How To Fix Credit
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Fix Your Credit Once & For All
Are you wondering what you can do to fix your credit score? Or if it’s even possible to do this? If this describes you and your situation, then you aren’t alone. Experian’s 2015 VantageScore 3.0 data found that close to one-third of Americans have a credit score lower than 601 — and the good news is, there are ways to fix it.
Building good credit won’t happen overnight because creating and maintaining a solid credit history takes time. You’ll also need to accept the fact that it’s going to take some hard work and patience as well for credit repair.
The steps to fixing your credit and credit scores will include getting a sense of your finances. You will be going through them with a fine-toothed comb while looking for any errors and pinpointing problem areas, like overspending, that you need to address.
How To fix your credit score:
- Know your credit score and know the balances of your credit cards or other credit accounts.
- Find out which revolving accounts have the highest credit utilization (the amount of credit used versus the credit limit).
- Pay extra attention to lowering the utilization of these accounts and focus on returning them to good standing to improve your credit.
- Maintain healthy credit accounts, and start building a positive credit history that will help you reach your personal goals. Find and begin to fix any negative items.
- Keep in mind that credit age is also a factor in your credit score, so avoid closing too many accounts. This can hurt your efforts to fix your credit score.
It won’t be easy, and it’s certainly not as fun as going shopping, but the relief you’ll feel at being able to take out new credit when you need it will be well worth the effort and time it took to rebuild your credit.
First Step: Check Your Credit
The first thing you need to do is get your credit reports and credit scores from each of the credit bureaus so that you can gauge where you’re at and determine what parts of your score need work.
You can get free copies of your credit reports from the three main credit bureaus — Experian, Equifax and TransUnion — once a year under the Fair Credit Reporting Act. (You can also view two of your credit scores for free on Credit.com.)
You should get your credit reports from each of the major credit reporting agencies, as each may contain different data that could impact your scores. You’ll rarely know ahead of time which report is being pulled by a lender, so it’s important to make sure they’re accurate, and you’ve addressed any issues
What Will I See on These Reports?
You’ll see basic details about yourself — your name, birthday, address, etc. It’s important to review these to make sure they’re accurate. Note: Past addresses may also be listed, which is OK.
You’ll also see any financial legal issues you may have, like a bankruptcy, lien, judgment or wage garnishment. If one of these is bringing your credit scores down, take comfort in knowing these negative items eventually age off.
Beyond that is creditor information, which makes up most of your reports. This includes different accounts you have (loans, credit cards, etc.), their status (open/closed, in collections), balances, credit limits and payment details. This may also include dates of missed payments or late payments, or when the accounts were sent to collections. From these details, your credit scores will be formed.
Credit scores are broken into five major categories:
- Payment History (35% of your scores) — Your history of repaying account debts
- Credit Utilization (30%) — How much debt you’re carrying in relation to your credit limit
- Length of Credit History (15%) — How long you’ve had active credit accounts.
- Types of Credit (10%) — Your variety of accounts
- Credit Inquiries (10%) — Number of inquiries into your credit profile
You Can’t Fix Bad Credit in 30 Days
We get it — you’ve found problems. Whether they’re errors or areas you need to focus on you may find yourself wanting results quickly, however, these revisions can’t happen overnight. For instance, you can’t lengthen your credit history right away.
You may be able to fix your credit utilization — the amount of debt you have relative to your credit limits and the second most principal factor in calculating your credit scores.
It’s best to keep your credit utilization below 30% (ideally 10%) to show creditors you can manage your available credit responsibly without maxing out your credit cards.
If you went over that 30% mark, you could quickly undo any small drop you may have noticed in your credit scores by paying off those balances and getting your percentage back to less than 30% utilization.
Still, that’s an exception to the rule. Some credit mistakes can impact your score for years. It’s tough to hear, especially if you were really counting on that mortgage approval to finance your dream home.
Checking your credit on a regular basis is important. If you spot a mistake and can fix it before you apply, you can avoid that “Dear John” letter from a lender.
How Long Does It Take to Repair My Credit?
If you have accurate negative information on your credit reports, then it can take a while for it to age off. Here’s how long negative marks remain on your credit report:
- Late Payments: 7 years from the late payment date
- Foreclosures: 7 years
- Collection Accounts: 7 years and 180 days from the date of delinquency on the original debt
- Short Sales: 7 years
- Bankruptcies: 10 years from the filing date; 7 years for Chapter 13 cases
- Repossessions: 7 years
- Judgments: If the judgment has been paid, 7 If unpaid, potentially longer
- Tax Liens: 7 years after they are paid
- Charge-Offs: 7 years from the date the account was charged off
If you have inaccurate negative information on your credit reports, you can see some substantial changes to your credit scores as you work to fix them. Credit reporting agencies must respond to disputes within 30 days (some can take 45 days), which is much shorter than the years-long wait you’ll face with accurate derogatory information.
If the credit reporting agency sides with you, they must remove the mistake immediately. In a 2012 Federal Trade Commission study on credit report accuracy, 79% of people who disputed an error on their credit reports were able to have it removed.
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