Bad credit can set you up for a truckload of challenges and have many wider-ranging consequences than you think. Not only will a deficient credit report lead to fewer loan offers and a higher interest rate, but it can also make it difficult to find housing and acquire certain other services.
However, fixing your poor credit scores is not as tough as you might have heard. Credit repair companies often get a bad reputation because some firms prey on people’s desire to improve their scores quickly. Finding a legit credit repair firm that offers credit repair services and hiring them may also be an expensive route to fix your credit.
The good news is that you can fix your credit on your own without spending a dime and have those negative items removed. Hiring a credit repair company can be a good move if you are short on time and you can afford the process.
Repairing credit can be a lengthy process, where good financial behavior helps increase your credit score with time. Achieving a good credit can take months, even years, but there are a few tips you can follow to boost your progress.
From getting your credit reports from the major credit bureaus for free to disputing errors and mistakes and correcting them, here is everything you need to know to fix your credit on your own fast & for free! Be sure to check out our Ultimate DIY Credit Repair Guide for 2020: How To Repair Bad Credit Yourself
Get A Proper Idea Of Where You Stand, Financially
Before you get your hands in the financial bowl and begin the do-it-yourself credit repair, you will need to get your credit reports from all three major credit bureaus: Experian, Equifax TransUnion. Obtaining a free copy of your credit report is easy.
It is the first step for credit repair because you won’t know what requires fixing and how to do it until you have your credit reports handy. Luckily, you can opt to get a free credit report once a year from any of these major credit reporting agencies:
All you have to do is, get to AnnualCreditReport.com and avail your report. You can also call them at 1-877-322-8228, complete the verification process over the phone, and the credit report will be mailed to you in under 15 days. It will not include your FICO score, but you get the information you need to repair it.
In addition to this, there are many other ways to get your credit report for free. If you have already received the report from AnnualCreditReport.com once in the past 12 months, here are some other ways to get your credit reports free of cost!
Related Post: How Do I Get A Free Credit Report Instantly?
Once you possess all three of your credit reports in your hands, you can begin determining mistakes or errors and find areas on your credit that can be improved by taking simple actions.
Reduce Your Credit Utilization Ratio
Several factors make up your credit score, and your credit utilization rate is an influential metric as it determines 30% of the score.
Related Post: Five Factors That Affect Your Credit Score
Credit utilization is basically how much balance you have compared to the total credit limit or total available credit. For example, if you have used $1000 from a credit card with a limit of $5000, your credit utilization is 20%.
A general guideline is to use up to 30% of your total credit limit and keep paying bills on time to improve your credit score. Many experts even suggest keeping the credit utilization under 10% for best results.
Your credit card company may also reward you for this behavior and raise your credit limit. If you are making just the minimum payments, getting a credit limit increase may be more challenging. Keeping your balances low is an essential factor when credit card companies decide to extend new credit, and making just the minimum payment is a red flag.
The credit utilization ratio plays a significant role in building credit, and you must keep notes of how much you spend using a credit card and what can be done to limit these expenses. Here some tips that can help in keeping your credit card utilization under 30%:
- Increase your credit limit
- Only charge essential purchases like groceries, gas, etc.
- Ensure splitting large purchases between multiple cards
Become an authorized user
The easiest way to repair your credit is to become an authorized user on someone else’s credit card.
If you have a relative, family member, or friend with a long record of responsible credit card use and excellent credit history, consider asking them if you can become an authorized user on their account.
While this certainly is not a way to build your own credit history, it may work as a nice boost if you are only trying to fix your credit.
The primary account holder has to add your name to their credit card account to make you an authorized user. They do not need to let you use their card or even share their account number for your credit to improve.
The credit can benefit in these cases:
- If the primary account holder has a strong history of on-time payments
- If the account you are added to has a low credit utilization ratio
On the other hand, your credit can also get hurt if the primary account holder misses a bill or does not stay on top of their payments.
Pay Bills on Time, and Repair your Credit
There is no strategy or quick fix that can build your credit as timely repayments can. Payment history is the single biggest factor that affects 35% of your credit score.
Paying bills on time can fix your credit score significantly, plus it would prevent late payments as these can stay on the credit reports for up to 7 years.
