CREDIT SCORE

How to Repair your credit?

Fixing your credit score can be one of the best investments you can ever make. Achieving a better credit score can mean qualifying for a mortgage, lower interest rate and overall better terms on a loan or credit card. The bottom line is that the bureaus are not perfect and they make mistakes. These mistakes make millions of American consumers seem riskier than they really are.

Bad credit is considered anything below 600 on the FICO scoring system. The FICO scoring system is determined by many factors such as payment history, length of credit, credit utilization, bankruptcies, foreclosures and more. Each bureau calculates scores a little differently so your credit scores may slightly vary depending on which bureau you are looking at: Equifax, Transunion or Experian. If you see an error on your credit report that you are within your legal rights to dispute this erroneous item.

Below is a step by step process that explains ways to improve your credit score and inaccurate items from your credit report.

1. Obtain a Copy of your Credit Report

In order to access whether or not you have erroneous items on your credit report it is imperative you have a copy of your report. Once you have your credit report you can determine exactly what needs to be fixed. By law all three credit bureaus are required to give you one free credit report each year.

  • Obtaining a free credit report:

    You can request your from the https://www.annualcreditreport.com/index.action where you will see your credit history, including any credit cards, loans, accounts that were sent to collection agencies and legal actions like foreclosures or bankruptcies.

2. Checking for errors

It is widely reported that 25% of all credit reports contain errors. Make sure you actively look for the following errors on your report:

  • Incorrect personal information (i.e. misspellings, wrong addresses)

  • Accounts that don’t belong to you

  • Missing accounts that should be listed on your report

  • Incorrect public records (i.e. bankruptcies, foreclosures)

  • Accounts that aren’t accurate (i.e. they say they’re open when they’re actually closed)

  • Accounts listed as “closed by grantor” (meaning the lender closed the account on you)

  • Duplicate accounts

  • Data management errors

  • Delinquencies or derogatory remarks

  • Delinquencies or derogatory remarks

  • Incorrect inquiries

All of these errors will impact your credit score and can cost you significant amount of money over a lifetime.

3. Dispute Errors

By law the bureaus are obligated to fix mistakes. You can request a correction via mail, phone or online submission. You will need the proper documentation to prove your identity and the proof to correct the misinformation on your report.

Filing a Dispute with the Bureaus:
Experian

https://www.experian.com/
blogs/ask-experian/credit-education/faqs/how-to-dispute-credit-report-information/

By phone: 800-916-8800

BY EMAIL
Experian
P.O. Box 4500
Allen, TX 75013

Equifax Disputes

https://www.equifax.com/
personal/credit-report-services/credit-dispute/

By phone: 866-349-5191

BY EMAIL
Equifax Information Services LLC
P.O. Box 740256
Atlanta, GA 30374-0256

TransUnion Disputes

https://www.transunion.com/
credit-disputes/dispute-your-credit

By phone: 800-916-8800

BY EMAIL
TransUnion Consumer Solutions
P.O. Box 2000
Chester, PA 19016-2000

4. Pay Late or Past Due Accounts

Errors are not the only thing to address when building your credit score. You need to make sure you have no overdue balances on your account, and remember, unless a payment is not 30 days past due, it is not late according to the credit bureaus. Once a payment is 31+days past due, creditors and lenders will report you item to the 3 major bureaus which will impact immediately your credit score.

  • Collection agencies:

    When a creditor is past due 30 days they may decide to sell your account to a collection agency. The collection agency may report this on your credit report and it will have an immediate negative effect to your credit.

  • Charge-offs:

    When payments are 180 days past due, your credit card will become “charged off.” This means your creditor considers the debt as a loss in their own records, cancels your account, and you’ll only be able to pay the balance in full. You may be charged a late fee for each additional month that passes.

    Being charged off greatly damages your creditworthiness.

  • Pay-for-delete?

    A pay-for-delete is an agreement between a consumer and a collection agency to remove a collection account from your credit report — with an arrangement to pay the full amount or a lesser agreed upon amount. You can send a pay-for-delete letter to your creditor asking them to remove the charged off account from your credit report in exchange for paying the past due balance.

5. Increase Your Credit Limits

Increasing your credit limits is a good way to improve your credit score. This is especially important for you credit utilization ratio which is one of the main factors in determining your credit score. Your credit utilization ratio is simply how much you owe on all of your accounts compared with your total available credit.

For example, if you owe $10,000 on all of your credit cards, and you have $20,000 of combined available credit, your credit utilization ratio is 50%. It is recommended that you aim for a credit utilization threshold of 10%-30%. Once your ratio is above 30%, it begins to negatively impact your credit standing. By increasing your credit limits, your credit utilization ratio decreases.

6. Pay off your Credit Cards

If possible a great way to improve your credit score is to pay off your credit cards. You can either pay off the account that suffers from the highest interest rate or, you can pay off your account with the lowest balance first, so the balance no longer incurs interest.

7. Open a New Credit Card

Opening a new credit card account has a positive effect on your credit utilization ratio. A new credit card increases your total available credit which in turn lowers this ratio. The smaller your ratio, the better your credit score. When considering whether to open another card you do not want to incur more debt and opening several new accounts at once could negatively impact your score, as it makes you appear riskier to potential lenders.

Remember, too, that the length of your credit history matters. By keeping your older accounts open, you’re building your credit age. The average amount of time all of your accounts have been open is considered your overall credit age. The older your credit age, typically the better your score.

8. Pay your bills on time

Paying off your debt is an important element needed to fix credit. By making payments on time, you’re showing your current creditors that you are a responsible borrower. Whether it’s your credit card payment or utility bill, be sure to pay on time.

Maintaining Healthy Credit

After fixing your credit it is important to keep your score healthy. Here are some of the ways to do so:

  • Limit the number of hard inquiries:

    This are credit pulls associated with mortgage loans, auto loans and others. Soft inquiries don’t impact your credit, like when you check on your own credit score. If you have no many inquiries in a short period of time it can affect your credit score.

  • Auto-payments:

    This ensures you pay on time and gives you one less thing to worry about.

  • Keep old accounts open:

    Older accounts show that you’ve maintained a healthy payment history with creditors which in turn makes you more credit worthy.

  • Multiple loans

    Different types of credit can give your score a boost, such as car loan, mortgage loans, and credit cards.

  • Monitor your credit report:

    Finding errors and disputing them can have a tremendous impact on your credit score and your overall ability to get approved by lenders.

  • Too much credit at once

    It’s best to limit opening several accounts within a short period. Some creditors view multiple new accounts as risky. The new accounts can also lower your credit age.

  • Ask for professional help

    If you want to dramatically improve your credit standing ultimately leading to approval for bigger loans with better terms consider professional help.

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