If you want to clean up your credit report, you should take some time to look into the ways that credit scores are determined by the three major groups who provide them, and once you do that, you should look at your own personal financial situation and take the appropriate actions to “Achieve Better Credit”. Would you be better off to close that account you only use in extreme emergencies? Would it be better to take a second job for a short time to increase your cash in hand? Should you use the money in your savings account to pay off your outstanding credit card debt? These are all the types of questions that you should get answered before you start to do things in an effort to clean up your credit report. Credit repair is the process of cleaning up your credit report and optimizing your scores. Credit repair has never been so important. Your credit score will determine the outcome of any loan application you make. This was not always the case. You might be surprised to hear that credit scores were not marketed to lenders until 1989. And from 1989 until 1995 credit scores were used almost exclusively by a handful of credit card issuers. It wasn’t until 1995, when mortgage giants Fannie Mae and Freddie Mac announced that they were to going to begin using FICO scores as an underwriting criterion that this all-important three digit number came into widespread usage.

Your Critical FICO Score

Credit scores began to grow in importance after 1995, but in 2007 there was a major shift in the credit markets that would make credit repair infinitely more vital than ever before. The pivotal moment occurred in June of 2007 when two Bear Sterns hedge funds collapsed and caused a mass exodus of secondary sub-prime lenders from the mortgage market. From that moment until now the credit markets have continued to tighten. And, although one would expect a cyclical loosening at some point, there is no sign of that in the immediate future. And for now, the issue is so critical that if your FICO score is low you may find that you cannot get approved for anything. And just as important, if you are approved you will find that the interest rate you receive will be based on your score. Credit repair, when done right, will optimize your scores and help you meet future lender requirements.

Credit Score Optimization

It is critical to understand that the FICO scoring model has evolved to the point that there is considerably more involved than paying your bills on time. In fact, it is quite possible to have a perfect payment history for years on end, and still have dismal credit scores. Credit score optimization, as an essential aspect of credit repair, requires an understanding of all of the factors that can influence your scores. Some of the important issues include account types, number of each account type, account balances, and age of accounts. And this is just the score optimization aspect of credit repair; when it comes to cleaning up the content of your credit reports you have a number of legal rights that can give you significant leverage with creditors and the credit bureaus.

Credit Repair, the Credit Bureaus and the FCRA

The majority of legal rights that you will utilize in your credit repair effort are embodied in the Fair Credit Reporting Act (FCRA). Your credit repair effort should always focus on areas in which you have legal leverage. There is little point in pursuing an avenue of redress if the offending party has no obligation whatsoever to respond. The FCRA puts a burden of accuracy and fairness on the credit bureaus. The responsibilities of the credit bureaus include providing consumers with copies of their credit files, researching the accuracy of information when requested, limiting the reporting period of derogatory information, and providing identity theft relief measures. Taken together, these responsibilities provide consumers with all of the legal rights necessary to dispute and correct inaccuracies on their credit reports.

Credit Repair, Collectors, and the FDCPA

Together with the FCRA, the Fair Debt Collection Practices Act (FDCPA) provides the foundation for consumer credit rights in the United States. The FDCPA can play an important role in any credit repair effort as it gives consumers limited, but powerful, rights in dealing with collectors. These rights provide the leverage necessary to stop abusive collection practices, gain an advantage in payment negotiation, and when dovetailed with specific state statutes of limitation even give you the ability to make bothersome collectors vanish from your life forever. A professional credit repair service will have an intimate working knowledge of the FDCPA and will insure that all of your rights are exercised. And if you are managing your own credit repair effort, make sure to study up on this crucial legislation.

Putting it All Together to Achieve Better Credit

Your credit score has a major influence on your financial wellbeing and hence, on the quality of your life. Credit repair is the process of cleaning up your credit report and optimizing your credit scores. In today’s economic environment credit repair is more important than ever. You can no longer afford to ignore your credit scores. Even small differences in your scores can translate into hundreds and even thousands of dollars in the amount of interest you will pay each year. And when it comes to credit repair every detail matters. If you are going to attempt the process on your own take the time to educate yourself. If you don’t have the time or inclination to learn everything necessary to do a thorough job yourself, hire a professional credit repair service. It’s your credit, and now is the time to Achieve Better Credit! Tip #1: Check your latest credit reports from each of the Big Three bureaus: The first step toward better credit scores is to find out your current score from each of the Big Three consumer reporting bureaus. You can find a number of Web sites that give you access to this information for FREE.

Tip #2: Immediately correct any blatant mistakes: Download and review each report item by item, circling any blatant errors you find. Of particular importance are inaccurate unpaid balance flags, the existence of credit accounts that you never opened, and incorrect information concerning your current address. You must take each of these mistakes quite seriously and address them to both the relevant credit agency and, when applicable, the lender in question.

Tip #3: Pay your bills on time: This is a common sense item, but people having credit problems often neglect it due to the snowballing nature of their debt situation. Paying your bills on time is very important, and nowadays even utility companies are reporting your payment history to the credit agencies. Hint: to improve your score even more, make your monthly credit card payments before the end of the statement period. This has the positive effect of keeping any charges made that month from even showing up as a balance on your cards, thereby improving your ongoing debt-to-credit limit ratio (see Tip#4).

Tip #4: Improve your debt-to-credit limit ratio: In calculating your credit worthiness, the Big Three credit agencies factor in heavily your debt-to-credit limit ratio. As the term implies, this ratio is simply the result of dividing your total current credit card debt by the total credit limit across all of your cards. The ratio is always a number between 0 and 1, with numbers below 0.5 being most favorable. There are two ways to reduce your debt-to-credit limit ratio. One way is to simply reduce your credit card balances by paying them down. Another option that many people fail to consider: request an increase in credit limit from your creditors.

Tip #5: Pay off debt, don’t just move it around: While it can be a smart move to transfer debt from your higher interest credit cards to your lower interest cards, this does not substitute for actually paying down your overall debt. Just moving your debt from card to card is not going to improve your score.

Tip #6: Avoid closing credit cards just prior to a loan application: Some people believe that closing out some of their credit cards immediately prior to applying for a loan is a good idea. However, this is not true. On the contrary, it has the effect of suddenly increasing your debt-to-credit limit ratio, which is a credit score no-no. In fact, as long as you have the will power to use your credit cards wisely, it can be a good idea to keep multiple cards. Then, use these additional cards from time to time, charging small amounts and then quickly paying them off. This reflects positively in your credit scores as your having a healthy ability to manage your debt.

Tip #7: Understand the influence that bankruptcy has on your score: As a final note, beware that having declared bankruptcy in the past can make it especially hard to achieve better credit scores. Bankruptcies can stay on your credit report for 7 to 10 years.