Credit Repair Articles

What is Credit Repair?

The definition of credit repair is the continuous act of ensuring an individual’s credit score is accurate and current by correcting discrepancies on credit bureau reports, and by paying off debts. Since credit reports will follow consumers throughout their lives, credit repair is an ongoing process. This is why consumers are entitled, by law, to one free credit report per year from each of the three bureaus.

A low credit score can affect various aspects of one’s life. The lower the score, the less likely a consumer will be eligible for loans, credit cards or other lines of credit. A negative credit report can also affect interest rates on any existing lines of credit. Companies constantly communicate with the credit bureaus; if anything on a credit report makes them uncomfortable (for example, a late payment), they may raise interest rates.

Immediate action is always the best approach. If you notice an inaccuracy on your credit report, one of the best things to do is to contact a professional credit repair company. If the inaccuracy is on a credit card statement, call the credit card company right away to put the card on hold and then contact a credit consultant.

Credit Repair Terminology

The world of finances and debt management contains many specific terms that may be confusing to the average consumer trying to read through various articles, credit reports and terms of agreement. Here are a few that are important; knowing them will help you understand your financial rollercoaster better, and make your ride to a high credit score a little smoother:

Amortization: The gradual reduction of debt through regular payments, part of which goes to pay interest, and part towards the principal.

Average Daily Balance or Adjusted Balance: An interest calculation that determines how much is owed on a debt for an average day during a specific period.

Credit Score: The most common credit scoring model used by lenders. Ranging between 300 and 850, it is used to determine a consumer’s credit-worthiness.

FICO: Also known as the Fair Isaac Corporation, it is a mathematical equation lenders use to determine the risk associated with lending consumers money.

Liquidation: Selling off assets to raise cash. Businesses that are terminating operations will liquidate assets to pay off debts.

Revolving Account: A type of credit account in which the full balance does not have to be paid back within a set time period.

Annual Percentage Rate (APR): The rate used to calculate the total annual cost of a debt, including interest and fees.

Avoiding Credit Repair Scams

When improving your credit score, there is a right way and a wrong way to go about it. There are many credit repair companies out there that will attempt to convince consumers to use their services by promising repair through certain methods, though you may not be aware they are illegal. The best protection is to know your consumer rights as well as other laws associated with credit repair.

Only incorrect information may be removed from a credit report. If a credit repair company claims to remove any accurate negative items, then it is a red flag. The company is also likely a scam if they ask for payment before they have kept their promises. Under the Credit Repair Organization Act (CROA), if all contract conditions are not honored, then no payments should be made. This is one of the number one laws created to protect consumers and should always be kept in mind.

Credit repair companies also cannot create a second credit file. A company that offers a second file, social security card or tax identification number is a scam; this is referred to as “file segregation” and is illegal. Also, remember to be wary of unsolicited e-mails, which are usually scams. Keep all of these tips in mind while going about your credit repair process, and you will soon be on your way to great credit.