How to Repair Your Credit
If there is one thing every household owner dreads, it must be bad credit. However, the economic environment forces most people to borrow excessively and beyond their means. In the end, this ruins credit scores and makes life even harder. According to Credit Bureau Experian, nearly a third of all Americans have a credit score lower than 600.
This might not mean much on paper until you realize you can’t get an affordable loan. What’s a worse, utility provider may require you to pay a deposit before connecting you to their services. In essence, bad credit makes your life a nightmare. Learning more about bad credit is the first step towards dealing with it. After all, you can only manage what you know.
What leads to Bad Credit?
Truth be told, life for most households over the last 10 years has been tough. The cost of goods and services has been increasing. While the income levels might be rising, the pace is not enough to offset the high cost of living. This is one major reason why household owners are forced to borrow to meet their financial obligations.
While it is understandable that borrowing is part of life, it can also lead to a cascade of results which will see you sink deeper into debt. As you sink into more debt, all this information will end up with credit bureaus, and this is how your credit rating starts taking a hit.
Many people have experienced some sort of financial problem which has, in turn, affected their credit score. Some of the possible reasons why you have a bad credit score include:
- Bankruptcy – This remains a blot on your credit report for 10
- Late repayments – This is the main cause of poor credit scores, and it occurs when you have multiple debts, and you end up failing to pay some.
- Wrong listing – This happens if you haven’t been tracking your debt repayment with lenders. It is important to check and confirm that your credit score is actually reflecting your financial situation.
- Legal repayment – Some repayments, including loan settlement, are listed as legal repayment meaning the loan has been wiped off although it wasn’t repaid.
You might also be going through a divorce which will instantly affect your credit score. In some cases, all these factors come together to impact your credit rating. The bottom-line is that a bad credit rating will negatively affect your life. Your credit score determines whether or not you can access credit and the interest rates you will pay. Your ability to get a job, especially in public offices, will also be affected.
Your credit report is used to create a credit score. This report includes all your relationships with credit; from lenders, insurance companies and any other organization that is obligated to report financial transactions to the credit bureaus. So, what is a bad credit score? The following TransUnion scale gives you an idea:
- Excellent credit score (720+)
- Good (640-719)
- Fair (550-639)
- Poor (500-549)
- Very poor (0-499)
Repairing FICO Credit Score
Now that you understand how bad credit impacts your life, it is time to learn how you can repair it. While there are many quick fixes online, it is important to understand that this is an intense process that requires your input. It is best likened to losing weight; there is no shortcut.
Below are steps you can use to repair your credit effectively:
- Check Credit Report
The first step in credit score repair is checking your report. You should request a free copy if you haven’t already done so. This is a critical document with the data used to calculate your score. The Federal Trade Commission says at least 5% of all people requesting for credit reports have mistakes to report.
Don’t take for granted the information contained in the report. Instead, go through it with a tooth comb. Check if there are wrong late repayments included. More importantly, check any amounts owed in open accounts and confirm whether they are correct. Other inconsistencies to check for include outdated information, judgments and liens, unfamiliar collection accounts, and mistaken identities among others.
- Report and Fix Errors
If there are any errors, it is advisable to either contact the credit bureau or your attorney. Remember, there are millions of others also seeking you have their reports corrected, and a lawyer brings in invaluable expertise in the process. However, it is advisable to contact the concerned creditor. Once a dispute is resolved, the creditors will inform credit bureaus which will then go on and correct the item on the report.
- Tackle Past Due Accounts
The greatest factor in your credit score is the repayment history. It affects 35% of the total credit score. In essence, you need to find a better strategy to repay your open account balances if at all you are to improve your bad credit score. Some of the strategies that can help you do this quickly include:
- Setting repayment Reminders –You can set payment reminders to guarantee you never fall back on repayments. Some banks have online payment reminders, and these are perfect to ensure you never fail to make your monthly repayment.
- Budget and change your lifestyle – If you are to improve your bad credit, you have to make sacrifices. The best way to do this is to make a barebones budget that contains only the necessary items. Avoid luxuries and frivolous spending. Budgeting helps you leave extra cash on the table which should instantly be used to repay some of your debts.
- Use Professional Services
There are different types of credit repair services that you can use to improve your score. These are regulated by the Credit Repair Organizations Act (CROA). Such an organization must outline what it does and how it will improve your credit score.
They should also offer a cancellation period and clarify any guarantees they provide. Some services also sell software to keep track of your credit report and alert you. However, be aware of credit score scams out there whose promises seem too good to be true.
Repairing your credit is the first step towards financial freedom. You will find it easier to access credit, and it directly improves your quality of life. With a perfect credit score, it is easier and cheaper to access all services. The process of repairing your credit score must start with knowing your score from the credit report, fixing any errors and working on your finances to repay pending debts.
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