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Having poor credit is stressful and can result in you paying more money than people with good credit when you go to finance a car or buy a house. However, there's no need to hire a credit repair company that claims they can fix your credit woes. In reality, these companies don't do anything you can't do yourself for free. Like losing weight, it takes time and effort to achieve financial fitness. Work on it a little each day and eventually you'll have a credit score you can be proud of.[1]
[Edit]Steps
[Edit]Correcting Errors on Your Credit Report
- Get a copy of all three credit reports. Federal law entitles you to 1 free credit report from each of the 3 major credit bureaus every 12 months. To get your free credit reports, go to https://www.annualcreditreport.com/index.action and click the button to request your reports.[2]
- The reports you get from the free report site do not include your credit scores. They only include the entries on your report. However, this is all you need to check for errors.
- Compare your credit report with your own records. Read through each of the reports carefully and identify each account listed. Check your own records to make sure the account status, balance, and payments made are correct.[3]
- Not all creditors report to all 3 credit bureaus, so make sure you go through this process with each of your 3 credit reports.
- If you find an entry on one of your credit reports that doesn't match your own records, make a copy of that page of the credit report and highlight the entry. You'll need to send this to the credit bureau along with a letter explaining the error if you want to get it corrected.
- Write a letter to the appropriate credit bureau disputing any errors. Include the page of your credit report where you've highlighted the error, as well as any other documentation you have that would prove the entry was wrong. Even though the credit bureaus allow you to dispute the record online, it's still better to send a written letter so you have a record of the dispute.[4]
- The Federal Trade Commission (FTC) has a sample letter you can adapt to suit your needs at https://www.consumer.ftc.gov/articles/fixing-your-credit.
- Mail your letter and supporting documentation to the credit bureau. Before you mail your letter, make a copy of the signed letter for your records. Then send it using certified mail with returned receipt requested. When you get the green card back, keep it with your copy of your dispute letter as proof of delivery. Use the following addresses:[5]
- Equifax: Equifax Information Services LLC, PO Box 740256, Atlanta, GA 30348
- Experian: Experian, PO Box 4500, Allen, TX 75013
- TransUnion: TransUnion LLC, Consumer Dispute Center, PO Box 2000, Chester, PA 19016
- Follow up to make sure the error is corrected. The credit bureau will investigate the entry and forward your documents and information to the creditor that provided the information for the entry. You will receive notice from the credit bureau when the investigation is complete, typically within 30 days. You'll still want to look at your credit report to verify the information has been changed.[6]
- If the credit bureau determines that the entry is actually correct, you can ask them to put a note on the entry explaining that you dispute it. Although it won't affect your credit score, anyone who requests your credit report will see this note.
[Edit]Working with Your Creditors
- Contact your creditors as soon as possible if you can't make the minimum payment. Creditors are typically willing to work with you if you're proactive. As soon as you determine you won't be able to make your minimum monthly payment, call the customer service number for the creditor and let them know about your situation.[7]
- When speaking to a representative, tell them that you're concerned you won't be able to make the minimum payment and let them know the reason. If you have a good idea when the situation will be resolved, give them a time frame.
- Ask for a credit limit increase if you're carrying a high balance. Credit utilization makes up about 30% of your credit score. If you're carrying a balance, it shouldn't be more than 30% of your credit limit. If you aren't able to pay down a high balance quickly, the creditor may be willing to increase your credit limit. Then the balance will be a smaller percentage of the overall amount of credit you have available even though it remains the same amount.
- Credit card companies are typically more inclined to give you a higher limit if you have a good credit score and a good payment history with them, but even if you don't they still may be willing to work with you.
- Negotiate a lower interest rate on accounts you've had for a while. If you've had a credit card for several years and have a good relationship with the credit card company, you may be able to get a lower interest rate. If you're carrying a balance on the card, this can keep you from getting further into debt. Research other credit cards that are similar to the one you have and compare the interest rates offered.[8]
- Keep all your information handy and call your credit card's customer service number. Explain to the representative the reason for your call, and remind them of your good relationship with the company. Then, let them know that you've been shopping around and that their competitors offer a lower rate.
- While it's true that credit card companies will be more likely to lower your interest rate if you have a good credit score, it never hurts to ask. The account representative may even give you tips on what you need to do to be eligible for a lower interest rate.
- Pay for removal of collection accounts. If you have any credit accounts that have gone into collections, normally the collection entry would stay on your credit report for 7 years. However, you also have a lot of room to negotiate with collection agencies and get the entry removed from your credit report after you've paid the debt in full. These are called "pay for delete" agreements.[9]
- Many collection agencies will send you a settlement offer. If you want to have the entry removed from your credit report, however, you typically have to pay more than the settlement amount. In some cases, you'll have to agree to pay what you owe in full.
[Edit]Using Credit Responsibly
- Review what factors go into calculating your credit score. It can take months of hard work to get your credit score where you want it to be. Once you get it there, strive to keep it there or take it even higher. Knowing how your credit score is calculated can help you stay on top of it. Generally, a FICO score is calculated according to the following:[10]
- Your payment history makes up about 35% of your score. Even a single late payment can be enough to drop your score a few points, so it's important to pay all your bills early or on time, every time.
- About 30% of your score is based on your credit utilization, which looks at the amount of outstanding debt you have relative to the credit you have available. If you have to carry a balance on a credit card, make sure it's not more than 25% or 30% of your total available credit.
