How Much Credit Repair Will You Need?

Millions of Americans are now finally starting to feel much better about their personal financial positions after years of worry caused by money problems during and even following the recession. Now those people are largely trying to build their credit standings back to the point at which they can qualify for the best possible loan and financing terms available.

If you're one of these consumers, the problem with those efforts, for the most part, is that you might not know exactly what constitutes that level of credit standing good enough to get the best terms on any type of account you might apply for. If you've studied up on credit scores, you probably found that a person's rating can run anywhere from 300 to 850 for the most popular types of scoring systems, and that you fall somewhere on the higher end of that spectrum if you've already taken a few steps to fix credit mistakes you've made in the past. Even if your credit standing took a severe beating in recent years, even the most basic mediocre ratings will be in the 500s. At that point, you're obviously closer to  the lower end, but nonetheless, the ground you have to make up is, perhaps, not quite as large as it might first appear.

How far do you need to go?
The main reason for this is that the "perfect score of 850" is likely unattainable. Many experts have been in the credit industry for years or even decades and never come across someone with a score of 850; some may get within 10 or so points of it, but setting your sights that high — while admirable — is unrealistic. In actual practice, all you should be trying to do is building up your score to the point at which you have what is considered "excellent credit." In general, that's a score of 760, and that probably seems much more attainable. Once you get to that level, any additional work you do to repair credit will be somewhat superfluous, but it will provide a little bit of a cushion if you ever slip up again.

Getting to that 760 plateau will, typically, entitle you to the very best terms lenders have to offer no matter what kind of financing you want, whether it's a credit card, mortgage, auto loan, or any other line of credit. That means you'll receive the lowest interest rates available at the time of your opening the account, and far fewer or even no fees on it. Of course, getting to that point doesn't mean you can let your diligence slip when it comes to handling all your various accounts in the right way, but you will certainly be able to take it a little bit easier when it comes to trying to seriously reduce your debts.

So how do you get there?
The two biggest factors that go into building your credit score are your payment history and the amount you owe to your lenders versus the total limits on all your accounts combined. These two considerations alone make up 65 percent of your score, meaning that even slight missteps in either area can reduce your scores by hundreds of points or more. The good news, though, is that these are also the two easiest credit issues to keep under control.

Payment history (comprising 35 percent of your score) is the simplest of these; all it involves is how regularly you've paid all your bills on time and in full. If you are able to ensure that every debt payment you have in your name is sent in by the due date every month for a period of several months or more, then you will be in very good shape here. The longer you go successfully managing this factor, the better off you'll be, but even one missed deadline will send your rating tumbling back down, undoing months or more of good, hard work.

"Credit utilization ratio" (another 30 percent of your score) is simply the percentage of your combined maximums that you're using at any given time. The more debt you have here, the worse your ratings will tend to be, once you get past the initial threshold of 30 percent. At that point, lenders will start to see you as a bit of a risk, and your scores will drop commensurate with the additional balances you tack on.

Finally, if you want to make sure your credit scores are as good as they should be, you should also take the time to order copies of your credit reports and check them over carefully. If you spot any unfair markings, working with a credit repair law firm may help you to get them cleared up as quickly as possible.