Stress is one of the leading causes of heart disease and one of the leading causes of stress is financial worries. In this, our second in the series of rebuilding your credit, I will talk about some steps you can take to reduce the stress caused by bad credit. Last month, I said the first step in dealing with bad credit is to find out what is being reported on your credit report. If you do not have a recent copy of your credit report, once a year, you can obtain a free copy of your credit report at AnnualCreditReport.com. Be sure that you use only that URL, there are many other similarly named sites that charge you for a credit report or that make you sign up for credit protection services.
Once you have identified what is on your credit report and challenged any incorrect information, you need to work on rebuilding your credit. To do this, you need to understand how your credit score is determined. While the actual calculations are a closely guarded trade secret, we do know the basics of the credit score.
There are basically two factors that go into determining your credit score. The first part deals with the amount of debt that you have versus your income. This is commonly referred to as your income to debt ratio. If you have recently gone through a bankruptcy, the amount of debt that you have should be very low as most of your debts were discharged in your bankruptcy. There are some exceptions, like Student Loans which offer a great opportunity to rebuild your credit.
The second part of your credit score deals with your past payment history. There is little that you can do to change this part immediately as this is based on your historical record of payments. However, if you have recently filed a bankruptcy, you should make sure that none of your creditors are reporting your credit as being delinquent.
Once you understand the factors in your credit score, you are ready to start rebuilding your score. In the coming months, I will discuss the steps you can take to improve your credit score.
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