Credit Repair Guide
How Do I Repair or Improve My Credit Score?
At this point in our series you should understand what credit is, what it is used for, how to view and understand your credit report, and the types of behaviors that might be hurting your credit. You should also be aware of how banks, lenders, and credit agencies see and judge your credit history. In addition, hopefully you have an idea as to what your credit rating is: bad, fair, good, or excellent. If any of those topics sounds unfamiliar, go back to the beginning of our guide.
In this section, we’re going to be talking all about what to do if you have bad credit, little-to-no credit, or if you just want to give yourself a nice boost before you apply for a loan. If you’re confused as to what specifics are holding you back or you feel like you’ve got it under control, but your credit score is still just not where you want it to be, we can help. We’ll give you all the tools necessary to make a strategic credit repair plan, and reap the benefits of an improved score.
How to Repair Credit Mistakes
You may have heard that making your payments on time is essential to fixing bad credit. While this is true, there is much more that goes into fixing your credit score. Debt, credit utilization, new loan applications, and credit reporting errors can all affect your credit score. Let’s specifically talk about how you can go about fixing problems with debt, credit utilization, and new loan applications (we’ll get to credit report errors a little bit later).
Fixing Debt Mistakes
Many Americans feel as if they’re drowning in debt from credit cards, car loans, student loans, and more. However, sometimes these types of debts can be unavoidable. They may even be necessary in order to live a comfortable life. So, why are credit agencies judging us so harshly for having debt? Well, it’s not necessarily the act of having debt that needs to be resolved. The negative labels are much more related to being overwhelmed by debt. Having all of the above loans is just fine, but you shouldn’t feel financially suffocated by debt, struggling to make payments on all your lines of credit, loans, or other debts.
If you’re feeling stressed out by the amount of debt you have, a good goal for your credit plan would be to start chipping away at your current debt before you think about applying for any new loans. This doesn’t mean that you have to completely eliminate all of your debt, but instead just make it more manageable for you — that should be your goal. In fact, credit agencies and banks prefer when you have some lines of credit open. When you’re consistently paying off debts, your score is improving. If you have no debt, nothing is happening to develop your credit history, and by extension your credit score. Banks and lenders want you to have a good credit score before they lend to you. If your credit score is bad and you don’t ever work on repairing your credit, you won’t qualify for one of their loans.
Lowering Your Balance
This brings us to the next point: credit utilization. This ties in perfectly with the amount of debt you have. One of the first things you’ll want to examine in order to fix bad credit is how much of your available loans you’re currently using. We already discussed that maxing out your credit cards will make banks feel like you’re taking on too much compared to how much you can likely repay on time. This means that your first step should be to chip away at the debts that are the hardest for you right now. If your credit card seems like it just keeps reaching its limit and your car payment is almost breaking your budget, these are the things you need to make a priority in your credit repair plan. Addressing the loan payments that are often late or the credit card limits that are reached, paid off, and then reached again each month should be at the forefront of your focus.
Of course, this doesn’t mean that you should neglect any other loan payments; this just means it might be a good idea to reevaluate your budget and shift funds so that your most difficult loan payments are now the ones that you pay first. If you feel like your budget just won’t stretch that far, it’s time to get in contact with your lender and see if they can push back your payment, hold off on payments for the time being, or offer you other options while you start to fix your credit. If you have had a good record of paying, but failed to pay a month and it’s now showing up on your credit report and hurting your score, consider sending a goodwill deletion letter and appealing to the lender’s charitable side.
Fixing Debt Mistakes
Many Americans feel as if they’re drowning in debt from credit cards, car loans, student loans, and more. However, sometimes these types of debts can be unavoidable. They may even be necessary in order to live a comfortable life. So, why are credit agencies judging us so harshly for having debt? Well, it’s not necessarily the act of having debt that needs to be resolved. The negative labels are much more related to being overwhelmed by debt. Having all of the above loans is just fine, but you shouldn’t feel financially suffocated by debt, struggling to make payments on all your lines of credit, loans, or other debts.
So, if you’re feeling stressed out by the amount of debt you have, a good goal for your credit plan would be to start chipping away at your current debt before you think about applying for any new loans. This doesn’t mean that you have to completely eliminate all of your debt, but instead just make it more manageable for you — that should be your goal. In fact, credit agencies and banks prefer when you have some lines of credit open. When you’re consistently paying off debts, your score is improving. If you have no debt, nothing is happening to develop your credit history, and by extension your credit score. Banks and lenders want you to have a good credit score before they lend to you. If your credit score is bad and you don’t ever work on repairing your credit, you won’t qualify for one of their loans.
