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Don't Pay High Interest Rates, Rebuild Your Credit Score - Part 1

Art Buchwald epitomized our behavior when he said that Americans are broad minded people. We will accept any fact about a person, but if a man doesn't drive, we think there is something wrong with him. How passionate we are about cars!

View your Latest Credit Score

Buying a car is nothing like buying new clothes or a cell phone; it needs a whole lot of money.

You can avail auto loans from several lending companies. Although there are many other factors like your income, job profile, driving skills, etc. that affect your loan-approval, the most important is your credit score. It gives an exact idea of your loan history.

In the present economic condition, almost everyone is tackling bad credit score. Making regular payments is becoming difficult. Loan applications are getting rejected all time.

Are you tired of your bad credit history? Does your loan application get rejected all time?

Every Cloud Has a Silver Lining

Don't worry. Your bad credit score won't haunt you forever. With calculated actions, your score can improve. Once it does, you will be able to get fairer loans at faster rates.

Trying To Defy the Unknown Is a Foolish Act

You cannot improve it, when you don't know it.

And so, for better understanding, I have divided the entire process of improving your credit score in two easy parts. This article is the first part of the series and will provide you with a comprehensive understanding of the credit score. It will explain you the type of errors committed while preparing a credit report and the course of action to deal with it.

Once you are through it, we will go to other aspects. Part-II of the series will throw light on several factors that play a vital role in making/ breaking your credit score. So, let's start by addressing the urgent issue of removing errors from your report and then in the next part we will try and re-build your credit score.

Let's start this enthralling journey at the end of which you will be having a high credit score.


A Fear of the Unknown Keeps a Lot of People from Leaving Bad Situation.

FICO is a mathematical model used for calculating your credit score. The full form of FICO is Fair Isaac Credit Organization. Let's start by understanding the factors involved in your FICO score.

It considers your -
>> Payment history (35%)
>> Amounts owed (30%)
>> Length of credit history (15%)
>> New credit (10%)
>> Types of credit used (10%)

Any negative information such as late payments, tax liens or judgments will stay on the credit report for 7 years. Bankruptcies will be shown for 10 long years.

In FICO score model, the longer the time period, the lesser is its impact on the score. So, don't worry about any old bankruptcy or collection account. The negative impact will wear out over time.

The score is calculated every time it is requested by you/lender. The credit history sometimes has a lag; it is because there is difference between the time you pay and the time your report is updated.

Your score will fall in the range of 300 -850. The FICO score model is used by several credit bureaus to calculate your credit score. Almost the entire industry is dominated by three major bureaus:
>> Experian
>> Equifax
>> TransUnion

Your lender may be using the scores available from any three. Every bureau shows a different score because of the different methods used.

What Things Affect Your Credit Score?
>> Late payments
>> Errors
>> Foreclosures
>> Judgments
>> Repossessions
>> Bankruptcies

Now, you cannot really help the bankruptcies and foreclosures but you can always improve late payments and cancel out all errors.

Why Should You Check Your Report?

There are shocking stats which compel you to check your credit report. The credit report may not reveal your TRUE credit worthiness. A survey by in 30 states generated the following results:
>> 79% of credit reports surveyed had an error.
>> 22% of the credit reports showed the same mortgage or loan twice.
>> 8% of the credit reports were missing major credit, loan, mortgage, or other consumer accounts that were important to prove the creditworthiness of the consumer.

The Consumer Data Industry Association in 2007 mentioned that less than two percent of 52 million credit reports had data deleted because of error.

This means there are serious chances of improving your credit score if there happens to be any mistake. You don't want to be suffering because of someone else's mistake, do you? Hence it is very important to check your credit report meticulously.

Scrutinize Your Credit Report - A bad report costs you money. So, it pays to be thorough!

Check every part of your credit history and search for any discrepancy. You must pay attention to every detail. To make things easy for you, here is a list of entries that you should look for.

What Entries to Look For?
>> Unidentified late payments, charge-offs, collections, etc.
>> Credit limits reported lower than the actual.
>> Accounts paid on time but shown as "settled," "paid derogatory," "paid charge-off, etc.
>> Accounts listed as unpaid but were included in bankruptcy.
>> Billing errors such as an unauthorized purchase, unidentified bill, etc.
>> NEGATIVE items older than seven years (and 10 years for bankruptcy).

Why Do Errors Occur?
>> Credit bureaus use information received from the creditors; they don't confirm it. And so, the chances of errors increase.
>> Incorrect name, address or SSN
>> Mistake in recording the transaction

Contact the Credit Bureau first

If you find any mistake in your report, you should write a letter to the credit bureau immediately. Your letter should have the following things:
>> Correct name and address
>> Each disputed item
>> Reason of dispute
>> Request of deletion or correction

Remember to send your letter by certified mail and request for return receipt. This will ensure that the bureau received your mail.

You will also have to write to the creditor and explain the error. You should include the copies of your mail. It is advisable to ask the creditor to verify your claim. This process may take 30- 90 days.

If your claim is found to be true, your credit report will be rectified. Either the entry will be corrected or totally removed from the report.

If the bureau doesn't approve your claim, you can dispute it in the court.

A Minor Error Will Become a Humongous Error, If It Is Not Addressed.

So, make sure you remove all the errors from your credit report. Once, your credit report is devoid of any errors, your score will automatically improve.

In the next article, we will identify with several things that have an incredible impact on your credit score.

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