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Do you want to improve your credit? Have you applied for a mortgage or a car loan and got denied because of a low credit score? Or maybe you filed for bankruptcy due to unemployment or a failed business and don’t know how to get back on your feet? Don’t worry, you’ve come to the right place!
This is the very first article in our new how-to series on helping Trussville area residents get a better understanding of credit and financing.
So sit back, relax, and read on as we bring you closer to achieving your financial goals.
Before we go into the details on how to fix your credit, let’s quickly discuss the basics of your credit score and the need for credit repair.
What is a Credit Score?
A credit score is an indication of your creditworthiness which is listed in detail on your credit report. A credit bureau receives your credit-related information from creditors, collections agencies and public records. This credit-related information becomes part of your report and determines your overall score. Your credit score is generally based on your personal finance history, which includes how much debt you hold as the borrower as well as how responsibly you’ve managed those existing loans or credit cards.
What is Credit Repair?
It’s a process to rebuild credit that has been damaged as a result of unfavorable events such as foreclosures, late or missed payments, etc. You can work on it yourself but there are also businesses out there that will help you fix your credit for a monthly fee. You should do some research first before deciding who to hire because many credit repair advisors request expensive compensation without standing by what they promise. The safest (and cheapest) way to repair your credit is to start by attempting to do it yourself. However, if you feel like repairing your credit is something you’re not able to do on your own, you can always look for a reputable and trustworthy credit repair agency to do the hard work for you.
Or, if you want to get started with repairing your credit on your own, here’s some steps you can take today.
Request a Free Credit Report and Review the Details.
Everyone’s allowed to get a free credit report from each bureau every year. This is required by law and it’s your right to know what’s in your report. Be sure to take advantage of that opportunity to review your credit details without having to pay anything just yet. It’s crucial that you understand your current credit situation before you start repairing it. Without accurate knowledge on the areas needing work, your efforts may be wasted. So, the best starting point is to review and compare your reports from the major credit bureaus.
This way, you’ll know what specific credit events need fixing. Check which credit report has the most accurate data and take note of misleading or false data about your credit that’s listed on the other reports. You may send a free credit report request to these three credit reporting agencies:
Get a free credit report copy from each one of them and carefully compare the details in each report.
If you notice any inaccuracies between them, by law you have a right to file a dispute and remove all incorrect information. Here’s how:
Fix Credit Report Errors.
You may find one or more of your reports with incorrect details affecting your FICO score negatively. It’s important to fix credit report errors immediately to maintain the best score possible. You can find out which report contains inaccurate data by comparing each one thoroughly. Check for any fraudulent transactions and any accounts that you’re not aware of.
The most common cases where fraudulent activities are disputed successfully is when you’ve been a victim of identity theft. It’s not uncommon to be completely unaware that your information was stolen if you fail to pay attention to your credit report. Check for any inconsistencies in case someone’s using your social security number to access credit without your knowledge.
Since tax season’s here, it’s important to take a moment to understand ways you can avoid identity theft. Here’s a short video to watch before we move on to the next step – filing a dispute.
Prepare Proof of Identity to Dispute Credit Report Errors.
When you file a dispute regarding credit events or other unfavorable items on your credit report, it’s best to provide proof of identification so the bureau knows who filed the dispute. The easiest way to do this is with a photocopy of your drivers license or state ID and at least 1 utility bill with your name and address listed.
Dispute all unfavorable false items on all your credit reports by reaching out directly to the bureau that listed it. You can get their mailing addresses directly from each of their websites. Remember that credit bureaus are required by law to investigate credit report disputes within 30 days after receiving your letter. They must inform you of the results within five days after their investigation, no matter the outcome. Next we’ll discuss how you can hold them accountable to this law.
Dispute Negative Items on Your Reports by Mail.
When you dispute errors on your credit report, you may submit your proof via USPS certified mail so there’s a record of when the credit bureau received your letter. They have 5 days after that to reply with a decision.
When repairing your credit yourself by mail, it’s important to document everything and be well-aware of the step-by-step process of fixing your reports. Be sure to record all your dispute items and monitor whether they were removed or not.
Negotiate Legitimate Credit Balances with Your Creditors.
If you have credit cards with different companies, negotiate with them and try to get lower interest rates on your accounts. This is better than paying high finance charges every month because it will only prolong the process of repairing your credit. If you have accounts in collections that you’re able to pay off, negotiate and see if they will remove the information in exchange for payment in full.
