How To Repair Your Credit And Build A Stronger Score
At SlickCashLoan, we know how frustrating it can be to have a low credit score. Fortunately, credit scores are not permanent; they will always change based on the choices you continue to make regarding your credit. Therefore, if you have a plan in place, you can clean up the negative items in your credit report and begin building a positive credit history.
This guide will give you an overview of the process for repairing your credit and improving your credit score by focusing on two key areas:
- Cleaning up issues currently on your credit report.
- Becoming accustomed to making better decisions that will positively affect your credit score over time.
It’s okay to take it one step at a time. Taking small steps regularly can add up and make a significant impact.
Step 1: See Where You Stand
Your first task is to identify what is contained in your credit reports. Contact the three major credit reporting agencies for copies of your report. Once received, take some time to review each report thoroughly.
Check all information that has been reported about you, including name, address, and social security number, to ensure accuracy. Next, go down the list of accounts you have. Look at the balance for each account, the payment history, and the status of each account. Look specifically for late payments, charge-offs, or collection accounts. Take note of anything you believe may be incorrect or any accounts you don’t recognize.
Having a simple list of the “problem areas” will give you clear direction for action, rather than a general feeling of unease.
Step 2: Fix Errors On Your Credit Reports
If you find a mistake in your credit report, you are entitled to challenge it. Write to the reporting agency that lists the error, explaining why it is incorrect; attach all evidence that supports your claim (i.e., copies of bank statements, lender letters, receipts). Save copies of every piece of correspondence.
The reporting agencies will then investigate your dispute. Once they verify the error, the reporting agencies will update your credit report. When a negative entry is either removed or corrected, you are giving yourself a greater opportunity to increase your score over time.
Step 3: Tackle Late Accounts And Collections
Once you’ve taken care of errors, it’s best to focus on late accounts and debt collection. These types of accounts will hurt your credit score, but dealing with them in a timely manner is better than ignoring them.
Start by focusing on late accounts that are somewhat current. By making those current before they become further delinquent, you might be able to avoid additional negative reporting. Simply contact the creditor and explain your situation to see if they have any alternatives available. The creditor may be willing to move the due date, temporarily reduce payments, or assist in developing a basic repayment schedule to get back on track.
Review your financial situation and determine how much you can afford to pay on an account that is currently in collections. If you can, create a payment arrangement with the creditor (a “payment plan”) or agree to a smaller lump-sum payment to satisfy the outstanding balance. Prior to sending money, always get a written agreement of any settlement or payment arrangement with the creditor.
A payment will typically remove interest/late charges from accruing, as well as stop further negative credit reporting on the account, but does not automatically remove the debt from your credit report.
Step 4: Bring Bills Current And Stay That Way
Credit history (as reflected by on-time payments) is the most significant factor in your credit score. One late payment can negatively affect your credit score, but multiple late payments will impact it even further. This is why maintaining timely payments on all of your bills is so crucial when beginning the process of repairing your credit.
List all of your regular monthly bills along with their corresponding due dates and minimum payments. Arrange your due dates around your payday schedule. Moving some due dates to immediately follow a paycheck, if permitted by the lender, may be helpful. Also, many people make automatic payments or have automated phone reminders sent to them 2-3 days prior to their due date.
When your income is limited, focus on making at least the minimum payments on accounts that are reported to the credit reporting agencies, i.e., credit cards and loans. Making these payments will help to prevent damage to your credit score while you address overdue bills and other financial obligations.
Step 5: Use Credit Cards In A Smart Way
A credit card can be an excellent tool or a very expensive trap, depending on how it’s used.
If you currently own at least one credit card (or more), do your best to keep your outstanding balance below one-third of the credit limit. Lower balances are always preferred, especially as time goes on. If your current outstanding balance is near your credit limit, avoid adding new charges until you pay down the existing balance.
One easy habit is to use a card solely for small, planned expenditures such as gasoline or groceries, and then pay the full balance on that card every month. Consistent use of the credit card and payment of the full balance by the due date will demonstrate that you are using the card responsibly and will help increase your score.