When to Take on New Debt
Once you start to make progress on your credit repair, you might think that you’re ready for some new loans. However, we urge you to hold off. As we mentioned before, frequent credit checks and applications can actually have a negative impact on your credit. You could be doing more damage right after you started to make progress. We encourage you to utilize your annual free credit check from each credit agency if you’re anxious to know if you’ve managed to fix your bad credit. If there are inquiries you have not authorized, be sure to send a credit inquiry removal letter to the credit bureaus.
You’ve started to chip away at what was until recently overwhelming debt. It seems like you could maybe handle more, and that your credit score must have improved. However, that is most likely not the case. Lenders want to know that you have good financial habits. This means, the longer that you maintain good habits, the better your score will be. If you feel like you’ve finally gotten a handle on your current debts, that’s great! You should stick with that for a while and enjoy the fact that you’re effectively repairing your credit. Remember, your credit report shows a history of your credit. Most actions will stay on your credit report for years before they drop off (usually seven to ten years). You want that entire span to reflect strong, responsible spending and payments. Slow down and let your credit build before applying for a new loan.
How to Find Inaccuracies in Your Credit Report
We talked about the three bureaus that compile our credit reports and calculate our credit scores: Experian, TransUnion, and Equifax. It’s the sole job of each of these bureaus to accurately score every individual in the country. Their job includes collecting information on every single person by reaching out to banks, credit unions, card companies, and private and government-backed lenders. Once they have done so, they are responsible for filing it correctly into your report, keeping it up to date, and making it available to those who have inquiries about it. With that being said, mistakes happen. Information can be filed incorrectly or multiple times, numbers might not exactly match up, or it might simply be out of date. These are just a few examples of the things that could possibly show up on your report.
As such, credit repair companies are popular due to their experience with credit reports and filing disputes. To the untrained eye, a credit report is confusing and cluttered; you might not know what to look for or where to look. In addition, getting a mistake fixed on your report can take persistence and patience. It can take time to find small mistakes in a large report. Before it can be fixed, you must find proof to back up the argument and take the necessary time to follow through on the correction with the bureau. It’s a lengthy process that absolutely can be done by yourself — we’ve provided letter templates to help — but in many cases it might be easier on you, and more accurate for your report, to use a professional.
Taking the Good with the Bad
The other side of repairing credit is being able to examine your actual credit report and credit history. Let’s say you’re the average person who has made quite a few mistakes in their financial past. Maybe you have felt overwhelmed by debt, you’ve made several late payments on loans, and you’ve tried to get more loans in order to relieve some of the stress.
Information from each of these areas will be provided to the three credit bureaus, but here’s where it can become a bit messy. You may find that your credit report isn’t telling the entire story of your credit history. For example, you may see issues with late payments or accounts being sent to collections, which is accurate for your history. However, credit reports should also include good things, not just mistakes. This means, if you resolved these issues swiftly, that should also be included in the report. Debts that get sent to collections can often be reported in duplicate across your credit report; that can quickly compound the negative impact of a single debt, and you should get that fixed immediately.
Be on Alert if You’re a Victim of Stolen Identity
We’ve touched on identity theft in previous parts of this guide. It’s not only credit repair scammers trying to steal an identity from you; sometimes the individuals who have had their identity stolen may see false information included in their report. If you see any information that doesn’t seem familiar to you, it’s a good idea to do some research. Check with your bank or lender to find factual information that proves the item or charge on your report is false. Then you can decide if you want to take that to a professional that might be able to dig a bit further or go straight to the bureau.
Your Mistakes Shouldn’t Stay With You Forever
Negative credit information, such as debt collection, stays on your report for seven years. Good entries may stay on your history for longer. However, in some cases, bad credit mistakes may still be showing on your report if the agency has failed to remove it. Again, it’s a good idea to see when the item was reported and check your records to make sure that it aligns correctly. If you find something that should have dropped off, keep the evidence and take it to your credit repair service or directly to the bureau.
Good Credit Habits for a Good Credit History
Consistency both in your actions and your credit report is what translates to a good credit score. Start with addressing your debt, then making your debt more manageable, and finally paying off that debt on time for the duration of the loan. A good, long history of responsibility is what credit bureaus and lenders need to see in order to fix a bad credit report. In addition, it pays to be meticulous about your credit report. You have the right to a fair and accurate credit report. So, if a few mistakes on your report are potentially making a huge, negative impact on your score, you have the right to dispute this information.
Next: How Long It Takes to Rebuild Credit
In the next guide in our series, we’re going to walk you through the timeline of credit repair. How long should it realistically take before you start to see a positive improvement in your bad credit? What happens if you’re thinking about applying for a very important loan soon? Are you going to have your credit in shape before your deadline comes? We’ll get into quick fixes versus long term improvements to your credit report and how each of them individually can make an impact on your overall score.
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