Anyone with damaged credit knows how difficult it can be. Trying to get a loan with a low interest rate is almost impossible, taking out a mortgage is arduous, and every utility requires a deposit. Many companies offer quick fixes to people with credit problems, claiming they can repair your credit instantly (with just a small payment).
The truth is that repairing your credit takes time, but it is absolutely possible if you work at it and make smart choices. Credit is not immovable, and just because you’ve made mistakes in the past doesn’t mean restoring credit is out of reach for you. Here’s what you need to know if you’re looking to repair your credit:
Credit Repair Companies Are A Waste
Any credit repair service is most likely just going to request your credit report and work with you to dispute any hits to your credit that may be inaccurate or unverifiable. This is something that you can easily do yourself, and if your credit is low because of financial burden then adding another one is not going to help you in the long run. Far from helping relieve your debt, credit repair companies will offer promises of restored credit while plunging you further into debt.
There’s also the existence of many scam companies offering to repair credit. Be on the lookout for any companies that want up-front payment, as federal law requires them to render services before payment. If they say they can erase the black marks from your credit report, they’re lying: it takes seven years for most negative information to fall away from your credit report. And if they tell you that you can create a new credit identity, then they’re advocating fraud by misrepresenting your Social Security Number.
The First Thing To Do Is Obtain Your Credit Report
If you want to repair your credit, you need to know exactly what it is. Having an accurate gauge of the state of your credit and what black marks are hurting you will help you to avoid the mistakes that tanked your credit in the first place. It will also help you to track the positive effects that you’re having on your credit so that you can know whether or not your credit has improved enough for you to be able to do things like apply for a loan.
To access your credit report, head to AnnualCreditReport.com. You’re legally entitled to one free credit report from all three major credit bureaus (Equifax, Experian, and TransUnion) each year. The most important score for you to know is the FICO score, which is the credit score used by most creditors.
Focus On The Negatives
Know what you’re looking for on your credit report. One of the key things to look out for is accounts in collections, which is any time a creditor turns over an unpaid account to a collection agency. This can include anything from student loans to unpaid parking tickets. You’ll see information about the date the account was opened, your recent balance, and any recent payment. You also may see any accounts with late payments that haven’t yet been sent for collection. The report will show the amount of times you paid late and how late you paid.
Any public records of involvements by the courts will also be found here. If you’ve filed for bankruptcy or had a civil judgment against you then you’ll see details about the claim. This information is updated as the credit bureau receives new details, but public records are usually slow to change. If your debt is sold to new collectors, collection information can also be inaccurate.
Dispute Any Inaccuracies
You can dispute anything inaccurate or unverifiable without the requirement of a credit repair company. Filing your disputes in writing creates a paper trail that will help strengthen your case and keep a record of your attempts to restore your credit. Be sure to include any relevant documents that can help prove your case, and keep any and all documents you receive about your case. If you send your dispute via certified mail can help you be certain when it was received.
You’ll have to wait for a response as the credit bureau usually has 30 days to investigate. One they’ve concluded their investigation, you’ll receive the results in writing. If you’re successful, they’ll send you a new copy of your credit report, but if not, you may want to amend your credit report with a statement about the dispute.
Change Your Behavior
The best way to build good credit is to start implementing good habits. Keep monitoring your credit and consider taking out a secured credit card in order to help build your credit from the ground up. Taking out a bad credit loan can also help to rebuild your credit but will usually require you to pay high interest rates and may not be the best decision for those with financial difficulties.
If you continue to pay your bills on time and avoid the bad habits that led to your credit being harmed, slowly but surely you will recover. Prioritize the debts you have with the highest balances in order to reduce your debt utilization. Low debt utilization means that the amount of credit you use has a wide gap from your actual credit limit and can help improve your credit score.
Take A Hard Look At Your Spending
Building your credit requires fiscal responsibility, and if your income isn’t enough to cover all of your expenses then it might be time to look at where you need to make cuts. Create a budget for yourself and determine what your discretionary expenses are. If you make enough cuts, you may be able to increase the rate at which you pay off your debts and improve your credit even faster. Any extra money should be allocated to reducing your financial burden, because the faster you get out of debt the faster you can achieve good credit.