People who have a low credit score want to boost it so they have more financial options. From buying a home, a car or getting a credit card, having a good credit score will save you a lot in interest charges. Credit repair is one of the best kept secrets to help people boost their credit score high enough to qualify for a bad credit home loan with average or bad credit.
Today’s advanced credit repair solutions are helping consumers raise their credit score so they qualify for great mortgage rate home loans.
There are credit repair companies that say they can help you to improve your credit score. Some of them are good and some are not so good.
If you are interested in hiring a credit repair company, do some research to find a company that has reasonable prices and is well rated from the Better Business Bureau.
But did you know that you can repair your credit on your own?
If you have some time and don’t mind paying attention to detail, you can boost your score yourself and secure home loans for all types of credit.
#1 Go Over Your Credit Reports
The major credit bureaus are Trans Union, Equifax and Experian. They must give you a free copy of your report each year. You just need to go to each site and request it.
You also can review your credit reports on Credit Karma, which is a frees service. Once you have copies of all your credit reports, you can review them to check for errors.
#2 Dispute Negative Marks
Back in the day, you needed to write letters to each credit bureau if you wanted to dispute errors. Credit Karma allows you to dispute errors online.
Be sure to focus on the negative marks that carry the most weight. The more serious ones are collection accounts and judgments. Many people have small collection accounts on their reports from health care companies.
If you are doing it online through Credit Karma, you can dispute the negative mark, and the creditor may agree to remove it.
#3 Dispute Incorrect Late Payment Marks
Mistakes do occur. Lenders may report a payment late even though it was paid on time. A credit card provider could fail to put in a payment correctly. These could be in accounts that are current or accounts that were closed.
Your payment history is another major factor that will weigh on your score, so work hard to clean up any errors.
#4 Decide If You Want to Play Some Credit Repair Company Games
One of the tricks that credit repair agencies like to do is to dispute information that you know is accurate. For example, say one of your accounts went into collection and you did not pay it. The collection company gave up. It remains on your report and is accurate. But you can still dispute it. If you do, the entry could be removed.
The reason is when you make a dispute with the credit bureau, it will ask the creditor to verify it. Some will but many collection agencies will not. If they ignore it, the agency must remove it from your credit report.
This means that smaller companies such as collection agencies and local lenders, often have smaller staffs and are less likely to respond to credit bureau inquiries. It’s a pain that they don’t need and they don’t make them any money. Major creditors, such as banks, credit card companies, auto finance companies and mortgage lenders almost always respond.
#5 Be Nice to Credit Companies
If you have not been able to remove a negative entry from your credit report, you can just call the credit card company or lender and ask if they can remove the negative mark. It will help you if you have been a good customer for many years.
#6 Boost Credit Limits
Credit card utilization affects your credit score a lot. If you have a balance of more than 50% on your cards, it will hurt your score. Obviously, you should work to pay down the balances as much as you can. But at the same time, you can ask the credit card company to increase your limit. If you are making on time payments, they may do it. For example, if you have several thousand on a Discover card and make payments on time for years, they may increase your limit by several thousand if you ask for it.
#7 Open Another Credit Card
You also can boost your credit card utilization by opening a new account. Just keep that card clear and do not use it, and your credit utilization will drop.
#8 Become Authorized User of Another Person’s Card
This is a neat trick that can boost your score. If you have a relative with a high credit score and high credit limit, you may add yourself as an authorized user. This can boost your score. Discover is particularly easy to add yourself as an authorized user.
#9 Leave Old Cards Open
Age of credit history matters for your score, so you should not close old, open credit lines.
How the New Credit Report Changes Are Helping More Home Buyers Qualify for Mortgage Loans
Are you aspiring to enter the real estate market but have been held back by concerns about your credit score? Well, there’s some good news on the horizon. Recent alterations in credit reporting practices have the potential to expand opportunities for more individuals to secure mortgage loans.
