Credit repair is not a piece of cake-but there are things you can do to bounce back from your past credit mistakes.
Here’s a general process to follow when fixing your credit:
Understand how credit score works
When financial institutions evaluate your creditworthiness they usually pull a credit score to decide whether or not they have to extend you credit. Although the actual credit score differs depending on the credit bureau there are key credit-influencing factors commonly used in calculating your credit score.
- Your open credit card utilisation rate or the percentage of your available credit compared with how much you have used up in a given period.
Let’s say, you have 5 open credit cards, each with $500 credit balance and $1000 credit limits. The credit bureau will take your total credit card balances and divide it by the total credit card limits, resulting to a utilization rate of 50% for that period.
- Your percentage of timely payments-how often do you make on time payments? Remember that missing one or two payments could have a significant effect on your score.
- Age of credit: What is the average age of your credit cards and debts? A lengthy credit history provides lenders with more information to assess your creditworthiness and gives them a glimpse of your ability to manage your credit successfully over the years. So, if you’re thinking about closing your oldest credit card account—think again. Doing so may shorten the average length of your open credit lines and lower your score.
- Credit mix: It totals up your number of credits, such as your credit cards, mortgages, lines of credit and auto loans. If you want better credit scores, make sure that you have a good mix of ‘timely paid’ credit accounts.
- Applying for a new credit is regarded as a hard enquiry. The more inquiries you have the lower your score would be, so make sure that you schedule credit applications. Don’t overdo it within a specified period.
Pay your bills at the right time
Since payment history accounts for 35 percent of your credit score it is advisable to get current with your payments. A missed bill payment has a tremendous effect on your score, not to mention the additional interest and late fees you may incur in the process. One of the best ways to do this is to set up automatic payments for the minimum amount-you can just add payment when you have time. What’s important is that it will already appear as ‘paid’ for that month. It will take forgetfulness out, and the only thing you need to worry about is the money in the account you used for automatic withdrawal.
Use your credit cards wisely
While it is difficult to limit spending on your credit cards, especially when you are having money issues, you can do it by making a budget. Remember that ‘credit utilization’, or the amount of credit using minus your available credit accounts for 30 to 35 percent of your overall credit score. So, if you have been using up more than 30 percent of your available credit, you may have to lay low for a while. Another good option is a debt consolidation loan to pay off your existing debts and simplify your payment into a single credit.
Use a credit repair tool
These help to remove inaccurate, outdated and damaging information off your credit file. It is not impossible to find material errors on your credit report. Check your credit report regularly to ensure accuracy and remove entries that lower your score. Credit repair means fixing your bad credit. Dispute the errors on your credit report with each of the credit bureaus. File a formal dispute with a detailed explanation of the error and supporting documentation. If they decide that your claim is valid, your credit file score will improve shortly.
A credit repair tool like DIY Clean Credit can help you identify errors and inaccuracies on your credit file. It will also guide you on how to make your case, without having to pay a professional fee on a credit repair company fee for their legwork. A tool like this is beneficial for those with multiple errors across credit reports or victims of identity theft.
You’re not the only one who makes credit mistakes that could have probably cost you higher security deposits and interests on loans, or lower credit limit and debt collector harassment. What’s important is that you fix your past credit mistakes, do something to manage your debts from now on and move forward with high hopes for a better future. Employ the credit repair strategies above to see an improvement in your score and in your finances. It will take financial pressure off you, and help you feel about your credit score.