How much is good credit worth to you? The answer depends on what you’re trying to do. Are you trying to finance a car? A high credit score—and more specifically the low-interest rate it’s likely to earn you—can reduce your monthly payment by a hundred dollars or more. If you’re buying a home, the savings you’ll realize over the life of a 30-year mortgage can reach well into the five-figure range.
And what if you’re applying for a new job or trying to rent an apartment? You might be surprised to learn that most employers and landlords will check your credit score before hiring or renting to you. Even auto insurance companies take your credit score into account when they figure your annual premium. Your credit score is an indicator of your financial stability, a quality that matters to many companies and people you do business with.
Nationwide, first-time homebuyers have an average credit score of 620. Most lenders set a minimum credit score for mortgage seekers and, across the board, the lowest-interest mortgages are reserved for homebuyers with excellent credit. The same is true for auto and personal loans.
Financial advisors recommend you check your credit score annually and you should certainly check it before applying for any sizable loan. You can request your free credit report, which will include information from the three major credit reporting companies Experian, TransUnion, and Equifax, and your credit score won’t be affected by your inquiry.
First Steps To Take
The good news is, a low credit score isn’t fatal. Improving your credit score is a gradual and painstaking process but the savings and financial advantages you gain will be considerable.
You might guess (and usually correctly) that low credit scores are awarded to people who have a spotty credit history. Ironically, however, if you’re someone who pays cash on the spot for everything you buy, there’s a good chance you will also have a low credit score. That’s because you’re an unknown to the credit reporting agencies. They don’t have any way of predicting your credit behavior and therefore they view you as risky. Young people who are just starting their careers often encounter this problem. The solution is to apply for one or more credit cards, use them to make regular purchases, and then scrupulously meet every payment due date. Paying more than the minimum payment due each month or paying off your balance right away will also help you improve your score as you establish a credit history. Sometimes store credit cards are easier to secure than a typical VISA or MasterCard when you don’t have a substantial credit history.
Other factors that typically result in low credit scores are having a history of making late payments, having a bankruptcy, foreclosure, or repossession in your background, having too many creditors, or having high a debt-to-income ratio. Unfortunately, identity theft is becoming more common and, upon checking their credit reports, many people discover their credit cards have been hijacked by criminals. They’re not only left with low credit scores but in some cases, are also saddled with paying the bills. Identifying mistakes of any kind on your credit report is a great reason why you should comb through your report carefully.
Correcting mistakes on your credit report can be time-consuming. You’ll be required to individually dispute each mistake you find. If the same mistake appears on your reports from all three credit reporting agencies, you must file your dispute separately with each agency. You’ll also need to include supporting documents to identify yourself and if you can bolster your claim. Credit bureaus are required by law to respond to your dispute within 30 days and provide their decisions within 90 days from the date of filing. That pace can feel impossibly slow when you’re in a hurry to improve your credit. To make matters worse, credit reporting companies often use the postal service for correspondence with your creditors. If you’re accustomed to the immediacy of email and text messages, that can be especially frustrating.
Options to Alleviate the Stress
The truth is, many of us lack the patience to undertake credit repair ourselves. Increasingly, consumers are turning to credit repair companies to manage the process for them. Many of these companies offer free consultations to encourage customers to try out their services. You can learn a fair bit about credit repair by taking advantage of one of these offers.
Credit repair companies differ in the services they offer, the prices they charge, and the support they provide while you’re working with them. Some companies require you to sign a several-month-long contract while others offer pay-as-you-go programs. Monthly fees typically range from $79.99 to $119.99. Some companies that offer monthly payment plans also offer a discount if you choose to pay for several months at a time.
Some credit repair companies offer different levels of service. The more aggressive the service you purchase, the higher your fees will be. If you discover your identity has been stolen, you may decide that you want the most rigorous service available. You might also be tempted to sign up for the highest level of service if you’ve filed for bankruptcy. But there is no legal way to remove an accurately reported bankruptcy from your credit report before its “expiration date”—which is seven to ten years from the date of filing, depending on what type of bankruptcy you filed. Any company that claims to be able to remove a bankruptcy from your credit report is misleading you.
No credit repair company can guarantee you an improved credit score but several offer money-back guarantees if you’re dissatisfied with their service or they are unable to achieve results for you. Credit repair is a slow process and you should expect to pay for several months of service before you see any actual changes in your report. Monthly fees vary by company, so be sure to shop around. Some companies offer discounts for married couples who sign up for services simultaneously. If you and your spouse are trying to build a more stable financial future together, these services can help reduce the cost of doing so.
All credit repair companies offer credit monitoring as a necessary part of their service. But some make it easier to monitor your actual progress through more frequent reporting and online help-yourself dashboards. Those tools can be a motivating force throughout your campaign to raise your credit profile.
Many people are surprised to learn their credit is sub-par. One of the most valuable services a credit repair company can provide is education—they can help answer the question, “How did this happen to me?” And more importantly, they can help you establish the financial habits required to maintain your good credit over the long term.
Guest Blog Written by:
Jaroldi Gonzalez of Money Magazine,
939-644-0813, [email protected]