There have been countless books and articles written over the years about the importance of maintaining good credit. The reasons are myriad, but when you boil it all down the real issue is how much money your credit, good or bad, is going to cost you. We all want to earn, and keep, as much as possible to maintain our lifestyle. Our credit plays a vital role in our ability, or inability, to accomplish this.  So how does good credit stack up against bad credit in regards to the amount of money spent over the term of a loan? Let us use an example of two men, both looking to purchase the same style home in the same neighborhood for the exact same price, which for this example is $350,000. Buyer Number 1 is a mid-level executive who earns $120,000 per year for a company he has worked at since he graduated college. He has practiced frugality in all his spending habits; sticking to a monthly budget; diligently setting aside money in growth funds; and always paying his bills on time without fail. His credit is nearly flawless as indicated by his FICO score of 825. Potential lenders will almost immediately offer a loan at the current lowest interest rates as a reward for his good credit history. He has set aside $15,000 as a down payment towards the purchase of the house. Buyer Number 2 is also a mid-level executive earning $120,000 per year for a company he has been with for a little more than a year. He has a history of changing jobs, even occupations, every two years or so. He has lived his life up to this point with the mindset of “spend it while you got it”. Subsequently he has little in the way of savings or investments. Because of his careless spending habits he often runs out of money and is late on his bills more often than not. His current credit situation makes him a far greater risk than Buyer Number 1. Potential lenders are going to carefully scrutinize his finances thoroughly before deciding to go ahead with the loan. Through a sheer stroke of luck he has inherited a moderate amount of money and has decided to use $15,000 of this windfall towards the purchase of a home. His FICO score right now is around 625. 

Given the above parameters let’s compare the cost of the home purchase for each man using current interest rates. Buyer Number 1 because of his excellent credit qualified for a fixed-rate 30-year mortgage loan at 6.32%, while Buyer Number 2 with his bruised credit barely managed to qualify for a fixed-rate 30-year mortgage loan at 8.25%.  So how do these numbers compare against each other over the 30 years of the loan?  Buyer Number 1 has his monthly payment fixed at $2262.93, while Buyer Number 2 has his monthly payment fixed at $2701.24. Given the difference in monthly payments of 438.31 it is now a simple matter of multiplication. Over 30 years Buyer Number 2 will pay an additional $157,791.60 for the same house as Buyer Number 1.   Buyer Number 2, because of his bad credit, is literally paying in higher interest what amounts to the cost of another home over the 30 years of his mortgage. If you think this example is far-fetched then think again. It is a scenario that occurs in our country every day and there are instances where the disparity and dollar amounts between mortgages are much higher.  This simple example clearly illustrates that if you have good credit do everything you can to keep it that way, and if you have bad credit start now to fix it. There is a cure for this disease, but you have to decide if you want to swallow the medicine. Your financial life may depend on it.

The task of repairing your credit is far easier with the advent of technology and the implementation of the Fair and Accurate Transaction Act (FACTA). FACTA is an updated version of the Fair Credit Reporting Act (FCRA). Today all you need are reports from the three main credit reporting bureaus, along with your current FICO score available from myFICO.com.

Once you have the necessary documentation in hand you are poised to clean up the information that’s there – removing outdated or inaccurate data, adding positive information, and in some cases even increasing your FICO score.

Since you are taking on the task of credit repair yourself, don’t be surprised as you study your report just how many accounts you will find. Because your credit report includes negative information for the past seven years and positive information for much longer, you are likely to see accounts long forgotten and some you didn’t realize you still had. Some creditors never close accounts, even if left unused for years. Retailers are notorious for this. Your task is to sift through all this information, past and present, and identify errors.

In particular you need to look for the following:

• Is your name and Social Security Number correct?
• Are all your accounts listed?
• Account showing the activity they should.
• Accounts from a bank or store you are certain you’ve never done business with.
• Single out accounts showing negative activity.
• Are there multiple entries for the same account?
• Do the reports have your correct address?

