Credit Repair
Credit Repair is about improving an individuals “bad credit”. To understand how Credit Repair works you need to understand what a bank uses to work out you have “bad credit”, credit scoring.
In America and most other developed nations a system called credit scoring is use to determine some-one’s “credit worthiness” or how risky someone is to lend to. Credit scoring began in the 1920’s when American banks didn’t have enough experienced staff to assess people for loans. A system was developed to allow inexperienced staff to assess loans using a “Credit Scoring” system or mathematical equation. Various risk factors (marital status, children, length of employment, payment history) would be entered and you would get a score. If you got above a certain score you had “Good Credit” if you got bellow a certain score you had “bad credit” and your loan was rejected.
Basic Example of a Credit Scoring Equation with 3 “Factors”
(number of years in job) + (number of years at current address) – (number of credit cards) = Credit Score
If you have a “credit score” of more than 3 you have “good credit” if you you have 3 or less you have “bad credit”
How Does Credit Repair Work?
Credit Repair works by manipulating “factors” to increase the score. Take the basic example shown before. The bank says you need a score of three. You’ve been in the same job and the same house for 3 years but have 5 credit cards with $100 owing on them.
number of years in job (3) + number of years at current address (3) – number of credit cards (5) = Credit Score (1)
Using this basic example you would be have “bad credit”. However if you consolidated all you credit cards into one card of $500, instead of the 5 for $100.
Number of years in job (3) + number of years at current address (3) – number of credit cards (1) = Credit Score (4)
You Credit Score would go up to 4! and you would have “good credit”. This is how credit repair works.
Is Credit Repair That Easy?
Credit Repair isn’t that easy though because the bank or credit reporting company won’t tell you what their “credit scoring” equation is. Also since the 1920’s these systems have gotten more accurate at predicting if people would default but a lot more complicated. One of the most popular scoring systems is called a FICO score, named after the guys who invented it in 1956. FICO (or similar) scores are really complicated and change all the time so credit repair becomes more complicated.
FICO score is based on various “Factors” like
- Payment histories
- Signs of responsibility and stability (lived in the same place for a long time, had the same job for a long time, own you own home)
- The number of application you’ve made for credit
- Utilization of debt (what the current limits on your debts are an how much you own on them)
Credit Repair Basics
- The fewer debts the better
- Don’t apply for a lot of loans, it makes you look desperate
- Don’t move or change jobs all the time
- Regular repayments are really, really important! Set them up on direct debit.
Credit Repair: Inaccurate Information
Credit Scoring only works if the information on your credit history is correct. Maybe the information on your credit history is wrong! In fact millions of people of inaccurate information on their records. The credit reporting agency doesn’t check the information. It relies on the banks to make sure the information is correct and sometimes the process is automated. Maybe you actually paid that bill and the bank accidentally defaulted you due to confusion amongst branches? Maybe you were the victim of identify fraud? Credit Repair can also refer to getting these mistakes removed from your credit history. You can get your file to check for errors from
Credit Repair in Australia
Australian Credit histories don’t have payment history records. There’s no record of what debts you do have. Only the number of debts that are more that 120 behind behind, any legal action taken by creditors and the number of applications you’ve made is record. Credit repair only works in Australian by getting errors removed and by making very few or no applications for finance. To remove errors from your credit history you need to contact the organization who listed the problem and get them to remove it. Veda Advantage (mycreditfile) can not remove mistakes. Go to our credit history section for more information
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