Poor credit will affect every aspect of your life. Bad credit can result in higher interest rates for mortgage loans, credit cards, car loans, and installment loans. You might be surprised to learn that bad credit can also cost you a job. TheFair Credit Reporting Act (FCRA) allows current and prospective employers to see an individualized version of your credit report for employment reasons, including hiring and promoting. Insurance companies are also using credit reports to calculate insurance rates. Restoring your credit doesn't have to take a long time. It's really a combination of disputing the derogatory credit items and building new and good credit.
The initial step in repairing your credit is to determine the extent of the damage.
Start with a free credit account withExperian andEquifax and request your annual credit report from annualcreditreport.com. Annualcreditreport.com is the official website for free credit reports, or you can simply call 1-877-322-8228.
Where do your credit scores fall:
|Credit Score Rating|
If your credit score is under-580, the best option Is a consultation with Consumer Credit Counseling Service. The cost is nominal and possibly free. The folks at Consumer Credit Counseling will speak to your creditors and request a reduction of your outstanding loan balances, and request an interest rate reduction. Your monthly payments will in all probability, be consolidated into one manageable monthly payment.
If your credit score is 580 to 669, you may be able to repair your credit yourself.
Here are the steps to repair your credit report
1. Pay your bills on time
Make a personal commitment to pay all of your monthly bills when due. If your monthly bills are past due, contact the creditor(s) and ask the company service representative if the creditor is able to help. For example, can the company lower the interest rate or drop some of the loan balance.
2. Pay down on your credit balances and DON"T CLOSE THE ACCOUNT!
The credit reporting companies use a term called "credit utilization ratio". This formula balances the lending limit against the loan balance. For example, if a credit card has a $1,000 credit limit and the amount owing is $500, then the credit utilization ratio would be 50%. To calculate the utilization on your credit card, divide the loan balance by the credit limit (i.e. $500/$1,000 = 50%. The credit reporting companies favor a 30% credit utilization ratio. Using the above example, that means if the lending limit is $1,000, then the loan balance should be $300 (or less). Thecredit card utilization calculator will estimate your utilization ratio.
One of the elements of the credit score formula is the length of credit history. In fact, a longer credit history will increase the credit score. The time span on an account(s) represents 15% of the credit score. Pay down on your revolving accounts . . . doesn’t close.
3. Carefully examine your credit report for inaccurate entries.
If you see any errors, contact the creditor and ask the lender (nicely) to make a correction. Dispute the problem with the credit agencies if the creditor blows you off. File a dispute with Equifax, Experian, and TransUnion.
- Equifax - https://www.equifax.com/personal/credit-report-services/credit-dispute/
- Experian - https://www.experian.com/blogs/ask-experian/you-can-submit-disputes-online-or-by-telephone/
- TransUnion - https://www.transunion.com/credit-disputes/dispute-your-credit
When you make a credit dispute, you will need proof that the creditor has made a mistake. The credit agencies are not advocates, and they're not credit judges. Telling the customer service representative, that "They told me this", or "she said that". Again, the credit agencies are not credit arbiters. The credit companies will research your complaint and by law, will make a determination within 30 days if you have a credible complaint.Sample Letter for Disputing Errors on Your Credit Report
4. Late payments
Late payments are serious notations on your credit report; and unfortunately, they stick to your credit report like glue. A payment that is past due can stay on your credit reports for as long as seven years; and might impact your credit scores during the entire time period. Ouch! But here's the good news, creditors are not going to require you to wear a scarlet letter for 7 years before extending you credit. Lenders are most concerned with your recent payment history. Think one year, but, you should make an effort to have the late payments expunged from your credit report. Call your creditors and simply ask them if they would be so kind to remove your late payment(s). This technique is called "goodwill adjustment".Goodwill adjustment letter
5. Collection accounts, judgments, and other bad things
Obviously, the collection companies want the delinquent debt paid in full, but because of theFair Debt Collection Practices Act, collection companies are restrained from annoying phone calls at all hours of the day and night threatening people with a visit from the police. As such, collection companies and attorneys may be willing to discount the delinquent debt. You just have to ask. If the debt collectors agree to a settlement, it's important that you stipulate that the debt on your credit report be removed and you want a letter confirming the deletion. Without a deletion, the collection company will note the credit report with "the account was settled for less than the full amount". You want the bad thing to disappear