Having a bad financial record can affect many aspects of your life. It makes it far more challenging to get approval for loans, mortgages, and low-interest rates. If you are experiencing this, there are several simple ways to get out of a destructive cycle and increase your score. Many of these include understanding your situation and what specific factors are impacting your report.
Everyone has a unique financial situation. However, there are still several universally experienced issues when it comes to credit. For that reason, we’ve compiled ten of the most commonly asked credit repair questions to help you find a solution and better your finances.
1. What Is Credit?
At the core, using credit involves using the opportunity to use another party’s finances (usually a credit agency) with the promise of paying them back.
Credit is a valuable tool for covering everyday purchases, such as groceries, gas, shopping, etc. You also can use it to attain funds for larger purchases, such as paying college tuition, buying a home, or starting a business.
For a financial institution to approve a loan request, they will generally require proof of good credit. It is vital to build credit and attain an excellent report to receive the financing you need.
Many people think of it as free money that they can use whenever they are in need. However, this is not the case. Thinking this way can lead to bad habits that will decrease your score and potentially land you in a lot of debt. Once this happens, it can take years to rectify.
2. How Do I Start Building It?
Having a good report is how you show financial institutions that you are a trustworthy borrower. There are several ways to attain credit.
Opening a credit card account is one of the first steps to take. Alternatively, you could become an authorized user on a family member’s account. Once you are a user of an authorized account, you can utilize it to make purchases. You can also consider using tradeline companies too.
To boost your score, pay balances as quickly as possible, and keep your balance below 30% of your limit. This financial management will show your lender that you are responsible, trustworthy, and can pay back your debts.
3. What Is Credit Repair?
Part of this requires fixing inaccuracies in your report. You’ll want to have incorrect items removed from your history and update any incorrect information. By doing this, you can stay up-to-date on your financial problems.
Keeping up to date with your report also helps you protect your identity. When you have bad credit, fixing inaccuracies in your report will generally improve your score. A higher score saves you money by helping you get approved for better interest rates.
4. Why Is Repair Important?
These repairs are essential for many reasons, mainly to help your future financial needs. Your report affects your qualification status for loans, mortgages, and the interest rates on your current credit lines.
If your report is incorrect, it can lower your chances of securing the finances you need and force you to pay higher rates. To avoid an unnecessary disadvantage, stay informed about your report. Identify any possibilities for credit repair questions and be ready to make any necessary changes to amend your file.
5. What Is in My Report?
Your report includes a tracked list of all account-related activities and information. Credit bureaus maintain these records, which can go back as far as a decade. This length of history means it’s never too early to start focusing on your accounts.
Your report is useful for potential lenders. They will use it to judge your reliability. Often, the report is the deciding factor on whether you will get approved for an application.
Credit reports track an extensive amount of information, such as:
- Opened accounts
- Closed accounts
- Current balances
- History of late and timely payments
- Credit limits
- Current and former addresses
- Previous collection actions
- Taxes and liens
6. Do I Need a Professional Credit Repair Company?
While there are many advantages to using a professional repair company, you can repair your report independently.
The benefit of using a professional company is that consultants can answer any credit repair questions you may have in full detail. They give personalized advice based on your situation. These companies generally have years of experience handling creditors addressing issues with the bureaus on behalf of clients.
The downside of using professional agencies is the cost. You will need to pay for consulting and repair fees, so first, ensure the benefits you’ll receive will outweigh the expense.
7. What Can I Do to Improve My Score on My Own?
Understanding your current situation is a significant part of answering your credit repair questions.
Start by requesting a copy of your reports from any or all of the three primary bureaus: Equifax, Experian, and TransUnion.
Once you have these reports, examine them thoroughly. You want to find any inaccuracies that could be affecting your score. Incorrect information could include:
- Misreported account balances
- Accounts you didn’t open
- Disputed accounts sent to collections
- Inaccurate personal information
- Outstanding balances you didn’t know about
If you find any inaccuracies, dispute them immediately to have them removed. It will help raise your score.
Another critical factor is managing your existing debts. While it may be tempting to avoid your creditors, this can make your situation worse.
Instead, try talking to your creditors about your situation. Generally, creditors are willing to work with you and find a way to help you pay off your debt.
Additionally, depending on the situation, you may be able to open a new credit line to start building better credit.
8. Does Checking My Report Lower My Credit Score?
Whenever you check your report, you view it through a service that does not report it to creditors. This way, you make a “soft inquiry,” which does not impact your score.
You can request a free copy of your annual report from one of the three major reporting agencies:
Most credit card companies also allow you to check your current score through their websites. This free annual report won’t have as much information as the full one. However, you can easily track several factors that affect your score and compare how you stack up against average reportings.
If a professional company inquires into your history, it can hurt your score. Companies make these checks when you apply for insurance, loans, mortgages, and more.
No specific number of points get removed from your score for a professional inquiry, as each person’s account and history report differently. Generally, though, your score will only drop by a few points.
That said, if you are near the threshold of a lower scoring bracket, a few points can make a huge difference. If you’re trying to get an application approved, it helps to know what kind of check it will be.
9. How Many Spending Accounts Is It Okay to Open?
While it’s a common credit repair question, there’s no real limit on how many accounts you can open. Most people use just two major cards. This way, you can have a low-rate card to carry your principal balance and a card with a more extended grace period.
Ideally, you want a card that avoids paying annual fees. However, if your card comes with significant rewards or cashback, you may be willing to take on a yearly fee outweighed by the other benefits.
No matter how many accounts you have open, make sure to spend and pay off at least a small amount each month. Consistent use and repayments will prove to lenders that you are financially trustworthy.
If you have old cards open that you don’t typically use, you may still want to keep them active. It could boost your credit score. Since your financial history affects your score, closing old accounts can hurt your credit score
Some people decided to use reputable tradeline companies as a method to quickly improve their score too.
10. If I Co-Sign a Loan and the Other Person Doesn’t Make the Proper Payments, Will It Affect My Credit Score?
Unfortunately, yes. When you co-sign a loan, it makes you fully responsible for that debt.
If the person who is primarily responsible for making payments defaults and doesn’t tell you, it will affect your score. Since you are legally equally responsible for the debt, the non-payment will reflect on your report as well. It can remain there for up to a decade.
It is best to avoid co-signing if at all possible. If you are considering co-signing a loan, try testing a credit simulator. This kind of software helps to estimate the potential effects. With this type of software, you also can input multiple different scenarios to see how your score could be affected.
The best way to improve your financial report is to be mindful of your situation and avoid extending your debts. Knowing what factors can affect your report puts you in a better position to handle any financial issues you may face. The most significant factor is probably to pay back purchases as soon as possible and not spend more than you have. We hope this guide helps you clear any issues in your report and answers your credit repair questions!