will inform you in advance.
There are unscrupulous operators in the field of credit repair. They will make promises that the law cannot keep. In addition, current legislation does not allow credit repair companies to charge in advance. By law, you have a three-day grace period that allows you to cancel the service without penalty.
Credit repair services cannot promise that you will receive a specific credit rating using them. Moreover, they cannot do what you could not do on your behalf. In fact, you pay credit repair companies for the knowledge and efficiency they bring.
When you hire a third party company, you give them access to your credit report and allow them to correct any errors on your behalf. Since reputable firms are well aware of the applicable laws, any mistakes can be corrected more quickly than if you chose to do it yourself. This will definitely help if you want to take out a loan in the near future and want to keep your interest rate low.
Have you ever dealt with problems on your credit report? Did you do it yourself or did you rent it out? Let me know in the comments!