- About 15% of your credit score is based on your credit history. To keep this portion of your credit score sound, avoid closing your oldest accounts.
- Inquiries make up about 10% of your credit score. Try not to apply for more than 2 or 3 new lines of credit per year to avoid a negative impact on your score.
- The final 10% of your credit score deals with the different types of credit accounts you have. Ideally, you want a mix of credit cards, auto loans, a mortgage, and other types of installment accounts.
- Create a monthly budget and stick to it. All the hard work you put into fixing your credit will go to waste if you end up getting yourself in debt again because you're over-extended. Figure out your actual take-home income each month and subtract from that the bills you have no control over, such as your utilities, rent or mortgage payment, food, and transportation costs.[11]
- If you find that you have a shortfall each month, see what you can do to cut your expenses. For example, you may be able to buy in bulk and share with friends and family to reduce food costs.
- Getting a side gig is another option if you find you have repeated difficulty making ends meet. Signing up with a ride-share app or a delivery service could net you a little extra cash. For example, you might do ride-sharing on weekends to cover your car payment.
- Calculate the true cost of big-ticket purchases before you buy. It can be tempting to plunk down a credit card if you want to buy a new TV, gaming system, or computer. But even though your monthly payments may be relatively low, you'll pay a lot more for that item in interest, especially if it takes you several years to pay down the balance.[12]
- For example, suppose you see a new computer that you want for $3,000. You could put it on your credit card and pay the minimum payment of $60 a month. However, if your interest rate is 15%, this will end up costing you an additional $400 or so a year. Even worse, if you only make the minimum payment, it'll take you 16 years to pay it off! By then, the computer would be well past obsolete and you would have paid your credit card company $3,641 in interest – more than the initial purchase price of the computer.
- Pay your bills on time and in full. Create a bill calendar and write down each bill on the day that it's due. This can help you keep track of your bills so they don't sneak up on you. You can also set reminders on your computer or smartphone. Try to pay your credit card balances in full every month whenever possible.[13]
- Setting up autopay can be a good option to ensure that you don't miss a payment due date. However, make sure you're going to have enough money in your bank account to actually cover the bill. Otherwise, you may get hit with fees for overdraft or returned payment.
- Use a credit tracking app to keep on top of your credit score. There are a number of free credit tracking apps, such as Credit Karma, Credit Sesame, and WalletHub, that allow you to check your credit score for changes whenever you want. Many of these apps also have budgeting and planning features that can help you save for your next big purchase.[14]
- Make a habit of checking your credit at least twice a month. If you've had errors on your credit report before, or have been a victim of identity theft, you may want to check it more often.
- Avoid the temptation to apply for new credit cards. Every time you apply for a credit card, an inquiry goes on your credit report. While inquiries only make up about 10% of your total credit score, most creditors look askance at applicants who have applied for a significant number of new credit cards or loans.[15]
- If you're shopping for a car or a house, most creditors will take this into consideration. However, if you're just applying for a bunch of credit cards, it makes it look like you're having financial trouble.
[Edit]Tips
- If you have a lack of credit, ask a responsible friend or family member with a good credit score if they would be willing to add you to one of their credit cards as an authorized user. They don't even have to give you a card, but your credit score will improve when they make their payments on time.[16]
- Whether you're talking to an original creditor or a collection agency, make sure you get any deal you make in writing. If the creditor or collection agency later doesn't follow through with their end of the bargain, you'll have something to enforce.
[Edit]Warnings
- This article discusses how to fix your credit in the US. If you live in another country, the process may be different. Talk to a local financial advisor or credit specialist.
- Credit repair companies offer to improve your credit for a fee. While many of these companies aren't necessarily scams, they won't do anything for you that you couldn't do for yourself.[17]
[Edit]Related wikiHows
[Edit]References
- ↑ https://www.experian.com/blogs/ask-experian/credit-education/improving-credit/how-to-fix-a-bad-credit-score/
- ↑ https://www.consumer.ftc.gov/articles/fixing-your-credit
- ↑ https://www.consumer.ftc.gov/articles/fixing-your-credit
- ↑ https://www.consumer.ftc.gov/articles/fixing-your-credit
- ↑ https://www.consumerfinance.gov/ask-cfpb/how-do-i-dispute-an-error-on-my-credit-report-en-314/
- ↑ https://www.consumerfinance.gov/ask-cfpb/how-do-i-dispute-an-error-on-my-credit-report-en-314/
- ↑ https://www.myfico.com/credit-education/improve-your-credit-score
- ↑ https://www.creditkarma.com/credit-cards/i/how-to-lower-credit-card-interest-rate/
- ↑ https://rebuildcreditscores.com/get-collection-entries-deleted-from-your-credit-report/
- ↑ https://www.experian.com/blogs/ask-experian/how-is-a-fico-score-calculated/
- ↑ https://www.moneyunder30.com/credit-repair
- ↑ https://www.wisebread.com/how-much-does-your-credit-card-debt-cost-you
- ↑ https://www.moneyunder30.com/credit-repair
- ↑ https://www.moneyunder30.com/credit-repair
- ↑ https://www.myfico.com/credit-education/improve-your-credit-score
- ↑ https://www.experian.com/blogs/ask-experian/credit-education/improving-credit/how-to-fix-a-bad-credit-score/
- ↑ https://www.creditkarma.com/advice/i/credit-repair-companies/
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