Give Yourself Some Credit... Literally

I’m sure you’ve heard of the credit repair companies that have been promoting what they can do to for the credit ratings of individuals across America.

“I went from having a 550 to a 690 in 5 months! It was so easy!”
“I was able to refinance my car and negotiate my credit card interest rates, saving my family over $1,000 a month!! They saved my marriage!!”

With the negative impact and changes due to credit repair programs, it would be a tragedy not to share the basics and provide a proper education on how to manage and maintain your credit rating, yourself. Credit repair has proven to be a less than adequate means of solving our country’s credit problems. We have all learned that credit is important and necessary in this day and age. We have all heard the horror stories of companies pulling our credit reports, and instead of facing that new car or home, we face decline letters, increased stress, decreased lines of credit, divorce, loss of available credit, depression and in many cases, closed accounts.

To bring everyone up to speed on current credit situations surrounding credit repair, allow me to present some facts.

Legally, there isn’t anyone that can remove information from your credit report that is negative and/or accurate. By law you can investigate incorrect and/or incomplete information on your reports at no charge. The Fair Credit Reporting Act (FCRA) states that you are entitled to a free credit report anytime that you have been on the receiving end of adverse action such as declined applications for bank accounts, car loans, mortgages and even employment. For more detailed information, on FCRA see below.

You are also entitled to request a free copy of your report from each of the three consumer reporting agencies, once every 12 months. This can be done through the mail for free. Trust me when I say there is nothing FREE about free credit report dot com or any other site that has to pay to advertise services that you can do yourself for free.

As you can see, if someone legally can’t do the work for you, how can they really help you? That’s right, they can’t. With the average cost of credit repair on the rise it has now become an expense that you can keep for yourself and apply toward your own bills. But let’s make sure that we understand exactly what a credit report is. Credit reports are a numerical representation of our financial character and fiscal maturity. Our financial habits are translated into a score and that score determines our eligibility of obtaining credit lines, homes, vehicles and in some cases employment. Credit doesn’t have to be a hit or miss or even blind luck. Let’s uncover three myths regarding credit and credit management as well as provide options to building a positive credit profile.

Myth #1: Run your credit card up and pay it down with the minimum monthly payment.
Fact: This is one of the fastest ways to ruin your credit.

Anytime your credit card balance exceeds one-third of your credit line, your credit score becomes stagnated and begins to decline. Why? When you exceed 1/3 or 33% of your credit limit your Debt-To-Limit (DTL) ratio begins to decrease. Your DTI is the difference between what you have spent and the maximum that you can spend. For example, on a credit limit of $1,000 and a balance of $800 then your DTL is 80%. That’s 47% above where it should be. Pay down your existing balances and you will see a near immediate change in your credit score.

Myth #2: Make sure and pay your bills when the statement comes.
Fact: By the time you’ve received your statement, if you receive it at all, then you are already late.

We have been misled into thinking that statements are a lifesaver and if we don’t receive our statements, we don’t have to pay. I’ve heard it all. The fact is that when it comes to mortgage statements, only homeowners with adjustable mortgages are required by law to provided monthly statements from they’re mortgage service provider. For fixed rate homeowners, mortgage companies are not required to provide anything more than an annual statement. If you don’t receive a statement from a creditor that doesn’t mean that you don’t pay the debts that you signed your name too.

Myth #3: I should only use my credit cards for large purchases or in emergency situations.
Fact: It’s actually better to make regular purchases on your credit card and pay them off in full immediately.

Credit cards are nothing to be scared of or placed on a pedestal. They do however need to be handled with respect. Of the two types of credit, revolving and installment, revolving is usually the more difficult to maintain. Revolving credit in particular is a luxury and should only be utilized in place of the cash you already have on hand. Cash in hand won’t do anything for your credit, however substituting a cash purchase for a credit card purchase will affect your credit. As a rule of thumb, if you have the option to use a credit card versus cash, make a wise decision depending on your situation.

In order to build a positive credit file, we need to understand all the pieces of the puzzle called a credit score. Here is a breakdown of the different areas involving credit and how much they weigh on your score.

• The history of your payments equates for 35% of your score.



• A healthy mix of revolving and installment debt accounts for 10% of your score.



• The balances and DTL ratio accounts for 30% of your score.



• 15% of your score is derived from the length of time you have been with your creditors.



• Random inquiries and new credit lines make the remaining 10% of your score.

There's something beautiful about learning something new, especially something that you want to know about. It removes the opportunity to continue operating in ignorance. You know better, now do better. It's time to leave a better legacy. It's time to own something. It's time to give yourself some credit... literally.

The Λdvocate