We found yet another precautionary article concerning credit repair, this one coming from Diane Lade of Florida’s Sun-Sentinel:

http://www.sun-sentinel.com/features/time-money/money/sfl-credit-fix-tips-062709,0,266965.story

Ms. Lade, like so many others before, offers four rules, also laid out by the Credit Repair Organization Act, on what not to do when choosing a credit repair service:

• Do not pay a credit repair service up front for services.
• Do not create a new credit identity by applying for and using an Employee Identification Number.
• Do not dispute ALL the information in your credit report, especially when it’s true or accurate.
• Do not use a credit repair company that doesn’t inform you of what you can do on your own.

Spotting a company attempting to break any of those rules is a surefire way to know you’re dealing with a fraud. A good credit repair agency is a transparent one. If a company is honest and up front with you about their services, all of your options, and the best way for you to achieve your goals, then they are doing their job right. If a company seems to be simply seeking out clients for the sake of profit, be sure to take a closer look at all of their credit repair tactics. Make sure that the credit repair agency you work with is out for your best interests, not their own.

Veracity would like to comment on a few other tips made in the article:

Close out accounts slowly over time, newest first.

While each person’s credit situation is unique, in most cases, eliminating credit will not improve your credit score.

You see, a credit score is broken down into several categories including payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and types of credit used (10%).

Any time you close an account it can affect your credit history. Even if it is a fairly new account, it has already been opened, and closing it thereby lessens your credit history. You can do more good for your credit by keeping accounts already opened current and at a low balance. If you are “using” credit and immediately paying it off, it will do more good for your credit than simply closing the account. We suggest you keep your balances below 25% for optimal results.

Furthermore, when you close an account you lessen your overall credit limit. Say you have three cards, each with $1,000 limits, and you owe $500 on one, $250 on another and $0 on a third, the newest of the three. If you close the third card (under the guise that you never use it), you’re effectively lowering your overall limit from $3,000 to $2,000. Now, instead of being at 25% of your limit ($750 of $3,000), you’ve created a smaller limit ($2,000) but have the same balance. Now your balance is more than a third of your limit, which will affect your credit score negatively. This also goes for another piece of advice the article gives:

Keep your credit limits modest, even if lenders offer to raise it.

We actually suggest you only take on as much credit as you can handle. Too much credit can actually be seen as a risk in certain situations. However, if you are only using $300 of a $2,000 limit it looks much better than the same balance on a $1,000 limit, right?

If a consumer’s worried they might be carrying too much debt, there’s debt-to-income rule-of-thumb that sheds light on the situation. This article from Bankrate.com summarizes it well:

http://www.bankrate.com/brm/news/mortgages/20070116_debt_income_ratio_a1.asp

To translate, your debt-to-income ratio is your overall monthly income divided by all your debt obligations (which include long-term debt such as mortgage or rent, car payments, student loans, credit cards and revolving credit and exclude recurring monthly bills such as electric or groceries). According to most sites, keeping your debt-to-income ratio below 36 % is ideal in the eyes of lenders.

Online calculators like this one can help you see where you stand with your debt-to-income ratio:

http://hffo.cuna.org/13479/article/316/html

Ms. Lade also offers this advice:

Open a savings account to show creditors you have reserves.

At Veracity, we’ve seen so many different credit situations that we know this can hold true with certain types of creditors. However, for the most part we find that creditors place payment history over the consumer’s cash reserves. In the end, it can often depend on the particular creditor more than the consumer.

The point we want to make at Veracity is that you don’t have to shut down all of your credit to make your credit score better. Instead, we suggest sticking to budgets, making timely payments and using credit wisely so that you can optimize your credit score and have access to all the things good credit has to offer.