The recent recession was impactful on our country, our communities, and our families in countless ways. Among the results of the recession is the lingering struggle against damaged personal credit. Credit scores are an important component of most financial agreements, and they can lead to positive or negative financial outcomes. Did you know that car insurance companies include your credit when they determine your rates, or that utilities companies and landlords can consider your credit scores?
Knowing your credit scores and the actions that positively and negatively affect your scores is an imperative aspect of managing your financial life. Every person is entitled by The Fair Credit Reporting Act (FCRA) to obtain a free credit report every 12 months. The credit agencies are not required to provide the scores, but they are required to provide the report that shows financial activity and payment history. Visit www.annualcreditreport.com to order your report. A word of caution: many websites exist that offer “free” credit reports, but they’re often not free, require credit card information, or are attempting to gain personal information. Use only the website indicated above. Additional information can be found at the following government website: www.consumer.ftc.gov.
Professional community organizations are available to help consumers understand how credit works and help them rebuild their credit. Wisdom Wealth Strategies often refers individuals to mpowered, which is a non-profit organization based in Colorado. The following is an excerpt from their Credit Educational Tutorial, which is free on their website, www.mpoweredcolorado.org:
“Recover Your Score
Most negative (and accurate) information will stay on your credit report for 7 years. There are some public record items, however, including chapter 7 bankruptcies and tax liens, which will stay on your credit for 10 years or more. These time limits are established to allow consumers to have new start 7 to 10 years after a financial hardship.
But 7 to 10 years is a long time! The good news is that you don’t have to wait 10 years to start increasing your score and reinstating your credit reputation after a financial hardship.
Three Steps to Credit Recovery:
1. Ensure that everything on your credit report is accurate AND verifiable
- If you see something on your report that is not both accurate and verifiable, start working to get the error fixed.
- Contact the credit bureau by certified mail, return receipt requested. Tell the credit bureau in writing what information you believe is inaccurate, include a brief explanation of why you dispute the information, and request that they correct or delete the information.
- The credit bureau must investigate the item(s) in dispute within 30 days. If the bureau cannot prove that the information is both accurate and verifiable, they must remove the information from your report.
2. Pay off or reduce all outstanding debt balances.
- Establish a solid plan to get out of debt – and stick to it! Start with unsecured debts (collection accounts, medical bills, credit cards, etc.). If you can’t pay off the entire balance on your credit cards, do your best to reduce your current balance-to-limit ratio. Consider contacting a local non-profit credit counseling agency for assistance in this process.
- Even though paying off a collection account won’t remove it from your credit report, it will be reported as paid rather than unpaid. An old collection with a $0 balance is better for your score than one with a balance.
3. Create a new pattern of payment history that is on time, over time.
- It’s not enough to just eliminate inaccurate information and pay off outstanding accounts. The third step is to start using credit again. No history is still considered bad history; you must participate in the credit markets if you want to improve your score. Work to establish 3 to 5 open accounts with a good credit mix (variety of credit cards, installment loans and/or mortgages).
- If you’re having trouble securing a loan approval, consider a secured credit card from your bank or credit union.”
The mpowered website offers a wide variety of information. We encourage you to explore it! Your credit scores are an important factor in overall financial health, so start whipping yours into shape today. If we can be of help, please give us a call!