Credit Restoration also commonly referred to as Credit Repair is the process of removing incorrect or inaccurate items from an individual’s credit report. Credit repair can also encompass adding good credit items and building a positive credit profile.

Remember that credit is money ~ Benjamin Franklin

Many consumers are looking for companies who can help rebuild credit and erase negative items from their credit reports.  The truth is, there is no one “silver bullet” or magic potion that will remedy poor credit.  Understanding how credit scoring works, implementing positive credit building strategies and an accurate report is the 1-2-3 with 4 being a very high credit score.  So before taking a look at the how to of rebuilding or fixing credit, lets take a closer look at where credit scores come from and how credit scoring works.


 

What is a Credit Score?

The Fair and Accurate Credit Transactions Act of 2003 (FACTA) defines a “credit score” as the following…

A numerical value or a categorization derived from a statistical tool or modeling system used by a person who makes or arranges a loan to predict the likelihood of certain credit behaviors, including default (and the numerical value or the categorization derived from such analysis may also be referred to as a ‘risk predictor’ or risk score.)

This sounds complex, and what is even more confusing is when researching the subject online there are dozens of varying definitions.  A simple way of thinking about your credit score, is to think of it as your credit grade point average (GPA).  Like a GPA, your credit score can be effected both positively and negatively, is cumulative with some factors carrying more weight than others.  There is more than one method used to calculate a credit score however the method developed by Fair Issac is the most dominate and produces what is called a FICO score.  This is the score used by major home and auto lenders, so from this point on we will specifically be talking about what makes up a FICO score as well as how to build upon and restore it.

 

What Makes Up a Credit Score?

Credit Score Pie

Although the exact mathematical formula has not been released to the public because of its proprietary nature, the five general categories that make up the FICO score have been made available.  The pie chart to the right provides a visual representation of these 5 areas.  For a full explanation on all 5 FICO areas click here.

The key is to focus on the major categories which are Payment History and Amount of Debt Owed.  Do keep the others in mind though as The Fair Issac FICO formula takes every item into account when calculating your score.

The 3 credit bureaus that collect all credit data and report your score and personal information to lenders are Equifax, Transunion and Experian.  Why 3 do you ask?  There are many reasons but the most important is to prevent monopoly, fairness, lower prices and privacy to the consumers.  This makes tracking and understanding your credit score more complex as each bureau has slightly different methods and thus inconsistencies and inaccuracies arise.  Some lenders only use one score such as auto lenders however others like those who offer mortgages take the median score or the one in the middle.  The key is you must know all of your scores.  More information on this in our blog.

 

Credit Score Categories and Interest Rates

Once your credit score is calculated and assessed by the lender you fall into one of many general categories that allow lenders to make quick decisions on how to treat you as a risk.  In other words, rather or not they will approve you and what type of interest rate you will receive if they do.  The table below shows the various score ranges, which general category each range applies to and what type or rates a loan seeker can expect to receive.

Credit Score Table

CLICK HERE to read about Building Positive Credit, Ensuring Report Accuracy and Credit Repair Basics

 

If you would like to speak with one of our specialists about enrolling in a particular program, or just need some help deciding which solution is right for you, feel free to call us at (888) 609-1854 | Opt. #1 or complete the form on our CONTACT page.