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Credit Repair News

1/11/2009
Keeping a credit score high takes work and planning.

Home mortgages, car payments, student loans -- those reasons are just a sampling of how people can let their credit get away from them.

Many of these issues are necessities to life. You need a roof over your head; if you have a job you need to be able to get there; and more than likely, in this day and age, that job requires you to have a college education. It doesn't take long for borrowers to realize they could be in over their heads.

"Too much debt is what you can't repay comfortably each month, and still have some money left over," explained Robbie Ross, senior vice president of wealth management at FirstMerit Bank in Wooster. "A traditional rule of thumb is a debt-to-income ratio of 38 percent. This means your total monthly credit obligations should not be more than 38 percent of your total monthly income."

Ross said those obligations include rent, mortgage, credit cards, car and any other contractual monthly payments. Expenses such as groceries, utilities, insurances, taxes and other necessities are not included, which is why Ross said "you need so much money left over."

Obviously, if you're paying more than you can afford in credit expenses things can turn for the worse quickly. And most likely when that happens, all of those entities who have given you credit will report your history to the three major credit reporting agencies -- TransUnion, Experian and Equifax.

"Reporting credit accounts is voluntary and not required," explained Susan Thomas, public relations manager for Experian. "For more than 100 years, lenders have depended on credit experience from other lenders in order to make sound financial decisions for the health of their business. Thus, there is a well established understanding that every lender is expected to contribute if they want to receive the benefit of access."

In order to report to a particular credit reporting company, Thomas said the lender must have a contract with that company, specifying they will follow all laws and company polices for accurate reporting and verification of their data.

So how does your credit score decline? Although there are a number of different variables that factor in, Ross said the issues that have the most negative impact on scores include past due accounts, including late payments, collections, foreclosures and bankruptcies; high balances on revolving debt such as credit cards and lines of credit; and being over the limit on credit loans.

There is such a thing as good credit though, Ross said.

"Generally speaking, good debt is used to purchase big ticket items that are needed, such as a house or a car. This debt should be within reason for a person's financial situation," she said.

So you've seen the commercials. You've heard the ads. But have you ever really actually gone online to request a free credit report? When going there be wary though -- the only place to get a truly free credit report is annualcreditreport.com, where you can view reports from TransUnion, Experian and Equifax once every 12 months.

Many sites say they offer a "free report," but it is only for a limited trial time and when registering they still ask for a credit card number in case you forget to cancel. And all sites charge a fee to view your credit score, but not necessarily your credit report. But why is it important to know your credit score?

"Essentially, a credit score is a statistical summary of the information in a credit report at the moment it is reviewed," Thomas said. "A credit score often is calculated as a credit report is delivered electronically from the credit reporting company to your creditor. A credit score is not part of your credit history and does not appear on your personal credit report."

The definition of good and bad credit scores has changed over time, Ross said, "and continues to change with the economy."
"Currently a very good credit score is over 700," she said. "An average score may range from 660-699. Typically the higher the score, the better interest rate you can get; to get the best interest rates you may need a credit score greater than 740."

A credit score of 620 or below is considered poor, Ross said, and the only sure was to raise it is to repair it.

"Reversing the causes is the best way to improve your score, although that can take anywhere from a month to several years, depending on the cause," Ross said.

So start from the beginning -- view your credit report and score, and take whatever action is necessary to ensure they are both positive in 2009 and beyond.

By LYDIA GEHRING


 
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