Ready to Fix Your Credit Score? Here’s How

Fixing Your Credit Score Is Easy With This Guide — Ready To Start?

( – You need credit to accomplish many life milestones: car ownership, home ownership, student loans, and even home rentals. You even need credit to get a decent credit card. Since you need credit to improve your credit score, bad credit or no credit can seem like an impossible barrier to progressing in life or cleaning up past mistakes. Fortunately, fixing your credit score isn’t impossible, but it does take time and persistence.

Follow this step-by-step process to assess where you are and improve your credit score.

Step 1: Pull a Copy of Your Credit Report

Obtaining a copy of your credit report is practically easy and it’s free to do, but the real challenge comes from the psychological burden of doing it. If you’ve recently been denied something due to poor credit or you have received some collections notifications, it’s not the best feeling — and you know you have one or more major debts to deal with. If you have foreclosures or evictions on your credit report, it’s even worse. All of these things will only remind you of your past failures.

Getting your credit report starts with a promise to yourself: you’re ready to face your financial past and improve moving forward. Begin with the knowledge that some credit repair actions are easy and reflect an improvement on your score quickly, and keep that in your mind as you move forward.

The Fair Credit Reporting Act mandates that everyone can obtain at least one free credit report per year. There are three main credit bureaus who will comply with this rule: Experian, Equifax, and Transunion. Each credit bureau can reflect a slightly different score because they use different formulas, but for the purpose of getting started, any one will do.

At this time, it’s also ideal to establish a free account with Credit Karma. Credit Karma is a site that makes money by providing loan and credit card offers to consumers (don’t think about any of those just yet). Credit Karma provides free, immediate updates, and helps you get into the habit of checking your progress as often as you like. (We recommend checking at least weekly when you’re just getting started with credit repair.)

Step 2: Correct Credit Report Errors

Unfortunately, credit card report inaccuracies are common. These occur for a variety of reasons, ranging from deliberate fraud to a company’s failure to report a paid debt as closed. If you have a chaotic financial past, it’s likely that there are multiple legitimate bad marks on your credit as well.

Audit your credit report for any detractors and sort your owed balances into two categories: legitimate and questionable. For now, put your legitimate owed expenses aside and do your best not to panic about them, as right now you need to focus on potentially inaccurate marks on your report.

You should dispute anything that is assuredly inaccurate immediately. You can do this by disputing items with each credit bureau. If you have questionable items on your report, investigate — and if they turn out to be items you do not owe, dispute them, too.

While it’s emotionally intense for most people to review their credit reports, most have an error or two on there. Getting errors removed is the simplest and sometimes the most significant way to increase a poor credit score quickly. In the future, you should also check for errors prior to applying for anything that requires credit to make sure you have a few weeks to clean up any false reporting.

Step 3: Practice Good Credit-Building Habits

To build your credit moving forward, you’ll have to keep everything in good standing. This means paying all accounts on time, communicating directly with creditors to create payment plans and avoid negative reporting to your credit card agencies, and being aware of the different account types on your credit report. The healthiest credit reports include a mix of account types such as auto loans, credit cards, and secured credit.

You can also avoid penalties by applying for new credit sparingly. Credit bureaus see it as a red flag if you apply for too much credit with different lenders at once. If you’re able, try to put at least three months between each credit application and only apply for opportunities likely to grant you the credit you seek.

Step 4: Let Your Credit Age

This is one of the easiest yet most frustrating ways to improve your credit score. The “older” your credit is, the better. Credit bureaus prefer longstanding credit, such as a credit card you’ve had for many years. This is important to consider when cleaning up your credit, because it might be tempting to close older, higher-interest cards as your score improves and you can get better cards. Instead, consider keeping a small balance on those cards but keeping them active to help your overall credit age.

Step 5: Aim for 30% Credit Card Utilization (CCU)

Credit bureaus prefer you to have credit, but not use all of it. This demonstrates responsible usage. The idea CCU rate is 30% or less. That means if you have a $1,000 limit on your credit card, keep your balance at $300 or less to show ideal usage.

Step 6: Carefully Build New Credit

As you know, it takes credit to improve credit, which means you’ll have to borrow carefully. There are sensible ways to do this, such as asking for credit limit increases for existing cards and gradually building credit with secured cards. Secured cards require deposits which reflect your credit limit.

Avoid overextending, or taking out more credit than you can repay. If you get a new credit card, make sure you can keep that monthly usage under the aforementioned 30% for a positive impact on your credit score.

Step 7: Confront Collections

Collections are some of the most stressful and frustrating credit report items you’ll deal with, especially if agencies harass you. However, you can settle with them and make payment plans to avoid new bad marks on your credit report, and to eliminate old ones. Generally, undisputed collections and other bad marks will remain on your credit report for about seven years, so preventing this type of reporting to the credit agencies can really help your future self.

Whatever methods you choose to improve your credit score, make sure you regularly monitor your score. Make sure all improvements are reflected on your report (sometimes creditors “forget” to report that you’ve paid something off) and keep that ideal utilization to ensure steady improvements. Significant improvement typically doesn’t happen overnight, but over the course of a year or more, these tactics can help you raise your score at least 100 points with minimal effort.

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