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How To Become Debt Free!
Many Americans assume that because they have never missed a payment that they have good credit or the best credit they can have. In fact they’re a few minor things that the average person overlooks that could be costing them points. These are all minor things that can be easily and effective taken care of if you know what to look for.
Know what your lenders are saying about you…
Review your credit report. Below are lists of minor things that can potentially lower your score. When a major purchase is involved every point counts.
- Accounts closed by Credit Grantor – often this happens when you have not used a credit card for a significant period of time. Instead of renewing you they close the account. Simple contact the credit bureaus in writing requesting that these items are listed as closed by Consumer.
- Account Date of Last Activity or Date of Last Update has been several years. If you paid a loan, credit card or home off and noticed it hasn’t been updated in some time contact the credit bureaus requesting that these accounts status are updated, i.e. listed as closed, paid in full, open and active. REMEMBER this is your good credit history so you do not want it removed from your credit file just updated. This is a huge factor in your credit score.
- Look for excessive credit pulls. If you did not authorize these immediately contact the bank in writing that made the inquires and demand a removal of the inquiry. Each inquiry can lower your score. AR inquires do not lower your scores. Often your existing credits review your credit history to see if you qualify for lower rates or increased rates. PRM inquires do not lower your scores as those are used to extend a potential offer of credit to you.
- Too much available credit. If you have a credit card with more than a 25k limit that you are not using close it or request a lower limit. Each card that you keep that has more than a 25k limit it lowers your score around 4 points. *Please review the #1 Mistake before you take action closing this account or requesting a decreased credit limit.
- Accounts that are listing balances that should not be. On occasion banks purchase the note for your mortgage, credit card companies buy each other out or student loans are transferred. These should not typically affect you but sometimes the new trade line is open and listed on your credit file and they have neglected to close out the old one or the one with the old name. This can appear that you owe TWICE what you really do thus off setting your debt ratio.
- Ongoing VALID disputes over a collection account. Meaning a Hospital bill that your insurance paid, an apartment complex you followed move out procedure on who are trying to bill you, cell phone company who tried to charge for that “free” phone after to contract ended and you opted to use another service provider. Don’t just ignore them; the wrong thing is to just do nothing. These issues aren’t just going to resolve themselves. Write the original creditor and the debt collector a letter explaining why you feel this is incorrect or disputing charges. Unless you are an attorney or someone who specializes in debt do not attempt to quote the law or question legality, writing the letter, as an average consumer with a real and true dispute will get you a lot further. After you have sent these follow up with a letter to the credit bureaus requesting suppression of the record or at a minimum it listed as “Consumer disputes this information per the Fair Credit Reporting Act”.
- Addresses that you have never lived at. This isn’t a real harm to your credit file but should be cleared up to prevent confusion or potential identity theft. Many consumers tackle this first thinking it’s going to really help their score when the above mention things should be done first.
Methods of Disputes
You can take care of the above-discussed items directly with the bureaus in several different methods. It’s important that you contact all three. They do not have a checks and balance system with one another. The bureaus are separate companies that are for profit and are not required to communicate your updated credit report with each other.
Experian (New Empirica) www.experian.com
Trans Union (Fair Issiac) www.transunion.com
Equifax/CSC (Beacon Score) www.csccredit.com
The Number One Mistake
The average person does not know that their debts owed ratio makes up one third of their credit score. Meaning you can have a small gas credit card for $250 and owe $126 and it’s lowering your score.
- Regardless if you pay these cards off every month you should try not to owe 50% of the limit any given time during the month. It takes up to 30 days for your creditors to update the bureaus of the correct account status. You can pay off the card but it can take up to 30 days to reflect to the bureaus.
- The further you get away from the 50% of the limit mark the higher your score becomes.
- From a Credit Scoring Standpoint if you have limited funds it’s best to pay down the smaller cards first as it easier to offset that debt owed ratio.
- ONLY do this if you are anticipating a large purchase such a home or a refinance of a home. If you have a card with less than a 15,000 limit and you owe a significant amount contact that creditor requesting either a lower interest rate or an increased limit. When they have t pick between the two they opt to give you more credit hoping you will end up further in debt. They might only increase it a little but it will at least get your further away from being maxed out on the card or owing more than 50% of the limit.
- Opening credit cards thinking those sitting there with zero balance will not help you will only backfire and end up harming you. Remember too much available credit can lower your scores.
- If you do consolidate all your credit card debt into one simple payment thru a bank the best option is to try to get it as an installment debt instead of a credit card offer that gives low interest balance transfer. This is beneficial from a credit scoring view.
FICO – In Case you Didn’t Know
There are five types of information used to calculate a FICO score at any given point in time. Each type of information counts as a percentage of a total FICO score:
Payment History = 35%
Amount Owed = 30%
Length of Credit History = 15%
New Credit = 10%
Types of Credit = 10%
Consumers should not feel overwhelmed when dealing with their creditors and credit bureaus. It is important that you educate yourself and take advantage of having the best credit you can have. Your actions will determine your credit future and missing a few minor things can cost you major interest rates.
For do it yourself credit repair, go here; http://www.creditrepairpublishing.com/
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