If you’re not able to dispute or pay off collections, you should still reach out to the company because you may be able to get them to agree to a payment schedule or lower total payment to get your credit file back in good standing.
Next, you’ll need to start following the good financial habits that build credit over time. Let’s start by understanding the many factors that make up your credit score and the steps you can take to hack your score.
Pay Credit Card Balances Consistently Every Month.
Credit accounts with late payments will always be on your credit report until you pay them off completely or negotiate for a more manageable payment plan with your credit card companies. Your credit would significantly improve if all of your dues are paid on time and not just the minimum monthly debit. This credit repairing strategy is one of the ways you might help improve your credit fast after credit events occurred.
Only use charge cards instead of debit cards.
Credit repair agencies strongly advise credit card users to use credit instead of debit cards. Debit cards are not being monitored by credit reporting bureaus unless the individual uses one of these new ‘hybrid’ debit cards that actually act more like a secured credit card in how they are set up. Credit cards can be accurately tracked on your reporting compared to debit card accounts which don’t get sent to the major reporting bureaus. If you want your score higher, it’s better you take utilize your credit card but you need to make sure that you only spend what you can afford. It’s critical to keep your total credit card utilization under 10% each month. Ideally, pay off your cards every 30 days to build up a history of timely payments.
Pay off high balances with multiple credit lines or installment loans first before disputing negative credit events.
Unfavorable credit events such as collections, judgments, foreclosures, repossessions, charge-offs, liens, bankruptcies etc., lower your credit score dramatically. However, on-time debt payment are among the most effective ways to improve your credit score and increase your access to credit over time. Make sure you don’t miss due dates as it has a direct effect on your score. If you want your credit score higher, make sure that you pay credit cards and other credit lines with high balances before doing anything else.
Never apply for loans, new credit cards, car insurance, or anything that involves personal information when disputing negative items on credit reports.
When you’re repairing credit across all three credit bureaus, it’s best to avoid applying for any loan transactions including mortgages, new lines of credit, and even insurance until all investigations are complete.
Do not close credit accounts because credit bureaus use credit account balances to determine credit scores.
If you have credit for a long time, your credit score will be higher than someone who has just started building a credit history. Moreover, credit reporting agencies will include both negative and positive activity in the same category as long as the item is in good standing and open.
However, you should never keep open credit accounts with high credit limits and balances because this lowers your credit utilization percentage which affects your overall score negatively. Remember that your goal is to improve your credit so you can finally get the financial help you need.
Do not take cash advances when doing credit repair.
Cash advances are credit events that credit bureaus consider as revolving credit, which has higher credit utilization percentages compared to installment loans. This is because the credit limits are usually larger when you use credit cards for cash advances. This lowers credit scores even if you pay off your credit card balance every month. So as much as possible, avoid cash advances as they have a direct affect on your credit.
Do not keep balances on credit cards when doing credit repair. It lowers credit scores instead of improving them.
If you have multiple credit lines with high credit limits, it would be best to make sure that all available balances are paid down each month or reduce the amount needed for monthly living expenses while disputing unfavorable items. Never leave a minimum payment unmet past the due date either. It only prolongs the remedy time for settling debt issues, and creditors may eventually get tired of being paid late and decide to lower your total credit limit, which may hurt your FICO score.
If you decide to hire a credit repair company, look for one with a proven track record.
If you think that repairing your credit on your own it too much for you to handle, then it would be best to look for credit repair professionals that have been certified by the Fair Credit Reporting Act or FCRA. Only FCRA certified credit repair agencies are able to provide you with legal help restoring your credit.
You may want to ask referrals from your friends or family. Checking online reviews is also a reliable way of identifying whether a credit repair agency is able to deliver what they promise. So, it can be the first thing you check.
Don’t apply for too many credit cards at once. It may decrease your score.
If you’ve been turned down for a new line of credit by a bank, consider taking a break from applying to other banks so that it won’t affect your overall credit report in a negative way. You can expect a small dip in your score after being approved for any new account, but it should bounce back up over time if enough positive things keep showing up such as timely payments and not having too much debt compared to the amount of credit that’s available.
If you really need to open a new credit card account, consider using secured cards instead. Those are backed by a bank CD usually and can be a key secret to bettering your credit. Just remember they should be paid off each month!