Step 6: Consider A Secured Credit Card
If your credit score is low or if you were denied regular cards, then you may want to consider a secured credit card. A secured credit card allows you to deposit money with the card issuer, which will then be used as your credit limit.
Many people with limited or poor credit will be able to receive approval for the card because the lender is holding their deposit. After receiving the card, all of the rules are the same as they would be for any other credit card; therefore, make sure to pay your bill in full by the due date and maintain a low balance over several months to develop a positive credit history.
When selecting a secured card, watch for excessive fees as well as unclear language. Your aim is a low-cost card that will report activity to all three major credit reporting agencies and let you develop good habits over time. Some card issuers may provide an opportunity to turn a successfully managed secured card into an unsecured card and refund your security deposit.
Step 7: Pay Down High-Interest Debt
High-interest debt, especially on credit cards, is probably a major budget stressor and will likely have an impact on your credit score, but paying it down is one of the most powerful actions you can take to improve both your budget and your credit score.
First, make a list of your debts with each of their interest rates and balances. Next, identify the highest-interest account you want to focus on. Now pay the minimum payment amount due for all of your other accounts, and apply every available dollar to the target account. Once you pay the target account in full, move to the next highest-interest account and continue this same process.
As you pay off each of these debts, you are creating additional dollars available in your budget and reducing your total debt obligation, which should positively affect your overall credit picture as well as your ability to access future credit.
Step 8: Be Careful With New Debt While You Repair
When you are improving your credit history, be wary of new debt. The way some borrowing opportunities look may sound beneficial at first glance, but they add to your stress.
Be aware of credit cards with high setup fees or confusing terms, and be cautious about loans that seem easily attainable. The interest rates charged will be extremely high. Also, cash advances from credit cards charge high fees and begin accruing interest immediately.
If you determine that you will have to borrow money while working on improving your credit history, compare multiple financing options. In addition to the interest rate charged, examine the additional fees and the overall cost of each option. A small, affordable loan that you can pay back (and keep your budget intact) will generally be a better option than a large loan with many obligations.
Step 9: Build A Healthy Mix Slowly
Having a variety of credit accounts (e.g., installment loans and credit cards) may help improve your credit score. Opening multiple new accounts in a short time frame could negatively impact your score by adding multiple hard inquiries and making your profile appear high risk.
Instead, consider your credit profile to be an asset you are continually developing over time. As your financial situation improves, you may want to add a new credit account to support your goals, such as a modest installment loan you have planned to repay, or a low-fee credit card that you will pay in full each month. Every new credit account should contribute to your long-term financial goals, and not detract from them.
Step 10: Watch Your Progress And Guard Against Fraud
Making it a habit to check your credit at least once a year will help you see how all of your hard work is paying off and allow you to identify potential issues early.
Regularly check your credit reports to verify that all information being reported is accurate. If an account was closed, it should show “closed” on your report. It is also a good idea to ensure there are no new, unauthorized accounts that have been opened using your social security number or other identifying information. Any unusual activity with your account balance, or a new address being added to your file, for which you did not provide authorization, may indicate your identity has been stolen.
As soon as you find anything wrong with your report, contact the lender and the credit bureau immediately so that they can take the proper steps to minimize the damage to your credit history and allow you to continue with your credit repair process.
How Long Does Credit Repair Take?
Credit repair isn’t instantaneous. Most negative items are typically on your report for at least 7 years; however, most will decrease in effect over time as your credit history builds.
You’ll be able to see some minor improvements within a few months of making timely payments and reducing your card debt levels. However, significant improvements will likely require at least 1-2 years of consistent effort.
Serious issues, like a bankruptcy, can remain on your report for an extended period of time. Nonetheless, good habits that are developed over time will begin to improve your overall credit history.
The Final Word
Your financial future does not have to be defined by bad credit today. You may fix any inaccuracies reported about you, address past due accounts and collections, pay bills when they are due, and use credit responsibly, which will allow you to improve your score over time.
Our team at SlickCashLoan encourages you to know what is currently being reported about you, create a plan based on your income and expenses, and then choose the simplest and consistent ways of making decisions to improve your credit report.