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A Full Guide to Credit and Credit Repair

Learn what is a credit score and why they are important, the range of possible credit scores and and what is considered a 'good' credit score versus a 'bad' one, the factors that credit bureau use to calculate your score, and how to build your credit if you don't have any or fix your credit if it is damaged.

One of client’s with credit issues told me that they wish their teachers in school taught them about credit. It’s true, they don’t teach students about credit in school. You basically have to learn about it from your parents, friends,  your personal experience or now the internet.

Credit is very important and is something every adult needs to know. If you already know the basics of credit skip down to the credit repair section if you want help improving your score. If you are somewhat clueless about how credit works, then these basics will catch you up to speed.

What is a Credit Score and what do Credit Scores mean?

Credit scores are a rating used by lenders to help them determine how likely a borrower is to pay them back (in other words how risky a borrower is).  Lenders are more likely to lend to and give favorable lending terms to people with high credit scores than low credit scores, and some lenders will not lend to borrowers with scores below a certain level or that have no score.

Credit Scores are mainly based around Credit Card and Loan payment histories. If you are not from the US or you do not use credit then you may not have a credit score. If you don’t have a credit score I’d recommend starting building one right away because they are very important. 

What is a Good or Bad Credit Score?

Credit scores can range from a perfect 850 to the lowest score of  400’s. If you are trying to qualify for a mortgage on a home, lenders want a credit score of at least 620-650, but I’d shoot for 660-680 range because the loan terms will be better. If you are trying to rent an apartment most landlords will be looking for at least 600 credit score on $2,500 month leases or less, and can want 700 scores for leases in the $3,500-$4,000 or higher price range. Any credit score below 600 is generally considered bad credit.

Image courtesy of www.CafeCredit.com

Credit scores of 700+ indicate that the borrower pays their bills, pays their bills on time, and are currently is in a strong financial position.

Credit scores between 600-700, show that the borrower pays most of their bills, may pay some of their bills late, and is currently in an OK financial position.

Credit Scores between 500-600 show that the borrow doesn’t pay all their bills, regularly pays bills late, and is in a shaky financial position.

Credit Scores below 500 are very bad and suggest that the borrower doesn’t pay many if any of their bills, and is in a very bad financial position.

Keep in mind that if your financial situation has improved but you have not repaired your credit, your credit score will not accurately reflect you. That’s why it is important to work with a credit repair company when your situation improves.

Credit Bureaus

There are three credit Bureaus in the United States that track financial data:

Transunion –  transunion.com

Equifax – equifax.com

Experian – experian.com

Major creditors (think mortgage companies, credit card companies, hospitals, insurance companies, the government) report to these credit bureaus. Creditors report the status of your credit accounts with them. Their report will say whether your credit status is:

in good standing, late (30 days, 60 days, 90 days), or delinquent.

in collections

charged off

or settled.

Each Bureau uses this information to give you a credit score. Keep in mind that if you do not use credit, you will not have a credit score because there is no information. This can happen for people who pay for everything in cash or with a debit card and don’t use credit. Even if you don’t believe in credit, it’s a good idea to get an emergency credit card, and to use enough credit to get a score, because this is the system we live in.

When you pull your credit score from each Bureau you will find that their scores vary. This is not uncommon, because some creditors only report to one or two of the bureaus while other creditors report to all three, so each bureau has slightly different information. Typically the scores between Bureaus doesn’t vary by more than 10 to 20 points. In some cases it can be as high as 40 points but that is rare.


How do the Credit Bureaus come up with my Credit Score?

The Exact formula for how the Bureaus determine your credit score is as a closely guarded secret. However, the Credit Bureaus do give us a few hints about the different factors they use and how they are weighted.

Payment History (35%)

To have good credit you need to pay your bills on time. Payment history has the greatest impact on your credit score. Paying bills on time raises your score. Late payments lower your score. Late payments can be 30, 60, 90, 120 days late. After that time, late payments can go into default and are sent to collections. Having a collection, charge off, or settlement on your credit report dramatically lowers your score. If you have any delinquent accounts on your credit report, settling them and deleting them will improve your score. Credit Repair companies can help you do this.

All these Late payments and collections lowered this person’s credit score under 500

Debt/Credit Use (30%)

Debt is how much of your available credit you are using. For Example, if you had a credit card with a $5,000 limit, and you had a $4,800 balance on the card, you would only have $200 left of available credit. With credit cards- the more money you borrow the higher your minimum monthly payment. Keeping high balances on your credit lines is bad for your credit score. You want to keep the amount of credit you use between 50% – 30% of the limit, the lower the balance the better. So for the Example of the $5,000 limit credit card, keeping a balance of no more than $1,500 to $2,500 on that card is good- if you can pay off the credit card completely each month that is ideal. If you have very high balances on your credit cards paying them down will improve your credit. 

