The first step to credit repair is to always get a current copy of all three of the main reporting bureaus reports. You are entitled to one free report each year from every reporting bureau or you can also get one that contains all three reports for a fee.
A credit report is a history of how you handle your finances and pay your bills. Lenders use them as a means to determine if you are creditworthy and meet the standards that they use in order to extend a loan. Credit reports are a useful tool, however it is estimated that up to 75% of all reports contain mistakes and erroneous information.
The reporting bureaus are only in the business of collecting and compiling data. They do not make any efforts to determine if the information is correct and accurate because that is irrelevant to them. They can sell your report whether the information on it is correct or not. The only person who is concerned about erroneous information appearing on their report is the consumer.
Because there were so many errors showing up on reports, Congress passed a law back in 1970 that allowed consumers to dispute erroneous information and have it removed. This law is called the Fair Credit Reporting Act and it governs the accuracy, fairness and equity of reporting.
A report will contain what is called a credit score. This is a numerical representation measuring a variety of factors including your debt to credit ratio, the type of loans that you have, the length of your financial history, how often you apply for loans, and of course, how promptly you pay your bills.
The most common score in the United States is the FICO score from the Fair Isaac Corporation. All three of the main reporting agencies, Equifax, Experian and TransUnion all use variations of this scoring formula. Occasionally you may hear it referred to as the Beacon score or the Emperica score but it is the same thing.
While a score takes into consideration a variety of unbiased factors, two things that are never considered are current income and employment history. These two things are never part of a score, however, they should be and it is most likely that they will be considered by the lenders from whom you are trying to obtain credit.
At the current time a score of 720 or above is considered to be a good score while a score at 600 or below is considered to be a high risk.