complete Guide on How to Repair Your Credit Score?
Living with a poor credit score can be frustrating. You cannot access credit at low rates. You may also be denied credit at a point. Sometimes, you even pay higher insurance premiums compared to people with good credit scores.
Do not allow yourself to suffer due to poor credit score. You can work on your credit score and get it to where you want it to be. When you want to repair your credit, you can decide to do it yourself or get the services of a professional credit repair company.
This article will give you a step-by-step guide on how to repair your credit yourself.
- Check your credit report
The first step to repairing your credit is to know the extent of the damage. You should know if your credit score is extremely bad or on the average. This will help you to know the steps to take. Irrespective of the score, you will need to review your credit reports. You can access all three credit reports from creditreport.com. When you are reviewing your report, you should first check your personal data. Make sure that all the details are yours. Your contact information should be correct, your name should also be correctly spelled. After reviewing your personal information, you should also check the accounts on your report. Make sure entries are transactions made by you. If there is a missed payment recorded, make sure it is a payment you actually missed. If you see an account you do not recognize, you should file a dispute. This is important because such accounts can be cases of identity theft. You should also review your account for items that should be removed from your report. For instance, if bankruptcy has been on your account for more than 7 years, you should file for it to be removed. After identifying all the errors, carefully mark them down.
- File a dispute
The next step is to file a dispute to report the errors. You can call the numbers on your credit report to file a dispute. You can also visit the credit reporting agency's website to file the dispute online. With this options, you will need to mail a hard copy of the necessary documents to the agency. This makes the process complex. Due to this, many people recommend that you file the dispute via mail. Thus, you will submit a certified letter that details the errors along with the supporting documents to the credit reporting agency. The agency has up to 45 days to respond to your dispute. During this period, they will investigate the issue. Usually, the information provider is responsible for this investigation. Once the investigation is complete, they will send the results to the credit reporting agency. The credit reporting agency will then send you the results. If the investigation reveals that there is an error on your report, they will correct it on your report. When the credit reporting agency confirms that there is really an error in your report, you should request that they send a copy of the corrected report to any organization that may have accessed your report in the last six months.
- Reduce your credit utilization ratio
Your credit utilization ratio is the debts to your total borrowing limit. The higher your debt, the higher your credit utilization ratio. Ideally, this ratio should be lower than 30 percent. You can reduce your ratio by reducing the debt. This is one of the most important steps to take when you are trying to improve your credit score. It is important to pay off your debt and you need to be consistent. Concentrate on the high-interest loans and credit cards. Some debts weigh more on your credit card than others. For instance, car loans weigh more than medical loans. You should pay off car loans first before concentrating on medical loans. You can only pay your debts if you manage your finances well. You should make budgets for the month and stick to them. You should cut down on luxuries during this period. Visits to luxurious restaurants and impulse shopping. When you are able to cut down on expenditure, you will be able to pay off your debts faster. You should also be consistent with your loan payments. Missing payments affect your credit score. Many people drastically reduce their monthly expenditure by leaving their credit cards at home. They believe that once they do not have the cash to make that purchase they will not buy it with their credit cards. People are able to avoid impulse purchases by going around without their credit card. Some people go as far as freezing their cards.
- Be an authorized user
You can allow someone with a good financial standing make you an authorized user of their card. When you do this, you will benefit from the person's high balance. If you decide to take this step, you will need to get someone whom you can trust. This is because when the person does not make payments on their loans, your credit will be affected. You should also make regular payments so that your actions do not negatively affect the credit of the card owner.
- Get new credit sparingly
A good credit history can positively affect your credit score. If you have new accounts, make sure you make timely payments. This can impact your credit score positively. If you do not have new accounts, you can get new credit to improve your credit score. Unfortunately, you may not be able to access a credit card from a major company if you have a poor credit. If you encounter this problem, you can opt for a store credit card. These cards are easier to get. One thing to be concerned about when you apply for new credit is its effect on your credit score. When you search for credit, the inquiry reflects on your credit report. This negatively affects your credit score. When you are looking for new credit, request that the lender performs a soft inquiry instead of a hard inquiry. Soft inquiries do not negatively impact your credit score. When you succeed in getting new credit to maintain a good payment history.
- Be careful when closing old credit accounts
If you plan on closing credit accounts to improve your credit score, you will need to reconsider your decision. In most cases, closing such accounts does not improve your score.
- Consider debt consolidation
If you realize that you can no longer make monthly payments for most of your loans because your monthly expenses are more than the amount you spend monthly, you can opt for loan consolidation. With loan consolidation, you may get to make lower monthly payments. Loan consolidation is combining all your high-interest loans into one loan payment. Usually, the rates are lower when you consolidate your loan, hence the monthly payments will be lower after loan consolidation. There are two major ways to consolidate your loan. The new lender can offer you a personal loan for you to use to repay your debts. The lender can also make payments on your behalf. After that, you will begin to make monthly payments to the new lender. When you consolidate your loan, you will need to make consistent monthly payments. Although loan consolidation is a good idea when you are struggling to pay off your loans, it is not always profitable. Before you decide to consolidate your loan, you should check if it will save you some cash on interest rates. You should check the available interest rate for your loan. You should also check the fees on the loan. Sometimes the rates will be low but the fees will swallow all that you will save on interest rates. If you realize that you are able to save money when you consolidate your loans, you can go ahead and consolidate. If not, there is no need to consolidate your loan.
Filing for bankruptcy should be the last option to take concerning your debts but if you realize that it is inevitable, it will be better to do it earlier than later. You should only file for bankruptcy when there are no other alternatives. Although filing for bankruptcy can relieve you of your debts, it will negatively affect your credit score initially. You should also note that bankruptcy can stay on your credit report for at least 7 years. Even after filing for bankruptcy for some accounts, make sure you make regular payments for your non- bankrupt accounts. There are companies that will promise that they can remove bankruptcy from your report. The truth is that if the bankruptcy account is accurate, they cannot remove it legally. Hence, you will be wasting your time and money if you rely on them. The method used by these companies in removing the bankruptcy account is illegal. Even if they succeed in removing the account, it may cause more problems for you in the future.
You should note that repairing credit is not a fast process. It takes at least six months. When you start repairing your credit, you may not see results immediately, but when you persist, the result will show after a few months. Do not forget to track the changes in your credit score regularly.
Rudi is a credit analyst who writes articles about credit scores, building credit, and consolidating debt. His know-how on poor credit and credit unions make his input invaluable to our company. There is no credit score out there that Rudi can’t help with.