Thursday, August 7, 2008


A few months ago, we taught you how and why to handle your own Identity Security without paying a third party to handle it for you.

Now there’s a new trend. Companies are offering to Fix Your Credit, and their fees can reach the thousand dollar range or higher. Once again, with a little help from your good friends at CHEAPIOSITY, you can do it yourself for FREE. Safer, cheaper, and better. When these companies claim to “fix your credit”, basically what they’re saying is that they will help you raise your Credit Score. Your Credit Score is also referred to as your FICO score. We’ve all heard that term without really knowing what it means. FICO stands for Fair Isaac & Co., the firm that created this credit rating system now widely used by lenders of all stripes for a quick read on your creditworthiness.

Complaints against credit repair companies have risen for three straight years, increasing more than 38% since 2004 according to the Better Business Bureau, so buyer beware.

While the FICO system is widely used, it’s far from perfect. Good lenders use it as a starting point, and each one has their own ideas about how high your score should be. They may also base their decision on other information not contained in the score — like how long you’ve lived at your current address or held your current job.

In general, you’ll pay higher interest rates the lower your score. In theory, the lower your score, the higher the risk to the lender that you won't pay the loan back. FICO scores range from 300 to 850; the median score is 723. To get the best rates, you’ll usually have to have a score of at least low- to-mid-700s.

Your credit score is compiled from information collected by the three major consumer credit agencies, and each one calculates scores a little differently. So you probably have slightly different scores with each agency.

The first step in raising your score is to make sure the information used to calculate it is correct and up-to-date. For that, you’ll need to get copies from each credit agency; you can get one free every year by going to — a Web site set up under a federal law requiring the credit agencies who collect all this information on you to give you access to a free copy of your reports once a year. You’ll see a number of other pitches out there for "free" reports; when you get to the fine print, you have to supply a credit card, sign up for a "credit monitoring" service, and then cancel after they've charged your account.

Once you get your report, look it over carefully. Are there records of past- due payments you can show you made on time? Are there accounts still listed that have been closed? Worse: is someone else’s account or address listed under your name? One good reason to check your report is to see if identity thieves have been opening accounts in your name. If you find any mistakes, write to the reporting agency and ask to have the information corrected. You should get a response within a few weeks; if not, give them a call.

So now you know what your report says about you and you’ve corrected any mistakes. Unfortunately, while the law gives you free access to your credit reports, you’ll have to pay to get your FICO score. Some lenders will provide your score when you apply for a loan. But if you want to know beforehand, you have to go to and pay $15.95. (You can sign up for a free 30-day trial once.)

While the exact formula for calculating your score is not public, the basics are available on the Fair Isaac & Co. Web site, along with guidance on how to raise your score. While there are companies out there selling “credit repair,” you don’t need to pay to have someone else raise your score for you. Here are the types of information the formula takes into account, how much weight it gives each category, and what you can do on your own to raise your score:

Payment history: 35 percent.

The single most important thing you can do is the simplest: Pay your bills on time. More than a third if your FICO score is based on your payment history: how often you’re late paying credit cards, car loans, mortgages and student loans. The later you are, the more you hurt your score. FYI: closing an account with late payments after you’ve paid it off doesn’t get rid of the damage to your score any faster than leaving it open.

How much you owe: 30 percent.

The next biggest chunk of the score is based on how much you owe. The simplest solution: Pay down your credit cards and other installment loans. Moving money from one card to another won’t help: you have to reduce the overall balance.

Credit issuers also look at how much of your borrowing power you’re using. Even though you’re keeping up with monthly minimum payments, if you’re at your limit on one or more cards, you’re at greater risk of getting in over your head — which will likely be reflected in your score. On the other hand, if you can get your bank to raise your limit, the extra headroom on your account should help your score.

Length of credit history: 15 percent.

This one is hard to speed up; lenders want to see a track record of timely payments. Even if you have had credit for along time, a lot of newer accounts will lower your score. That’s why closing old accounts may reduce your score: it may shortens the average length of your credit history.

If you’re just getting started, stick with one or two accounts and gradually add more. If you can get yourself added to an account of a relative with good credit, that may help. And if you have no credit history, you may want to start with a secured loan or credit card. By keeping money in a savings account with the same lender — and using it to back your loan — you’ll lower the risk to the lender, get a better rate, and start building a good payment history.

New credit: 10 percent.

Opening up a lot of accounts all at once can also hurt your score — even if you pay all your bills on time and don’t carry big balances.

You may also hurt your score if you’re constantly changing cards and chasing a lower rate. Your score can also take into account how many inquiries lenders make to credit agencies asking about your credit. Too many requests for information may mean you’re embarking on a borrowing binge. On the other hand, Fair Isaac says it doesn’t count inquiries from lenders who want to pre-approve you — without your approval. And shopping among several lenders all at once – without opening more than one account — also shouldn’t have an impact, according to the company’s Web site.

Types of credit: 10 percent.
Most people have different kids of credit — credit cards, mortgage, car loan, student loan, etc. Open-ended credit — like a credit card -- is called revolving credit because it doesn’t have a fixed number of payments. A car loan or mortgage, which does, is known as an installment loan because when you finish the payments the loan is closed. Lenders want to see how you handle both kinds of credit. But opening more accounts won’t necessarily help offset a spotty track record of payments on existing loans.

No one can erase negative information if it’s accurate.
Only incorrect information can be removed. Accurate information stays on your record for 7 years from the time it’s reported (10 years for bankruptcy). Even information about bills you fell behind on but now are paid will remain on your report for these time periods.

Credit repair services can’t ask for payment until they’ve kept their promises. Federal law also requires credit repair services to give you an explanation of your legal rights, a detailed written contract, and three days to cancel. (This applies to for-profit services, not to non-profit organizations, banks and credit unions, or the creditors themselves.)

Be cautious about emails for credit services.
Many unsolicited emails are fraudulent.

You can add an explanation to your report.
If there is a good reason why you weren’t able to pay bills on time (job loss, sudden illness, etc.) or you refused to pay for something because of a legitimate dispute, give the credit bureau a short statement to include in your file.

Know that you can’t create a second credit file. Fraudulent companies sometimes offer to provide consumers with different tax identification or social security numbers in order to create a new credit file. This practice, called “file segregation,” is illegal, and it doesn’t work.

If you have credit problems, get counseling. Your local Consumer Credit Counseling Service (CCCS) can provide advice about how to build a good credit record. The CCCS may also be able to make payment plans with your creditors if you’ve fallen behind. These services are offered for free or at a very low cost. To find the nearest CCCS office, call toll-free, 800-388-2227, or go to

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