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Episode Info: TOP FIVE DIY CREDIT RESTORATION MISTAKES With 1.3 Billion credit files being managed by the three top credit bureaus, there are bound to be errors. According to Forbes Magazine, there are 82% of consumers who have errors on their credit reports and the credit bureaus receive more than 8 Million dispute letters per year. Many of the dispute letters lack the verbiage and authenticity to receive favorable responses. Financial COMFORT Consulting has compiled a list of the most common mistakes made when consumers make an attempt at their own credit restoration. 1. Carrying more than 25% on revolving debt. Your credit score is made up of five components - Payment History is 35%, Capacity is 30%, Credit Mix is 15%, Length of Credit is 10% and New Credit is 10%. Capacity is a percentage of the amount of revolving credit limits you have access to and the amount you actually use. It is important to keep your capacity low. The general rule of thumb is below 25%. Once you hit 31% of your capacity you become a risk factor for lenders and there is an algorithm in the credit scoring system that "dings" you monthly when your capacity is too high. That same algorithm rewards you when your capacity is low. 2. Using a generic dispute letter. It is very important to site the specific law {i.e. 15 USC 1692g Sec. 809 (b)} from the Fair Debt collection Practices Act (FDCPA) that derogatory items are violating in order to get favorable results. When you don't site the violation, the credit agency will simply request the creditor "validate" the debt in lieu of "verifying" the debt. Verifying the debt requires a thorough investigation into its legitimacy by proving it actually belongs to you. Results of items being deleted due to the creditor’s inability to provide proof in a timely manner are much greater. 3. Disputing every derogatory item. During the first two years of delinquency, a collection item carries the most weight on your scoring algorithm. The first 120 days are the most critical period impacting your score. After two years an item may appear derogatory on your report, but it is no longer negatively effecting your score. So, if there are items that are older than two years on your credit report and the creditor is no longer reporting, it would serve you well to ignore it until it has reaches the statute of limitation according to the FCRA. Disputing those items can have an adverse effect in that the creditor verifies it with the credit agencies and up
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