5 Steps to Repair Your Credit Score

Your credit score impacts you every day. It affects the interest rate you pay on credit cards, loans (especially mortgage loans), and even your insurance. It affects not only the rate but the amount of credit you can receive. Fixing credit doesn’t happen overnight but many repairs are quicker than you may think.

1) Knowledge is Power
The first step to repairing your credit is obtaining a copy of your credit report. You can get one free copy every year from each of the major credit bureaus; Experian, Equifax and Transunion or you can access all your free reports through annualcreditreport.com.

2) Look for Errors
Each credit report will contain basic information about you – your name, address and date of birth. Check to make sure the information is accurate. It may contain past addresses, that is OK. Your report also shows financial and legal issues such as bankruptcy, divorce, judgements etc. These negative items will be removed in time. The rest of the report will show your credit information, including revolving credit (credit cards) and installment payments (car loans). For each account you will see the status (open, closed, or in collection), balances, credit limits and payment details such as late payment or when it was sent to collections.

If there is any derogatory information that is wrong, or not yours – (that happens more than you would think it does) dispute it. Credit bureaus need to respond within 45 days, if they cannot prove that the credit is yours they must remove it off your report immediately. To find out how best to dispute a credit issue go to the websites for the company with incorrect information (i.e. Experian, Equifax or Transunion). Know that each credit bureau operates separately, so if a credit error is on all 3 reports you will need to contact each agency to remove it. If there are multiple errors on a credit report regarding different accounts, deal with them as separate entities, If there are multiple mistakes regarding the same account you can deal with all of these in a single dispute.

If the process is too overwhelming for you, there are credit repair companies that can assist. Additionally, if you are planning to buy a home, your loan officer may be willing to assist you with this process.

3) Clean up any Derogatory Remarks

Look through your report for any issues. If you have an account in collections that is yours, start there. Collections accounts will prohibit you from obtaining a mortgage and significantly lower your score. Often a collection agency is willing to negotiate on the amount due, for example If you owe $600.00 they may be willing to accept a lower amount. If it is agreed upon that if you pay the amount off in full they will erase the derogatory credit off your report, make sure to get that in writing prior to making the payment. Many times you will have two options to repair this. One would be to pay the total balance directly to the debt holder and have it removed completely from your credit report. The other would be to negotiate terms with the collection agency, knowing it will remain on your credit report but it will not show as a current collection account.

If you are unable to pay it off in full, call them and work out a payment plan. Put it on a monthly automatic withdrawal, and make sure that there is money to cover it every month. Even if you cannot afford much every month, start paying it down little by little. Keep paying at least the minimum amount on everything in a timely fashion. Then prioritize, resolve collections, get current on any government backed loans (student loans, mortgages) correct any derogatory credit comments and pay down the card that has the highest balance of debt owed vs. credit limit.

4) Moving Forward
· Be on time with all payments. Late payments hurt your score.
· Keep balances low – 30% of your credit score comes from your credit utilization i.e. how much debt you carry in relation to your current debt limit. Sometimes people want to get their cards paid off and cut them up, but from a credit score perspective you may be better off leaving a small balance on your card.
· Apply for new credit only when needed. Stores try to tempt you to open up a new card with a promo they are offering but new credit inquires and too high of balances will hurt your credit score.
· Pay more than the minimum payment.

5) Credit Boosting Hacks
· If your credit score has been too low to acquire a credit card start with a secured card. That means you are pulling money from your own account. Before taking this out make sure that it does report to the credit bureau. This sounds like a debit card however debit cards typically do not report to the bureaus.
· Request your credit card balances to be increased. Increasing your current debt to credit limit ratio, positively increases your score. However, be sure to not increase your spending.
· If there is someone in your life that trusts you and you trust that they will continue making responsible payments (like parents) they can put you as an authorized user on their long standing account, their good credit is reflected on your score.
· If you have limited funds and are trying to figure out how to get the most bang for you buck many lenders have a “what if” feature on their computer. So, they could plug in if you had $500.00 and you paid this credit card off or if you paid down your balance on another card which option would increase your score more.
· Credit Karma and Credit Sesame are both resources that will give you your credit scores repeatedly so you can measure your progress, but they will also give you tips of what you can do to better your score.
· Get started. Putting it off until you have more income is just going to continue to make things worse. To commit to improvement and get started.

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