Credit ratings are a decisive factor for any financial emergency, so to repair bad credit is essential.
Repairing bad credit is something you should definitely look into, if you need to get approved for a new loan, shop for car insurance or even apply for a simple credit card.
It is possible to live with bad credit as well, but you will be denied many financial opportunities, not to mention life can get pretty expensive in the long run.
Nowadays banks aren’t the only ones who check your credit score. New employers, insurance companies and even your future landlord can check out your credit history.
A good credit score will help you get better interest rates on your loans, could help increase your chances of getting a raise at your job and will save a lot of money on insurance or even utilities.
A bad credit score will do the opposite or worse – lenders won’t even look at you, because to them, you’re not a financially responsible person.
How to repair bad credit
There are 2 main ways to repair your credit score: hire a credit repair company or fix your credit score by yourself.
Credit repair companies
This first option looks quite ‘comfortable‘. You could hire someone to help you out while you sit back and wait for the results.
Hiring a credit repair company is a great solution, but even if there are many that are willing to help you out, they won’t do it for free and you might be at risk of being scammed.
It is very important that, before you pay for credit repair, you thoroughly check the company is legit. Always look for reviews and stay away from any companies that promise you results that sound too good to be true. Credit repair takes time, so run away from anyone who promises you a ‘quick fix’.
Fix credit score by yourself
Since credit repair companies cost money, and you’re probably already in a pickle as it is, maybe paying for credit repair services isn’t something you’re looking forward to. Don’t panic though, there’s plenty you can do, on your own, to start improving your credit score, free of charge!
How to fix your credit score by yourself
1. Review your latest credit reports
First things first: request a free copy of your credit report and review it accurately.
Everyone is entitled to one free credit report copy from each reporting agency (TransUnion, Equifax, and Experian) each year. Request yours at annualcreditreport.com and start looking for errors: inaccurate information, missing credit data and so on.
Take your time, don’t rush this process. Take several days to review everything, if necessary. Once you finish with this step, move on to step n° 2.
2. Start the dispute process
This is where the actual cleaning of your credit report starts.
After you have thoroughly reviewed your credit reports and highlighted all errors, you should immediately contact the bureaus and start the dispute process.
This can be done online, over the phone or by sending them letters.
There are advantages and disadvantages to opting for each of these methods. For instance, disputing online or over the phone is a lot easier and much faster than sending the reporting agency one (or even more) letters. However, you’ll have no way to trace the files, as you would if you’d take the time to write the letters.
How you choose to start the dispute process is up to you. What’s important is that you make sure you dispute each and every error with each reporting agency separately, since each bureau works independently.
3. Take care of your payment history
Payment history is the most important factor when it comes to credit scores. That being said, past due debts are definitely something you should get rid of immediately!
Paying off past debt is easier said than done, but one great way to tackle this problem is asking your creditor for help. Explain your situation and see if they’re able to help you become current. If this doesn’t work, you can always turn to consumer credit counseling.
Of course, don’t forget to pay off other current debt as well. Paying bills in full each month will also help. This way, you’ll slowly but surely get rid of all debt and, in time, improve your credit score.
4. Re-establish your credit score and credibility
Now that you’ve taken care of all the negative factors that had an impact on your credit score, it’s time to improve it.
One easy way to build new credit is to apply for a secured credit card.
A secured credit card will require you to make a deposit in order to assure your spending limit. It’s a great way to build credit score, if you pay the balance in full every month. Of course, don’t abuse it. You don’t need to actually charge close to your limit each month. Remember you’re on a quest to improve your bad credit score, not buy impulsively.
5. Learn from your credit mistakes
Since we’re on the subject of wisely using a secured credit card, it’s important to mention that repairing bad credit takes years (at least 7, to be more precise). Which is why it’s very important you learn from your past mistakes!
Now that you learned what factors have a negative impact on your credit score, make sure you avoid them in the future. Next time you get a bill in your mail, pay it in full to avoid penalties. Already have a credit card? Why apply for another one and risk getting into debt yet again?
Of course, not all debt is bad.
You shouldn’t be afraid to apply for a loan just because it *might* affect your credit score in a bad way. Trust is measured by your credit score, but building a good credit score can be helpful on the long run. In time, you might need that good credit rating to get approved for a mortgage, to buy a car with no money down or even land a better job.
Do you have any other tips for fixing bad credit?