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Cheat Sheet

Credit Repair Kit For Dummies

Repairing your credit and keeping it in good standing is easier if you know what’s in your credit reports. Get a free copy of each of your credit reports every year and promptly correct any errors. Improving your credit also involves understanding how your credit score is calculated and how you can increase your score. If your credit is in trouble because you’re overextended or behind on payments, you have strategies at your disposal to help you get back on track.

Contacting the Big-Three Credit Bureaus for Your Credit Report

Examining your credit reports closely is important because the reports may contain errors, and those errors can affect what interest rates you receive, what jobs or promotions you get, and how much you pay for insurance. You want to correct any erroneous, incomplete, or out-of-date information as quickly as possible. Reviewing your credit reports regularly also helps you spot identity theft early. Here’s the contact info for the big-three credit bureaus:

  • Equifax, P.O. Box 740241, Atlanta, GA 30374; phone 800-685-1111

  • Experian, P.O. Box 2104, Allen, TX 75013-2104; phone 866-200-6020

  • TransUnion, 2 Baldwin Place, P.O. Box 1000, Chester, PA 19022-1000; phone 800-888-4213

You’re entitled to at least one free copy of your credit report each year from each of the three bureaus — more than one if you’re unemployed. Whether you get a copy from one bureau every four months or all three at once, you can order your free annual reports from the Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281; phone 877-322-8228.

How to Handle an Overdue Mortgage

Falling behind on your mortgage payments can put you in a financial bind and, in the worst-case scenario, can lead to foreclosure. It’s essential to act quickly, even if you’re uncomfortable doing so. Fortunately, you do have options to help you if your mortgage is past due. Here are some ideas to consider:

  • Call your lender or mortgage servicer immediately if you’re going to be late with a payment. The worst thing you can do is nothing. After you’re late, your grace period disappears, so a foreclosure action may be two weeks closer than you think.

  • Contact a HUD-certified counseling agency for more options. Contact the Department of Housing and Urban Development or Project HOPE (888-995-4673). A HUD-certified counselor can advise you for free, help you work with your mortgage servicer, and refer you to local resources that you may not know about.

  • Don’t allow your mortgage to become 90 days past due. Partial payments may not be accepted after 90 days.

  • Think twice about strategic default. If you owe a great deal more on your mortgage than your home is worth and you’re considering walking away from your home, research the many negatives before mailing in your keys.

  • Find out your alternatives to foreclosure. Find options at Federal Trade Commission or HUD.

The Mortgage Forgiveness Debt Relief Act has conditions that expired on January 1, 2014, and not everyone is eligible. However, the act may be extended. If it is and you qualify, you and your spouse can avoid taxes on up to $1 million of forgiven mortgage debt. No one wants to pay taxes if they don’t have to! The Internal Revenue Service offers more information on this important act for homeowners.

What Makes Up Your Credit Score

The two major credit scoring models are FICO and VantageScore. The FICO score is better known, but VantageScore is gaining in usage every year. The components and weightings that are used to calculate credit scores are different for each model. Knowing how the scores are computed enables you to take actions to maximize your score.

  • FICO

    • Payment history (35 percent)

    • Amount and type of debt (30 percent)

    • Length of time you’ve been using credit (15 percent)

    • Variety of accounts (10 percent)

    • Number and types of new accounts and credit increase requests (generally in the last six months or so) (10 percent)

  • VantageScore

    • Payment history (40 percent)

    • Age and depth (length and types) of credit (21 percent)

    • Utilization of credit lines (20 percent)

    • Balances (11 percent)

    • Recent credit and line increases requested by you (5 percent)

    • Available credit limits on all your accounts (3 percent)

8 Tips for a Top Credit Score

Building good credit takes time. Follow these tips to get a great credit score the first time around or, if you’ve made some mistakes, to recover in the shortest time possible.

  • Clean up your credit reports every year. Use the Annual Credit Report Request Service to access your report and dispute errors and out-of-date data to boost your score. Up to 25 percent of credit reports have errors; yours may, too.

  • Keep balances below 50 percent of your credit limits. High credit balances mean lower scores.

  • Pay your bills on time. It’s that simple.

  • Keep accounts open longer. Older accounts score higher because they establish the length and stability of your credit history.

  • Limit new credit because it lowers your score. New credit and more inquiries on your account increase your risk profile and lower your score, especially if you don’t have a long credit history. Add new credit only when it makes sense, not just to have another card or to get an incentive gift.

  • Use more than one type of credit. Doing so shows that you can manage different types of credit and different types of payments (fixed or variable). Have a variety of credit cards, retail accounts, installment loans, and other types of credit.

  • Use secured cards to help establish or reestablish credit. Secured cards are accepted by merchants and scored like regular credit cards, and the balance is guaranteed by a bank deposit. This makes credit easier to get and builds or rebuilds your score faster.

  • Avoid cosigning; it’s dangerous to your credit score. If the person for whom you cosign defaults, you may not know about it for months. As a cosigner, you’re 100 percent responsible for the debt, including any penalties, and your credit score suffers as well.

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