Credit Repair Kit For Dummies, 5th Edition
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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.

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How to get your credit report from the big three credit bureaus

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 You want to correct any erroneous, incomplete, or out-of-date information as quickly as possible.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 105283, Atlanta, GA, 30348-5283 (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, 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 (HUD), 995Hope, or Money Management International. 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 the Federal Trade Commission or HUD.

The Further Consolidated Appropriations Act of 2020 included tax relief when a lender forgives mortgage debt. It replaced the Mortgage Forgiveness Debt Relief Act. In brief, taxes may be forgiven on mortgage debt that is discharged in 2021, provided a written agreement was entered into in 2020.

Although not everyone is eligible, if you qualify, you and your spouse can avoid taxes on up to $2 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
    • Total credit usage, balance, and available credit (extremely influential)
    • Credit mix and experience (highly influential)
    • Payment history (moderately influential)
    • Age of credit history (less influential)
    • New accounts (less influential)

How to earn 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. Credit reports have errors; yours may, too.
  • Keep balances below 30 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.

About This Article

This article is from the book:

About the book authors:

Melyssa Barrett is vice president of identity solutions at Visa, Inc., where she creates products to detect and predict fraud within consumer credit, debit, and prepaid products. Steve Bucci, BA, MA, is a personal finance expert and a nationally syndicated columnist whose column is carried by the financial megasite Bucci served as president of several nonprofit organizations dedicated to helping the consumer wisely use credit. These include the Consumer Credit Counseling Service (CCCS) of Rhode Island, the CCCS of Southern New England, and the Money Management International Financial Education Foundation. Rod Griffin is senior director of consumer education and advocacy for Experian, responsible for the company's national consumer education programs and outreach.

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