Many consumers find credit repair to be an intimidating task and as a result don't take a look at their credit reports until it's too late. However ignoring your potential problems will not make them go away. The best time to analyze your credit reports is before you decide that you want to apply for a mortgage or a car loan, not afterwards.
While there are many websites devoted to helping with the credit repair process, most do not address the myriad of pitfalls that keep consumers from realizing an increase in their credit scores. Some of the more common mistakes involved in credit repair are often overlooked.
Maxing Out Credit Cards
A decent portion of your credit score will be calculated by determining what is called your credit-to-debt ratio. Basically this is the amount of credit that you are using compared to the limit amount. Lenders are going to want to see that you are around the 20% mark of your available limits.
Disputing Accurate Accounts
Many consumers, even many established companies, believe that disputing every account is going to lead to better credit scores. While it is true that having an inaccurate account removed will ensure that it's not hurting your score, simply disputing everything is probably going to create an even worse situation. If you know you owe money, be prepared to pay it off.
Ignoring Collection Agencies
By law, you have 30 days to dispute the validity of a collector's claim that you owe them money. Collection agencies have to provide you with proof that they have a legal right to the money, that they are allowed to collect in your state and that the amount that they are asking for is legitimate. By simply ignoring them, you are unknowingly admitting that you owe them that money.
Closing Old Accounts
Many consumers believe that by closing out unused accounts they should be helping their scores. Often this isn't the case. 15% of your credit score is based on the length of your credit history. So closing older cards may actually hurt your score when it appears to lenders that you've only had credit for a few months to a year. Keep those older cards open, and keep them active with small purchases every month or so.
Stop Making Payments on Accounts
The thought process behind this is the debt consolidation method, and it's a terrible concept. Theoretically, if you stop making payments on an account, after 6 months the account will be charged off, sent to a collection agency and you can now negotiate for a lower overall payment. The problem with this theory: your credit reports now show a charged off account and a collection account, which are displayed as two separate derogatory accounts. So while you may have paid a little less in the long run, you have absolutely ruined your credit in the process.
Opening Too Few or Too Many Lines of Credit
The best credit profiles will generally have 3 to 5 open lines of revolving credit and an installment loan. Often Americans think that by having just one card they are demonstrating that they are responsible with their credit. Lenders want to see that you are responsible with a handful of accounts, not just one, and certainly not 10.
Credit Repair Never Ends
The fact of the matter is that credit repair is an ongoing process. You can't simply remove some items, pay off some debt and think that you've got the situation under control. You need to constantly monitor your credit reports as well as your credit card balances. You should always be paying your bills on time, and more than the minimum payments when possible.
If you are truly looking to boost your credit score for a loan or another line of credit, then be prepared to put in some time and effort. Neither you, nor any credit repair company is going to solve your problems and increase your score overnight. But stay with it, and the rewards will be well worth the effort.
MyCreditGroup.com is an industry leader with experience in Credit Repair Services and Debt Settlement Solutions. My Credit Group Inc. - A nationally recognized authority on credit repair, helping people improve their credit scores legally and effectively for over a decade. Consultations are free and credit repair is backed with a risk-free guarantee.
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