Length of Credit History (15%)

The longer your credit accounts have been open and in good standing the better. If you don’t have much of a credit history, it may be a good idea to sign up for a few credit cards – even if you don’t need them or use them they will help establish your credit history. Newly opened accounts lower your score initially, (see new credit), they will improve your score once they’ve seasoned in a year or so.

Type of credit (10%)

A good mixture of different kinds of credit can strengthen your score. If you have an auto loan, credit cards, and mortgages this shows the credit bureaus that you have good relationships with different types of creditors.

New credit (10%)

Opening new credit can temporarily hurt your score until those accounts have seasoned. Credit Inquiries can also lower your score, especially if you have made multiple inquiries in a short time. Inquiries from mortgage companies and automobile loans are treated as only one inquiry if they are made within a 45 day period. The credit bureaus know that consumers may decide to shop around a bit before deciding on a big purchase.

How do I check my credit?

You can ask Lenders, real estate agents, credit repair company, to check your credit score. Or you can check it yourself with online services such as creditkarma.com, freecreditreport.com, or now a lot of online banking portals provide it. With the online service be sure to read the fine print, they usually will let you check your credit for free, but also sign you up for an automatic monthly subscription service.

I Have Bad Credit, How do I improve my score?

Real life has a way of not working out like the bedtime stories we were told as kids. The economy is cyclical, and if you have too many financial commitments during a recession, you can get into a bad situation.

Credit Damage doesn’t have to be a downturn in the economy either. A financial hardship such as a divorce, student loans, health issue, job loss, foreclosure, lawsuits, or bankruptcy can flip your life upside down.

Maybe in the past you were irresponsible with money, and borrowed more than you could pay back and now you have to pay for it.

Regardless of what the reason is, when your credit is damaged- it makes it hard to rent a place to live, buy a home, buy a car, you have to pay higher interest rates, and frankly, it’s embarrassing.

The first thing you need to do before your credit can improve is to get yourself in a situation where your income consistently covers your living expenses and allows you to save. Sometimes, this means the very humbling experience of moving in with a family member until you get back on your feet again.

Once you are in a good place financially- it is a good time to start repairing your credit.

How Long do Derogatories Stay on my Credit Report?

A derogatory is a late payment, charge off, settlement, collection. The Fair Credit Reporting Act (FCRA) says that credit bureaus may only keep records for seven years back. So if you do nothing in seven years any bad credit items will be removed. However, seven years is a very long time, and if you work with a credit repair person, they can remove a derogatory in 1 or two years instead of having to wait 7.

There are some exceptions to the 7 year period:

Bankruptcy (10 years)



Credit Repair FAQs

I pay rent every month on time does that improve my credit score?

Unfortunately, most landlords do not report to credit bureaus so on-time rent payments don’t help your credit score, but a previous landlord can provide a positive rental reference and confirm rental history when you are applying for a new place.

What do Credit Repair Companies do?

Credit Repair companies advise you on which credit accounts to open, close, and pay down or pay off. They also challenge collections and charge offs on your report and settle and delete them. They help you raise your credit score.

I have no credit, can a credit repair company help me?

Absolutely! I see this a lot with foreign nationals, who have just moved to the United States from another country. The first thing you want to do is sign up for a secured credit card so you can start building your credit right away. Credit Repair companies will help you get a high score quickly.

How much can a credit repair company improve my credit score?

Anybody can have good credit, if you make good decisions, and get help from a credit repair specialist there is no reason you can’t get to a perfect score of 850.

How long does it take to repair credit?

It depends on your current score. 3-6 month’s  if you are in  the 600 range. 6 months – 1 year  if you are in the 500 range. And 2 years if your current score is below 500.

How much do credit Repair Company Cost?

It depends on your current score. For people with 600 scores it won’t cost as much to repair their credit as someone with a 500 score. In general they charge between $1,000 to $2,500 range to repair credit. This is money well spent because you will save this money on interest, and will make your life easier.

Should I hire more than one credit repair company?

No, you should only hire and work with one credit repair company at a time. You might think by hiring two or three credit companies that your score go up faster. This is not true. The information that your credit repair company is the credit bureaus and creditors needs to be consistent. If you have two or three different people talking on your behalf and they are all saying different things, this could actually hurt you and not help you.

Credit Repair Companies

Jon Foley
Shamrock Credit Repair

R.L. Kramer



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