Now that you’ve gone over your credit report and collected all your data you are ready to get down to the nitty-gritty and prepare your disputes. Before you start this crusade it’s a good time to remind you to that attempting to remove accurate information-regardless if it’s good or bad is useless.

The process for disputing and correcting inaccurate information has been made as easy as possible by the bureaus themselves. Your responsibility is to review your credit report annually for accuracy, and if you find wrong or unfamiliar information to file a dispute.

You may initiate your dispute via phone, mail, or online. By phone is the quickest and easiest route but for it’s suggested you put everything in writing to create a paper trail. That way you can point to this if things go wrong or paperwork gets lost.

If you choose the mail option write a letter stating which items or items you’re disputing. A good suggestion about the dispute letter is to keep it friendly yet factual. The bureau employees on the other end get hundreds of ugly letters daily, so your letter might just get a little more action if couched in a pleasant tone. Include any facts that support and explain your case, and include copies of supporting documentation. Enclose a copy of your credit report with the items in question high-lighted. Provide your name, address, and what action your desire.

Send your correspondence by certified mail. Ask for a return receipt so you can document the fact your letter was received. Keep copies of everything.

Here’s what happens to your dispute information once received by the bureau. The bureaus contact the source that provided the data in question. That source now has 30 days to respond. If the source cannot verify the data within the 30 days, it must be removed from your report. If the source is able to verify the information it stays on your report.  In either case you’ll be notified in writing of any actions that occurred as a result of your dispute. You’ll also be sent an updated credit report if the dispute resulted in a change of information.

What do you do now once your persistence has paid off and the information has been removed? It’s time to work at adding positive information to your credit report. The best way is simply to make full payments on time for a year or more. Another way is to add information you feel should be included on your credit report. If you know there is an account you are paying that shows a good payment history, you can request the bureaus verify the account (for a fee of course), and add it to your report.

Lastly I need to mention the 100-word statement you are allowed to use for certain items on your credit report. This statement won’t lower or increase your score by using it, but it will allow you to answer any questions a lender may have when considering you for a loan. Use this statement to explain why there were a period of late payments, collections, or charge-off due to illness, job loss, or any other life situation beyond your control. Yu may dispute any information you feel is incorrect, but wasn’t removed by the credit bureaus.

Credit repair is easy, yet few people take advantage of the tools and resources available to them. Ask yourself just how important your credit is and if saving, or losing, thousands of dollars is enough to motivate you to take responsibility and take action to repair your credit.

There have many suppositions offered regarding just what is contained in a credit report. Some know-it-alls have even gone so far as to broach the absurd idea that the intimate details of your life are contained within for all to see. Nothing could be further from the truth.

A credit report is as sterile as a hospital room, and benign in its reporting function. The information found there is purely specific; the amount of information however can cover volumes. Your credit report is fairly benign until one fails to pay a bill on time, at which time this credit reporting colossus notices, records it, and willingly offers this information to anyone who asks for the next seven to ten years!

In a nutshell here is what should be seen on your credit report:

â—Š Your name, addresses (current and former), Social Security number, and employment history.

â—Š Any tax liens, judgments, bankruptcies, and any other official information.

â—Š Accounts, if any, that have been sent to collection agencies.

â—Š Information about each credit account – Open or closed, who is owed, account type, single or jointly owned, amount owed, monthly payment, how well you have paid, and your credit limits.

â—Š All companies that have requested your credit report recently.

â—Š An optional message from you, up to 100 hundred words long, allowing you to explain any extenuating circumstances for any negative listing on your report.

â—Š Your credit score, which is an optional feature. One note of interest is your credit score may vary from one bureau to another.

Each reporting bureau has its own unique format, with information generally understandable by the average person.

As mentioned previously, nowhere in a credit report will you find lifestyle choices, religious affiliation, medical history, checking or savings accounts, or other personal information. Any information other than that listed above should raise grave concerns and prompt immediate action on your part to correct the situation.

Go online (www.equifax.com, www.experian.com, and www.transunion.com ), call, or email today and obtain a copy of your credit report. Educate yourself on its contents or run the risk of possible financial hardships.