Do-It-Yourself Credit Score Repair

The credit score is one of the most important factors that affect our lives as consumers. Not only
does this information determine our eligibility for loans and credits, it also reflects how we
handle financial responsibilities and how capable we are in doing business with others. That is
why, it is very important to have a good credit score. But if you have already messed up your
credit score, do not fret! There is still hope for you! In this article, we will be discussing how
credit scores works, activities that affects your credit rating, and more importantly, we will
discuss a total do-it-yourself guide to credit score repair.
Know how credit score works
Based on the 2006 Consumer Action Study, almost 30% of the total American population with
credit history has never even checked their credit reports. This is a sad truth when knowing your
credit score and how it is computed is the very basic step to credit score repair.
Credit Scoring is basically an evaluation, represented by a three-digit number, assessing ones
total credit worthiness and possible credit risks one may pose for credit providers. Credit score is
used in credit and loan applications, to even some employment decisions.
There are several ways to calculate credit scores. The most used method is the FICO score,
derived from the company Fair Isaac Corporation which started this formula in evaluating credit
scores. Using this method, the credit scores ranges from 300 to 850; whereas a credit score of
700 or higher is a very good credit standing, and a credit score of 499 means bad credit standing.
United States main credit reporting bureaus are: Equifax, Experian and TransUnion. Each credit
bureau has its own scoring method. Beacon Sytem is used by Equifax, Experian/Fair Isaac
System is used by Experian, Empirica System is used by TransUnion. However, all these scoring
methods are based on the FICO method, variations made by each credit reporting agency
provides 3 different scores for one individual. That is why on 2006, the three credit bureaus
developed the unified credit scoring method, the Vantage Score. Vantage Score offers a more
consistent credit scoring method, regardless of the credit reporting agency.
Aside from the two discussed scoring methods, there are alternative scoring methods also used
like Anthem Score, PRBC Score, FICO Expansion Score, and efunds.
Although the credit scoring method may vary, credit scores are always computed on the
following factors:
Payment History- Payment history comprises about 35 percent of your credit score,
referring as to whether you pay your bills on time, number of delinquent accounts and
whether you have filed for bankruptcy.
Outstanding Debt- For about 30 percent of the credit score, total amount of debt
outstanding is taken into consideration.
Credit History- The length of your credit history accounts 15 percent of your overall
credit score.
Credit Types-To have different kinds of debts (credit cars, loans and mortgages) helps
improve about 10 percent of the credit score.
Credit Inquiries- Credit inquiries made by new loan providers and creditors somehow
pull down and affect 10 percent of your credit score.
Debt-to-income Ratio
Debt to income ratio is basically the percentage of income that goes towards paying debts. To
compute, sum up all your monthly debt payments and divide by your monthly income. Then,
multiply this by 100. See example below for computation:

Total monthly debt payments: Car- $250.00
Mortgage- $400.00
Credit Card- $150.0
$800.00-monthly debt payments
Monthly Income (including extra fund sources): Annual Income: $45,000.00
Child Support: $4,000
$49,000.00 12 (months)
$4,083.33- monthly income
Divide monthly debt payments over monthly income:
$800.00 $4,083.33
0.1959 x 100%
= 19.59% -debt-to-income ratio.
A DTI of not more than 30% is a percentage, while 44% or higher DTI means you have too
much debt in relation to your net income. Lenders, aside from the credit score, use DTI in
evaluating a consumer for credit eligibility. This will also help you determine your financial
standing taken against your total income.

Debt Management
Now that you totally know your credit standing, we now proceed to debt management. But first
of all, let us clear out that being in debt is not that bad at all. It just all depends on what you used
with what you owed, and if you handle your debts properly. If properly managed, debts can be
taken to your advantage like better interest rates and faster loan approval. Here are some more
tips to control debt efficiently.
Check your credit report for irregularities and inaccuracy- Now that you know how credit
scores are computed, it is more important to monitor and check your credit score. Under
FCRA or Fair Credit Reporting Act, consumers are allowed to have a free copy of their
credit report once a year. Visit annualcreditreport.com or call 877-322-8228. Check for
inaccuracies and irregularities on your credit report. The FCRA allows consumers the
right to dispute anything that is inaccurate on their credit report. In case of information
inaccuracy, contact the credit reporting agency and the information provider or lender, in
writing, about the inaccurate information they have and include copies of documents
proving your claim.
Create a debt payoff plan- Using your credit report, list down all your debts. Write it
down according to balance, taking note of the interest rates (if it still has) of each debt.
Since we are trying to improve credit score, it is best to pay the balances off, instead of
settling the accounts. You can either try to pay off small balances to free up more money,
in preparation for paying off bigger balances, or pay the accounts that still accrue
interests first. Paying off debts may take more time, especially if you dont have much
money to pay it off. If you cant zero out your balances, at least keep it low and pay on
time.
Raise more funds to pay off debt- Well, this is a tip for those who want to get out of debt
faster. Of course, more income means more money that can be used to pay your debts.
You can try going overtime, go on side jobs, or selling stuffs you no longer need.
Stop incurring more debts- All these efforts of paying old debts will be useless if youll
just get new debts. You will just end up incurring more debts. However, it is also not
advisable to close of other accounts. Because one way of computing credit score is
through the ratio of the total debt against the total credit limit. Thus, closing your other
accounts with open credit will just make the balances appear higher.



More tips!
Inquiries and verifications by new lenders do hit your credit score. So dont try shop
around for better interest rates from different credit lenders.
Dont file bankruptcy. As much as possible, avoid bankruptcy. Debts declared under
bankruptcy may remain on your records for as long as 10 years.
Pay tax liens- Unpaid tax liens can hit you for 7 years even after payment.
Too many credit cards can pull down your credit score. Unless, all of these accounts are
up to date and well maintained.
Dont consign debts. Through consigning, you are deemed responsible for the account in
the event the other party does not pay the account.
Pay bills on time. Late payments may remain in your history for seven years.