How to repair and increase your credit rating and scores.
There are several steps you need to take if you want to improve your credit score. While the process will often take time, it can be done. It combines things you can do yourself and there are also assistance programs that can help. Find how to start the process of repairing your credit ratings as well as scores. Some of the things to do include the following.
Look for errors and fix the credit report from reporting agencies
Request and review your credit report: First and foremost, in order to improve your credit score, you need to determine what your current situation is. Per federal government law and regulations, you can get for free one copy of your latest credit report. This can be retrieved from each credit agency, and it can also be requested each and every year. Experian, Equifax, and Trans Union are the providers. You can decide to get all three credit reports at once, or you can decide to get them and spread them throughout the year.
After you receive your credit report, the most important thing you need to do is to to review the document for accuracy. You need to be 100% sure that your credit report is accurate before you can even consider fixing and improving it. It is already difficult enough paying for your own mistakes, and you do not need to pay more money, borrow money at higher interest rates, or to be penalized for someone else's mistakes on your report.
In addition to looking for errors, “eyeball” the document to start to understand it. As you do this, note that two biggest red flags that creditors and others look for, such as insurance companies, employers, and businesses, are late or missed payments on your part. In addition to that the next big red flag is maxed out credit cards or loans. So as you quickly go through the statement keep those two red flags in the back of your mind. Find out what determines how your credit score is determined.
Have incorrect or incomplete negative items removed from your credit report. This is often one of the easier things to do, and it can take less time than some of the other activities. To have them eliminated from your credit report, you will need to write to the three bureaus and you will need to tell them that the items on your report are either incomplete or inaccurate. Demand to have them removed. Do not take “no” for an answer.
After you challenge a debt or some other item on your credit report, the bureau or agency you notified has up to 30 days to receive a response from the lender in question. That company needs to validate the debt. If the credit bureau doesn’t receive a response the company it questions then by law they need to remove the incomplete or inaccurate entry. Always remember that there are three agencies, so you have to write to all three of them to get it removed in order to repair your credit. Always take this approach for any step on this process. Everything always involves the 3 big providers. If you only have the items removed from one two of the reports, it will not help as all 3 agencies impact your total credit score.
The credit report you receive is your guideline and the most important tool you have to repairing it. Each and every account on your credit report will have a rating next to it which is critical to creating your overall profile. Be sure to review those line items on the statement.
In addition, a sample credit report will be provided to you to assist you with reading and understanding your own document. Since there are 3 different credit bureaus, the rating and scoring system may change. Each provider has their own mechanism and it will differ depending on the exact agency. As one example. A letter on your report that is followed by a number indicates the type of account that you have as well as the credit rating. Guidelines in place include :
- If you have an account that is shown on your report that is rated as an I1, that is an individual account that is indicated is paid on time.
- If an item on your report is shown as an account that has a J1, that is a joint account on your report.
- An I5 on your credit report could mean trouble for you, as a higher number means the account is late or has other issues.
Next, now highlight everything on your credit report that is not a 1 and then highlight everything that has been turned over to some for of debt collections by your lenders. Now, make a list that shows the debts you owe from the lowest dollar amount to the highest. Then be sure to start with the lowest amount on your report, and either pay down that outstanding debt, negotiate to eliminate it, or dispute it. Starting with the lowest amount, which can be paid off sooner that a higher amount, will make the most difference. Paying down debt in a short period of time will improve your scores.
Other steps to take to improve credit scores
Why is your credit rating so important. Whenever you apply for any type of loan, mortgage, credit card, phone hookup, and sometimes even now a job, your credit rating will be pulled and reviewed. Businesses that conduct this form of review can do many things with the data. For example, a score is required for banks to issue a consumer new credit or debit cards, stores to accept checks, and for a wide variety of businesses to manage their operations. Many other companies use this data in other ways as well.
So knowing your credit rating is very important for a number of reasons. Depending on your various credit scores, lenders and banks will determine your risk. This impacts everything from borrowing money to even employment. An increasing number of employers are now running credit checks on potential employees as well as this can help them determine how fiscally responsible a job candidate is.
Take our a credit builder loan: Borrow a little money than repay it over time. Lenders, including credit unions, allow borrowers to slowly but surely either improve or start to build history from a loan. Find more details on credit builder loans.
Keep in contact with your creditors and all lenders. The moment that you realize that you are or may soon be facing a financial hardship, you need to contact your creditors. Do not delay. Speed is of the essence here. Call your credit card companies and ask for help with your credit cards.
If you do this months after the fact, and after you start receiving calls from debt collectors, then it is too late. The damage to your credit has been done, and it may be to late to repair it. But the good news is that most creditors out there are not as cutthroat as you may think, and many businesses will work very closely with you to help your thru a difficult period. They will often schedule smaller payments that fit your budget for a period of time. Or they give some form of extension.
