Credit scores are one of the things that can make or break your goals in life, as they directly affect your ability to get the things you want, such as a new apartment, car, or house. While the average credit score in the US is 710, many Americans fall below that line. This means that you may have difficulty getting a loan if you have a low credit score (usually below 670).
Most people with bad credit frequently believe that working with a credit repair company is the best way to raise their scores. However, everything a credit repair company can lawfully do for you, including eliminating inaccurate information, is something you can do for yourself for little to no cost. Hiring such a business might cost anywhere from a few hundred to thousands of dollars.
While it may be tempting to let a credit repair company handle the work, it’s crucial to understand what they can and cannot do and to take action on your own before paying money to hire them. Continue reading this step-by-step guide on how to fix your credit on your own if you’re ready to take the do-it-yourself (DIY) approach.
Fix Your Credit With These Seven(7) Easy Steps.
Your credit will not improve overnight. Also, negative but accurate data can remain on your credit report for seven to ten years. You can take several practical steps to repair your credit, including always making timely payments and paying down your credit balances, among others. Here’s a step-by-step guide to fixing your credit:
- Check your credit score and report
Before starting your DIY credit repair, you must obtain copies of your complete credit reports from each of the three bureaus. Also, the last ten years of your credit history are detailed in your credit report. So, each credit reporting agency (TransUnion, Experian, and Equifax) should have one credit report on you. It is essential to review the information on all three of these reports because while most creditors report to all three, not all do.
Your credit report determines your credit score, so it’s crucial to review it. You may check your credit score for free through credit assessment websites or some credit card issuers. It simply takes a soft credit query to check your score, which has no impact on your credit score. It’s generally a good idea to check your score once every month.
- Fix or dispute any errors
Credit bureau errors are rare, but they do happen occasionally. A survey by the Federal Trade Commission found that 25% of respondents had mistakes on their credit reports, and 5% of those mistakes could have complicated their ability to obtain a loan. Being aware of your credit score and report is an excellent place to start, but it’s also crucial that you check for mistakes. Here’s how to challenge inaccuracies if you find any, which is a relatively straightforward process:
- Verify the spelling of your name, social security number, credit history, and address on the copy of your complete credit report.
- Examine the list of your credit cards, significant purchases, and unpaid debt. Additionally, copy the report and mark any errors you see.
- Make copies of any supporting documents, such as bank account statements, that you have gathered to support your claim. Since credit bureaus won’t take any action without proof, this section is crucial.
- If Equifax, Experian, or TransUnion made the error, address a letter specifically to them.
- Although most organizations let you file complaints online, it’s a good idea to send a letter by mail and retain a copy for your records.
The credit bureau has 30 days to respond to your letter after receiving it.
- Pay your bills on time
35% of your credit score is based on your payment history. So, concentrate on streamlining your monthly payments if you want to repair your credit. Even if it might seem challenging to make all of your payments on time, there is a straightforward trick to do it right: use autopay. Be sure to pay your bills as soon as you receive them if they cannot be paid immediately. If you cannot pay immediately, get in touch with the office and arrange a payment schedule. Set up a budget or plan your autopay at the same time you get paid if you’re concerned about overdrawing your account.
- Maintain a credit utilization ratio below 30%
You can determine your credit utilization rate by evaluating your credit card balances to your total credit card limit. Borrowers use this rate to assess your financial management skills. Also, lenders generally view a ratio of less than 30% and more than 0% as favorable.
Assume, for instance, that you had two cards with $3,000 credit limits each and $1,000 in overdue balances on one of them. It would be 16.6% for your credit utilization rate. Divide your entire debt ($1,000) by your credit limit ($6,000) to arrive at your utilization rate.
Your credit utilization rate can be lowered by:
- Start reducing the balances on your accounts.
- Open a new credit card account or ask for a card limit increase on an existing card to enhance your overall available credit.
- Merge your credit card debt with a personal loan so that it isn’t considered when determining your credit utilization rate.
Having said that, raising your credit limit can be harmful, even if it may seem like a smart idea. You might incur additional debt if raising your credit limit compels you to spend more money. Additionally, while debt consolidation with a personal loan can instantly lower your credit utilization ratio to zero, it can be challenging to be approved for a loan with a fair interest rate when your credit is in poor standing. Therefore, the best way to raise your credit utilization ratio may be to pay off your credit card and other credit account balances.
- Pay down other debts.
If you still owe money, paying it off will help you establish a better payment history and lower your credit utilization rate. Think about using the debt snowball or avalanche strategy when making repayment plans for your credit card debt. The snowball strategy prioritizes paying off your smallest balances first, while the avalanche method prioritizes paying off your high-interest cards first. To decide which approach is best for your situation, compare the two. Knowing that your credit score can temporarily decline if you intend to repay loan debt is crucial. However, Experian claims that doing this will raise your credit score over time.
- Keep old credit cards open.
When you have paid off all of your old credit cards, you might be compelled to close them completely. Be careful not to act too quickly, though. At least 15% of your credit score comes from your credit history, calculated using the average duration of all your open loans. Therefore, your credit score increases as the average age of your loans increases.
Your credit history, for instance, will typically be four years if you first acquired a credit card four years ago. The average length of your credit history will increase to two years if you apply for a new credit card today. And t the average duration of your credit history would be one day if you were to cancel your initial card.
Therefore, rather than just closing a credit card that doesn’t fit your lifestyle any longer, keep it open to maintain the average age of your loans. There are a few exceptions to this rule, though. For instance, your issuer might close your card after a specific amount of inactivity. Additionally, it might be advisable to close it if it has an annual fee.
- Don’t take out credit unless you need it.
Your creditor will perform a hard credit check every time you apply for credit. Your score may be reduced by one to five points due to this inquiry, which will also reduce the average account age. So, as a general guideline, refrain from applying for credit unless you need it.
How Long Does it Take to Rebuild Credit?
Because every person’s credit history is unique, it is challenging to predict how long it will take to restore credit accurately. The severity of the negative information on your credit report and how long ago it happened will impact how long it takes to rebuild your credit if you’ve previously experienced issues. While certain activities, such as paying off your credit card debt, can almost immediately impact others might take months to have a sizable beneficial effect.
Ready To Start Rebuilding Your Credit?
You might feel inclined to shift your attention to something else once you’ve worked hard to restore your credit history. You must check your credit score frequently to follow your progress and ensure that the correct information is being reported over time. Your credit score is likely to rise as you establish a good credit history, giving you a better opportunity to be approved for favorable terms when you next need to borrow money.
