When it comes to finances, everyone is prone to mistakes. Some of these mistakes may result in a bad credit score, but this is not a permanent state. It can be fixed. Repairing your credit is, however, not a fast process. It takes time and knowledge of what goes behind the score’s determination. So, how does credit repair work? Read on to find out.
Get & Review Your Credit Report
The first step is to know your financial position. You can’t fix what you don’t know. Getting your report can be done through the Annual Credit Report Website – the only official government-approved site that gives out credit reports.
- Check for any mistakes or incorrect information- you can dispute any mistakes by contacting credit agencies. These mistakes can be unrecognized accounts, late payments, and penalties that you didn’t make as well as inaccurate dates.
- Next, review and check the accounts and entries that may be affecting your score. Prioritize on what the repair will entail; for example, getting rid of fraudulent entries should take precedence over other measures.
Start Paying Your Bills and Making Monthly Payments on Time.
Bill payment and monthly payment performance show how reliable you can be at clearing your bills and debts. In fact, 65% of your score is from your payment history plus credit utilization. To improve how this information reflects on your credit report:
- Start paying your bills on time.
- Do not miss any payments such as rent, phone bills, and loan repayments. Additionally, ensure that all monthly repayments are made in full.
- Set up and apply for email or text message payment reminders.
- Strive to pay more than the required minimums- a sign you are serious about clearing your debts on loans.
Reduce Your Debt
Large amounts of debt on credit reports are like alarms to your creditors. They portray you as a financially irresponsible person. To improve your score you need to reduce your debt. This can be achieved through;
- Reducing the amount on your credit balances in relation to your credit limit– credit utilization ratio. A high ratio means low credit scores: People with the highest average FICO scores have utilization of only 7% percent.
- Keep your credit card balances low or stop using some credit cards. Stop using plastics with the highest rates. However, do not close the cards as the accounts will help in keeping your credit utilization low.
- After clearing some of your loans, do not close those accounts. As long as you never missed payments they may help to improve your score. Do not worry about previous bad debts; they will get removed automatically as time goes by.
- Avoid opening new credit lines. They show that you want to take more debt. Also, they involve a hard inquiry, which affects your score negatively.
Use Recognized and Reliable Score Boosting Programs
Credit score boosting is done by adding other payment data like utilities, and phone bill payment information to your credit report. If your payments have been timely and well-managed, your score will get a boost. There are two programs that will help you with this.
- Experian boost–It’s free and it promises to improve your score instantly. This method scans your bank account transactions and identifies utility and cell phone payments. This information about your payments then appears in the Experian credit report. The best part? This boost considers only positive payment history- those missed utility payments will not affect your score.
- UltraFICO – this boost allows for your banking data to be included in your credit report when your score is being calculated. Information may include:
- The time duration your bank account has remained open.
- Evidence of saving.
- How frequent your activities on it have been.
Create an Emergency Fund
Build an emergency fund worth 6 months of your annual income. This ensures that you don’t go for loans that add to your debt any time you get an emergency. The fund can also help when some of your income sources have dried up and you need to take care of other obligations.
The Bottom Line
We have just given you the steps to take when looking to repair your credit score. But, only practice will make you perfect, put the above steps into practice and you will be amazed by the results. This credit score rebuilding process may not be as fast as you expect, but it is truly a method that won’t backfire.