Never allow a disputed bill or debt go to a collection agency. If that happens it will significantly damage your credit scores and it will be shown on your reports. An easy way to keep and improve scores is to pay your bills on time! Or ask for help if you can’t. And to make matters worse, when an account you have is referred to a collections agency, the black mark on your credit can take years to resolve. If you are faced with this, find how to get help from debt collectors.
Think about it. After all, a creditor would much rather receive $20 or $30 payments on your bills for a certain period of time than risk you filing for bankruptcy in which they would get nothing in the court process. Most creditors are much more likely to work with you, settle debts, accept your offer of lower payments, and find other solutions. This can help keep your credit rating up if you can show good faith and communicate with them as early as possible. Many even offer forbearance programs to reduce fees or interest rates. Read more on credit card forbearance.
Get any agreements in writing. After communicating with your creditors, if you are successful in negotiating lower interest rates, setting up debt payment plans, settling any bills, get it in writing. Or if you are agreeing to credit card debt or medical debt balance payoffs, be sure to request from your creditors that they send a letter confirming the arrangement. Be sure to keep it in your files. Read more credit card debt assistance programs.
You need to have the agreement in writing, as it is your best defense against lost records, employee turnover, change in ownership, or changing minds. The written agreement can also be presented to new managers being more aggressive on debt collection, or any other number of other things. So document everything, even conversations.
Even after you pay off all of your debts and unpaid bills, you need to make sure that you get a debt settlement letter from your creditor. Show that the balances are now gone. After you receive this, send a copy of the settlement letter to the credit bureaus. This needs to be sent to all three of them so that they can update and repair your ratings and scores.
To improve your credit scores, keep some of your credit cards and accounts active and open. You still need to have some ability to borrow money. Never close more than one or two credit cards every six months or so. Credit scores are very likely to decrease due to any pick up in activity of any kind, even if someone is just closing an account. That activity can serve as a red flag to a lender. Increased activity reflects poorly on your credit scores, rating, and financial stability.
Credit ratings are very sensitive to how much of the total available debt that you can take out that you are using. For example, using 30% of the total available balance on your credit cards will minimize the impact to your credit scores. However, if you want to have the highest ratings, you need to keep the balances under 10%.
In addition, the three major bureaus evaluate all available credit limits that you have on all of the cards to your name. So if you have a large number of loans, credit cards, etc., you may be perceived as a higher risk. Having to much borrowing capacity is a negative. So, reduce the number of your credit cards if you fall into that category.
If you already have several different cards or outstanding loans to your name, and if they have with low balances on them, strongly consider transferring the balances funds with an eye to the 30% rule and the goal is to reduce the total number of credit cards that you have access to. Explore a transfer or consolidation, and find the best credit cards for these types of balance transfers.
When you do decide which accounts to keep active and open, be sure to keep the one or two oldest accounts active. As the second or third-biggest factor in repairing and improving your credit score is your total length of history. In this case old equals good! For example, having 5 credit card accounts open with zero balance on all four of the accounts and having a balance of $500 on one credit card lowers your credit risk. Doing this does more to repair your credit scores then having 2 accounts open with a $250 balance of each credit card.
You will need to show that you are responsible with managing high outstanding balances and credit line. So budgeting is key here. You will want to have high limits on your credit cards but keep a low balance on them. This is another very effective tactic in how to improve your overall credit scores. This can lead to fiarly rapid improvements. In addition to this, it will help to have a high balance on a credit card that you have paid off timely.
Pay off your medical and credit card debts. After you have determined how much money you can pay against your outstanding debts, and after you have negotiated any settlements or lowered payments, you then need to allocate that portion of your monthly budget to paying off each and every creditor. You have to be 100% committed to paying the minimum on your debts and bills (or pay the agreed upon amount if it is lower) to each and every creditor, month after month. This is the most important thing you can do to improve your financial situation.
It is critical to make these payments on time. This consistency and timelessness of payments is very important. It is often critical to repairing and improving your credit. If you have any extra cash that month, be sure to then pay any extra money against the lowest outstanding balance due on a debt.
Another big factor in why people have poor ratings, and how people can repair it, is the fact that total credit card as well as medical debt outstanding makes up about one third of your total score. Those two bills are often a major expenditure for most families. So be mindful of those limits as well as their thresholds.
If you need any assistance or advice, use the services of a credit counselor or debt management plan. Some low income families are offered free support. They can help and guide you through the process of paying off debt, bills, and offers tips on how to improve your score. As noted, look into non-profit agencies, as sometimes their services will be free of charge.