Dealing with Derogatory Credit Information

Dealing with derogatory credit information is not a pleasant task, but it need not keep you from enjoying the benefits of credit card accounts and personal loans. The key to repairing derogatory credit information is to take steps to improve your credit history. No matter how large your debt or how far behind you've fallen, you can raise your credit score if you make a sustained effort to do so.

What components are considered in your credit score?

In order to improve a bad credit rating resulting from derogatory information on your credit report, you need to know what five financial components most impact your credit score. Here's a breakdown:

• Payment history - 35% This is based on whether you made your payments on time for your mortgage, bank loans, retail accounts, installment loans, and credit cards. Other factors related to your payment history include if you have any negative public records, any debts in collection, and any past due or delinquent accounts. The better your payment records, the higher your credit score.


• Balances owed - 30% This reflects the total amount you owe on your accounts, the percentage of each of your credit lines you've used (it's best to keep your balances under 50 percent of your credit limit), and how many of your accounts are carrying balances. The higher your balances, the lower your score.


• Credit history length - 15% The amount of time since you opened your accounts and how long it's been since you used the account.


• New credit accounts - 10% If you've opened credit accounts recently, this may lower your score depending on the number of accounts you've opened, the number of inquiries from prospective lenders that appear on your credit report, and the time since the inquiries or new accounts were opened.


• Types of credit - 10% How many accounts of various types you have.

What to tackle first to improve your credit score

Since the largest part of your credit score is based on your payment history and the second largest component reflects the balances you owe, it's best to tackle these areas first. If you are behind in any of your accounts, contact the lender concerned to find out how much money you'll need to get caught up. Getting and staying current on all your accounts is the best way to improve your credit rating.

Since owing more than 50 percent of your credit limit on any account is considered negative credit information, itís important to pay down your balances to improve your score. This may be challenging, but the more you can pay above your minimum payment to lower your account balance, the higher your credit score will be.

Reviewing your credit report for negative credit information

To start dealing with negative information on your credit report, you need to know what that information is. In 2003, Congress passed the Fair and Accurate Credit Transactions Act which gives all U.S. citizens the right to one free credit report per credit bureau (TransUnion, Experian, and Equifax) every year. You can get copies of your free reports by going to www.annualcreditreport.com

Remember that each credit bureau creates a unique credit report based on your financial information so itís essential to review each report to get a complete picture of your credit history.