These changes in credit reporting stem from a development at the close of the previous year. The major credit bureaus, including Equifax, TransUnion, and Experian, have collectively agreed to adjust how they evaluate collection accounts. These accounts encompass a wide range of debts, from unpaid gym memberships and outstanding motor vehicle violation tickets to late rent payments and, occasionally, seemingly inconsequential issues like unreturned library books.
Among these collection accounts, unpaid medical bills account for a substantial 52% of such collections on credit reports from the previous year. Unsettled utility bills represent approximately 23% of these accounts. Another 6% constitute defaulted debts that have been sold to third-party collection agencies. It’s notable that roughly 40% of individuals with credit reports held by the major bureaus have had at least one account in collections at some point.
Research has indicated that collection accounts were more prevalent during the last economic recession. However, there has been a recent decline in the number of consumers with collection accounts on their credit reports. In 2020, around 12% of consumers had such negative marks, compared to 14% in 2013. Currently, approximately 10% have collection accounts on their credit reports. This significant drop is likely attributed to the removal of more collections from credit reports.
The National Consumer Assistance Plan (NCAP), initiated in 2020, plays a pivotal role in achieving more precise and accurate reporting of all collection accounts on credit reports. This includes ensuring they are marked as ‘paid’ when they are fully settled. The law prohibits the reporting of debts that lack an association with a payment agreement or contract, as well as debts without enough identifying information to link them to a specific individual. Definitive information, such as a name, address, or Social Security number, must be provided.
One substantial change that stands to facilitate homeownership for more individuals is the prohibition of reporting medical debts that are less than 180 days old. Some of these debts posed issues because certain insurance organizations have slow payment practices, and many consumers were unaware that their claims had not been paid until their accounts were sent to collection agencies.
During the 12-month period ending in June 2018, the number of consumers with an account in collections on their credit reports decreased from 33 million to 25 million. The total number of accounts in collections on credit reports also decreased, dropping from 66 million to 47 million. The total amount owed fell to $11 billion.
A significant portion of these consumers initially had low credit scores, with 80% of them having FICO scores below 660. Nine percent had no credit score at all, primarily due to their collection accounts. These consumers also exhibited higher delinquency rates on their other consumer debts compared to most individuals.
According to a recent study, the impact of removing these collection accounts from credit reports was typically modest due to the low credit scores of the affected consumers. On the Equifax scale, the average increase was 11 points. However, some individuals experienced more substantial improvements in their credit scores.
The study revealed that 18% of affected consumers observed their credit scores rise by 30 points, a significant boost that can make a crucial difference when seeking a home loan. Those who saw the most substantial credit score increases were often those who initially had low credit scores. Those who experienced a 40% boost in their scores began with an average score of 530 and concluded with an average of 588. In certain cases, this could be sufficient to qualify for a 3.5% down payment on an FHA loan.
For individuals with subprime credit scores below 620, only 20% experienced a substantial enough increase to surpass that threshold. These consumers may have also benefited from changes in other credit reporting scores, such as the removal of tax liens and judgments.
Nevertheless, experts emphasize that the changes introduced by NCAP represent an overhaul of credit reporting practices rather than a complete eradication of negative account information. The positive effects of removing these negative items from certain credit reports will be mitigated if the individual continues to accumulate negative payment history. So, while these credit reporting changes may facilitate better access to home loans, car loans, and credit cards by elevating credit scores, it’s essential to remember that consistently responsible financial behavior is the key to maintaining those improvements.
As far as getting home loans go, many could benefit from this credit reporting change. FHA mortgages are especially easy to get with low credit scores but getting approved depends upon having a relatively clean credit history for the previous one or two years with no further negative items reported on the credit report.
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About RefiGuide.org
Bryan Dornan is a financial journalist and currently serves as Chief Editor of RefiGuide.org. Bryan has worked as a mortgage loan officer in the industry for over 20 years and has a wealth of experience in providing mortgage clients with the highest level of service in the industry. Bryan's continual focus is to promote affordable home-ownership to consumers like you across the United States. He also writes for RealtyTimes, Patch, Buzzfeed, Medium and other national publications. Find him on Twitter, Muckrack, Linkedin and ActiveRain.
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