Credit Reporting & Credit Repair
As bankruptcy attorneys practicing throughout Orange County, Los Angeles, and Riverside, one of the most common questions we encounter from our clients is whether their credit is repairable, and how long it will take. Here, the attorneys at Tran Bankruptcy Law will address this specific issue and help our clients better understand the mysteries surrounding credit repair.
What Is A Credit Score?
Before we get into discussing credit repair, it is important to understand what credit is. A person’s credit is measured by his or her credit score. This credit score is generated by a mathematical algorithm formula known as the Fair Isaac Corporation (FICO) methodology. It is calculated by taking into account:
- the person’s bill-paying history,
- number of accounts,
- types of accounts,
- late payments,
- collection activities,
- outstanding debts,
- age of accounts,
- comparison to other debtors with a similar credit profile.
The FICO methodology generates a credit score ranging from 300 to 850 points, with a national average of 676 points. Additionally, credit reports represent the likelihood that a borrowing will repay their debts. Also, creditors use the report as an assessment of a borrower’s credit risk. Therefore, the higher a borrower’s FICO credit score is, the less credit risk he or she presents to a creditor.
What Is A Credit Report?
Credit Reports contain your credit score. Additionally, the credit report may include information about the borrower’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living. Negative information may remain in your credit report for seven years.
Reporting agencies generate credit reports. These agencies collect information about a borrower from creditors and lenders. The three nationwide credit reporting agencies are Equifax, Experian, and TransUnion.
If you want to repair your credit, an essential step is to obtain a copy of your credit report. Under the Fair Credit Reporting Act, credit reporting agencies are must provide you with a free copy of your credit report every 12 months.
Additionally, you can get another free copy if:
- you are denied credit,
- you do not receive the amount of credit you request,
- a creditor terminates your account,
- your creditor makes unfavorable changes to your account, or
- when a creditor takes an action or makes a determination in connection with an application or transaction that is adverse to your interests.
Now that you have a better understanding of what your credit score and credit report are, you can start to repair your credit. Credit repair falls into four steps:
1. Cleaning up your credit report and assessing your financial situation.
2. Balancing your income and expenses.
3. Reducing your debts.
4. Rebuilding and protecting your credit.
In our next blog, we will explore the first step: how to clean up your credit report and assess your financial situation.