In case you miss a payment by 30 days or more, call your creditor immediately. Try arranging the payment and request the creditor to consider not reporting the missed or late payment to the credit reporting agencies.
Even if it does not go this way, it is worth getting current on your account.
Dispute Errors and Mistakes on your Reports
According to a study by the Federal Trade Commission in 2012, around 25% of U.S. consumers found errors in their reports that affected their creditworthiness significantly. The same study reported that one in every five consumers had an error corrected by a credit bureau when the account holder disputed it.
Errors and mistakes on your credit reports can lead to lower credit scores and also impact your creditworthiness. Regularly checking your credit reports and disputing errors can help in repairing credit gradually and getting a good credit score.
Examples of errors:
- A payment marked late when you paid on time
- Negative information that is too old to be listed anymore
If you find errors like these on the credit reports, dispute to get them removed. The credit reporting agencies typically have 30-45 days to investigate and resolve your issues.
Make sure you send enough evidence to support the disputes. If the bureaus do not find your dispute legit, they will not investigate enough or fix the errors on your reports.
Pay Down High-Balance Accounts
Figure out what accounts have the most debt and work on paying down your credit card balances can make a significant impact. If you have several credit cards, focus on paying off the highest card balance. This will help in fixing your credit by lowering credit utilization. Once you have paid off your credit car company, then you can work on lines of credit and other debts you may owe to a financial institution.
Once you pay down high-balance accounts, you must start clearing every balance according to the billing cycle. Timely payments are the best way to show lenders and creditors that you are a responsible borrower.
More benefits to on-time credit card payments:
- Minimal or no interest charges
- Easier to manage repayments, lesser stress
- The grace period on new purchases
- A possibility to increase your credit limit
- A better credit score, of course
If you have limited funds to put into credit repair every month, prioritize paying off high-balance accounts first. This will reduce your outstanding debt and improve your debt-to-income ratio that many lenders use to determine potential borrowers.
Keep A Variety of Credit Accounts to Fix Your Credit
While you should only borrow money when it is actually needed, having a range of credit accounts can show lenders that you can manage credit responsibly.
In fact, credit mix is another factor that has a 10% impact on your credit score. Maintaining a credit mix demonstrates that you are capable of handling multiple varieties of loans.
You might have a mortgage, auto loans, a personal loan, credit card, and all of these different credit accounts benefit your reports differently. Improving your credit mix can help in repairing the score slowly.
By introducing every form of credit, your history will start to show that your credit mix is growing more diverse over time. Maintaining different credit accounts like revolving credit and installment debt will positively affect your creditworthiness and score.
Keep Hard Inquiries To A Minimum
One mistake that many folks make is applying for too many credit accounts too soon. One hard inquiry will only drop your score a couple of points, but several inquiries can take you from a decent credit score to a bad credit score.
It is a good idea to watch how many times you pull your credit in a 12-month cycle. New accounts being opened can help raise your score, but if you have poor credit and you are declined repeatedly, that will not help your situation or your credit file.
Working With Collection Agencies
If a debt collector or collection account is giving you a low credit score, it is important to determine if there is incorrect information on the account. This will help you to dispute any outstanding balance. If the information is correct, then most people are able to negotiate a settlement for less than the original debt.
You can read our article on how to approach collection agents and companies with a Pay For Delete Letter
Fixing your credit is a long process, but it is definitely worth it. Good credit is your only way to financial freedom and happy life.
Following these simple steps can help in the long term for credit building. Simply start by thoroughly checking your credit reports and looking for possible errors and mistakes.
If you see any errors, dispute them with the credit bureaus, and get them resolved. Then move on to paying down credit card debt and other high-balance accounts while trying to make every payment on time.
In the meantime, increase your credit limit to lower your credit utilization ratio and limit the use of credit.
Depending on how poor your credit is, it may take months or even years to start seeing improvement. However, if you are planning on buying a new home, starting your own business, or taking any other significant debt, these steps are all that you need to fix your credit.
We also have an in-depth guide on fixing credit right here: How to Fix Your Credit in 10 Easy Steps. If you are sincerely looking for ways to fix your credit and improve it gradually, we suggest you go through our guide!
If you feel like you may not have enough time to repair your credit on your own, you can check out our best credit repair companies!
Pin it for later!