How to Repair Credit

Learn how to repair credit

How to Repair Credit

Maintaining a good credit status is perhaps one of the most important goals you must achieve. Banks, utility service providers, and insurance companies use it as a measure of your worth. Lenders need to know whether they would be safe in lending money. Besides, insurance firms are keen on getting their payment on time.

Origin of your profile

Employers, government agencies, landlords and other parties will always ascertain whether you are creditworthy or not. The question lingering in most people’s minds is, where does the information on your credit originate? Your credit score is a product of five aspects:

  • Payment history
  • Debt level
  • Length of debt
  • Debt portfolio
  • Fresh inquiries

Monthly bills will always be there, and you must do your best to pay on time. Doing so not only protects you from late fees but also boosts your record. With timely payments, prospective lenders can see that they can count on you to meet your obligations on time. Therefore, ensure that you pay your dues without fail, as any delays will linger on your history and affect your credit score.

For sure, very few people can survive without debt. However, despite the need for borrowed funds to get along financially, ensure that your level of debt remains low. As a standard measure, always maintain your debt balance at 30 percent of the limit given. For instance, if the limit on your credit card is $3,000 do not charge beyond $900. Low debt levels act as proof to lenders that you can meet your payments while also leaving some room for other expenses.

Credit history – why it matters

Having a long history of credit utilization boosts your score. Lenders are keen on checking that you have sustained and met your obligations over an extended period. You are better off than someone with no record of debt. The latter is in a risky position since their status remains unknown. Look at it from the perspective of having credit card accounts whose obligations you promptly meet each month.

A debt portfolio boosts your score. A decent mix of car loans, home and credit cards puts you in a better state as compared to sticking to one type of loans only. Therefore, seek diversity and improve your score. If you keep on inquiring about one kind of credit or the other in short spans, your score gets impacted negatively. Lenders get apprehensive and take it to mean that you want to borrow more. Most importantly, to fix your credit and keep the score sheet clean, watch how much you borrow. On the other hand, keep your payments up to date.

Repairing your credit

An ideal credit score influences your ability to obtain a loan. The same also determines the interest rates that will apply to what you have borrowed. Besides, your credit status can profoundly impact your quest for employment. Insurance service providers also peg their premiums on an applicant’s credit rating. One thing you must understand here is that your journey to repair credit helps improve the information contained in your report. In other words, you assert that what your credit report shows is accurate. Credit bureaus can only remove inaccurate information. The question of whether the same has a positive or negative impact does not count.

How to repair credit

  1. Check for errors and fix them
    You may have made mistakes in the past, but that is no cause for alarm since everyone has his or her fair share. Acting out of ignorance is different from being penalized for mistakes that are not of your making. Take a bold step of asking for copies of your free credit reports and check for errors. You may be shocked to notice a few mistakes that have been weighing down your score. Correct them and get a fresh start.
  2. Missed payments – be up to date
    Occasionally, you may run into difficulty and start lagging on payments. Despite the apparent nature of your predicament, creditors will not be lenient. You need to inform them and negotiate a repayment plan. You could also seek help from a counseling agency. To avoid lateness going forward, plan with your bank for automatic payments to creditors. Prepare standing orders for utilities and rent such that even when you forget, the bank’s system steps in automatically.
  3. Switch to a secured credit card
    Under the secured credit cards arrangement, your bank requires that you place a deposit equivalent to your credit limit. You will need a saving account specially opened for this purpose. In case you miss out on any payments, the bank can recover its money from the same facility.

How long does it take to repair credit?

There is no straightforward answer to this question. The duration depends on the intensity of your financial difficulties. Late payments remain on your credit history for seven (7) years as does collection account data. Bankruptcies take ten years. Thankfully, you could improve your status in a few weeks. Solving incorrect entries and repaying debt owed on your credit cards are steps that can work to your advantage. Timeliness in settling monthly bills also helps, but you must be consistent.

What can credit repair companies do?

Always remember that any negative items remain on your credit history for as long as the status remains. If the information is accurate, it will stay on record for seven years. Credit repair companies can help you, but you must engage the credible ones; not scammers. If a company asks you to pay them upfront before they render the service, treat that as a warning sign. At the same time, a legit repair firm should disclose to you all your rights as they pertain to credit. Be wary of people who request that you do not engage the credit reference bureau directly.

Obligations to consumers

    • a) New identity – reject the request
      If an operator advises you to create a fresh identity, avoid them. The law requires that a credit repair company furnishes its clients with a written contract detailing the service range. Other information you should be privy to include the right to withdraw from the deal, disclosure on the time it takes for the results to manifest as well as the cost you will incur. Anyone charging you their fee upfront commits an offense. On the other hand, giving false information in the pretext of obtaining a favorable credit status constitutes to fraud.
    • b) Rectification of errors – insist on it
      However, data on criminal activities cannot be struck off. An ideal starting point would be to request a copy of your report. You are entitled to three such reports per year. Once you get hold of one, go through it carefully. Occasionally, some errors find their way without your knowledge. For a successful challenge of erroneous entries, circle all the items that you find questionable. Obtain copies of documents to back your claims. Make a copy of the report and send it to the credit bureau with a request for investigations. Contact the utility provider or the firm that gave the wrong information. Ask them to correct the error.
    • c) Adjustments – push for an updated status
      Upon a successful intervention, the credit bureau must make the necessary amendments. Usually, they have a 30-day window period to conduct their investigations. Once corrected, request them to send the updated version to a lender or prospective employer that you had contacted over the last six months. On the contrary, if you lose the quest, you may request the report to have an attachment containing the write-up of what you thought was in dispute.

How can credit repair be of help?

A poor credit history is like a dented reputation, getting things right takes time. You need to have much patience as the process takes its course. Do not give up the quest for credit repair. However, improved credit is useless if you do not change and become a responsible borrower. You could embark on this journey with the aim of obtaining a mortgage, get money to pay for college or buy a car. All these are good plans, but you need be careful that you do not go back to your old habits and start missing payments on the different types of credit in your portfolio.

Things that do not affect your score

Unlike what most people believe, making inquiries on the state of your credit report does not impact your credit score negatively. What you are doing is creating a ‘soft’ inquiry. However, when a lender checks in as part of a background search in response to an application for a loan or credit card, the search can affect your credit score albeit temporarily. On the other hand, your income level is not in any way involved in keeping your credit score. Nonetheless, creditors will always ascertain your ability to service the available credit based on your income and commitments made against it.

To wrap up

Credit repair is not an activity you engage in on a knee-jerk basis. You must invest time and effort. All in all, borrow realistically by taking only that which your financial status can accommodate. Also, form a habit of paying utility bills within a reasonable period of time. All creditors will subject borrowers to this test to ascertain their creditworthiness. By meeting your financial obligations whenever they fall due, you gain control of your life. Your credit score improves, and you do stand a good chance of obtaining money when you need it most.

Alex Darwin

Author: Alex Darwin

Alex is a former budget manager turned entrepreneur. He works mainly at home on his credit score advice website and writes a financial blog on the side. He hopes to expand his business into a full online lending company for bad credit as soon as he gets enough investors.

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