Build up a positive payment history.
The credit bureaus will typically include credit accounts that have been reported to any of the other credit reporting agencies, but sometimes they do miss a file with positive info about your history. So, it’s best to maintain your good credit history by maintaining accounts with different credit card companies and making sure you only get cards that report to all three agencies.
Consider opening new credit lines with banks that have more lenient policies regarding credit scores.
You should not only consider the bank account which offers the lowest interest rates on deposits and balance transfers, but also research on potential credit score requirements on the loan you’re considering. Don’t close multiple credit cards because this lowers your overall credit utilization percentage, which affects your overall score negatively. It may actually be better to open another line instead of keeping high balances for too long.
There are companies with more lenient policies, so be sure you try to find them in your search.
When trying to establish credit, never apply for too much at once.
Consistency is the key to credit repair and making sure that credit bureaus update credit reports in a timely manner. Your credit may significantly drop if you apply for too many credit accounts at once. This may actually decrease your credit score instead of improving it because there are credit scoring models that considers such actions as signs of potential financial problems by individuals who are desperate to get new credit lines.
Build up your positive credit history by adding new accounts slowly.
If you have credit accounts that have been closed for a long time, it’s best to think about opening new credit lines so the credit bureaus will have updated credit data regarding your financial status.
Use secured credit cards.
If you want to improve your credit another way is to apply for secured credit cards instead of regular bank accounts. This allow borrowers to keep track of their monthly payments and avoid idle cash such as excessive balances and high-interest fees. You can also expect credit scores to improve if you have credit accounts that are open and not closed so you may want to consider applying for secured credit card accounts.
Check your credit report regularly.
It’s best to check credit reports on a regular basis because credit repair may take some time depending on the severity of credit problems such as bankruptcy filings, delinquent payments, or late credit card payments. Keep in mind that there is also certain negative information that can remain on credit reports even after you already resolved financial problems such as bad debt and bankruptcies.
Requesting a copy of your credit report annually is recommended. This will ensure you are on top of any items that you might need to fix on your report.
You can also sign up for multiple free services online that pull your credit more frequently from at least one of the reporting bureaus.
Remember that credit bureaus provide annual credit report for free. So be sure to take advantage of these free credit reports and review them in a regular basis.
Re-establish your good payment history and maintain it.
As stated earlier, building new positive credit history with banks and credit bureaus is crucial when you want to increase your overall credit score over time. But what should you do if old credit accounts are included in credit reports? You need to repair old credit files because these have the biggest impact on your credit score. You have to take action immediately. It’s best to check on your credit reports before applying for any kind of credit because this allows to compare which lenders are offering lower interest rates and better conditions when it comes to the loan approval process.
Maintain good spending behavior when doing credit repair.
The main reason why many people fail at credit repair is that they don’t keep their credit cards active, and they often stop paying credit card bills on time. Before you apply for a new credit card, make sure it’s necessary and be responsible with use. Because even the best credit repair agency won’t be able to help you achieve a better credit standing if you can’t pay your dues on a timely basis while maintaining low balances.
Don’t ignore creditors asking for payment, even if you’ve already filed bankruptcy.
Even if you’ve been through bankruptcy proceedings, if a creditor is requesting payment on any open account, it is important that you settle the balance in order to improve chances of being approved for loans, especially when no information is found about previous debts. Keep in mind that credit card balances and loan accounts are still listed even after bankruptcy procedures, so you have to contact creditors immediately. Especially if they are calling or sending notices about unpaid credit cards. Individuals who want credit repair help may also use the services of credit bureaus to remove negative credit information such as bankruptcies, late payments, and tax liens because these can stay on credit files for up to 10 years.
Get expert help from credit repair companies.
Credit repair companies are also very useful at credit restoration because they can delete credit accounts that have been settled, rehabilitated, charged off, or closed in order to improve credit scores. You can expect credit files to be updated within 30 days once credit bureaus receive credit history update requests from credit repair agencies.
Credit repair agencies warn that even though credit repair is possible, you should not take this process lightly. It can be stressful and time-consuming. As the first step to credit repair, checking your credit reports regularly to know what needs fixing is essential. You can also use different credit scoring services or credit monitoring applications available online so you know exactly how much credit score improvement has happened since your last update on your credit information. With these tips in hand, credit repair may soon be within reach.