Before you read this post, I encourage you to take a look at the previous blog that talks about what makes up a credit score. You will have a better understanding of how the steps that I am recommending will impact your score every step of the way.
Welcome back! Now that you know what makes up a credit score, I hope you’re ready to fix yours.
A capitalist society is a consumer driven society. Few people are as consumption driven as Americans. Unfortunately, many of us aren’t patient enough to wait until we can afford the luxuries of life before we decide to indulge. As a result, we overextend ourselves, borrowing our lives away to keep up with the Jones’. However, as various entities we do business with begin to put increasing value on credit history, we are starting to wake up to the fact that things need to change.
But before they change, we must right the wrongs of the past. So it is no surprise that credit repair has become big business. The other fact about the credit repair industry is that they are preying on low-income consumers. What if I told you that with a little bit of guidance, patience and a whole lot of discipline you could repair your own credit score for free? Well you can and I will outline all the steps below.
The following list is a guide for how you can repair your credit or keep your credit score high if you already have good credit.
- Pay on time – Pay all of your bills on time, every time. Verizon, T-Mobile, Comcast can all send you to collection and ruin your credit. While you want to prioritize things like your mortgage so you aren’t homeless, don’t think there is a company out there that you owe money to that doesn’t have the ability to report you to all 3 credit bureaus.
- Pay down your balances aggressively – Your outstanding debt balance, especially on revolving lines of credit (i.e. credit cards) negatively impact your debt usage ratio (how much of your available credit line that you are using). Therefore, your score will benefit greatly from you paying off your balance due and not just the minimum payment.
- Do not apply for credit – If you read the previous article that I linked above, you will know that hard inquiries (shopping for credit vs. “soft” inquiries marketing/promotional inquiries) on your report adversely affect your score. Additionally, those inquiries remain on your report for about 2 years.
- Pay, don’t shift– Do not move your debt around. I know someone who spent nearly 3 years moving their credit card balances to 0% interest promotional cards until she was no longer getting those offers. This does not eliminate your debt. It just helps you avoid interest for a period of time while you’re paying a balance transfer fee as a percentage of your owed amount. It is costing you money to still carry the debt. Ignore those promotional offers as they only benefit the company that you’re moving to, while you continue to be in debt and your score continues to suffer.
- Don’t close good accounts – If you have accounts in good standing with little or no balances, especially if they are aged, keep them open. They help establish your history and offset negative information on your credit. However, you have to be able to resist the urge of using the card or credit line. You are NOT required to use your account to have good credit.
- Be patient – Time heals all wounds. Inquiry “wounds” 2 years. Delinquency “wounds” 7 years. Bankruptcy “wounds” 10 years. As you work your tail off to show improve the data that shows up on your credit report going forward, there is not much you can do about ACCURATE adverse information. However, all information, good or bad goes away eventually. This is why it is important to remain consistent once you decide to make a change. Once the bad information falls off, you want to make sure that new bad information doesn’t rear its ugly head as it has a 7 year shelf-life.
- Fight – Remember how I said you can’t do anything about accurate information? That is not the case for incorrect information. If someone has the same name as you, or their social security number is 1 digit off from yours, or if you were the victim of identity theft, you don’t have to be punished for an error or a thief. The law says that you have the right to fix errors on your credit report and you should absolutely exercise that right.
These are all steps you can take on your own, for free. I hope you find the information useful and that the credit repair business has just lost another customer.