4 Steps to Fixing Damaged Credit
Bad credit can happen to good people. Mistakes are made, bills don’t get paid or you find yourself in a situation that you can’t get out of and now, you are paying the price. There is no reason for panic or despair, however.
Fixing your credit can be a long and demanding process. Depending on how bad it has gotten, it might take years to clear all the negative activity from your credit report.
The important thing is to get started right away and stick to the plan. Fixing your credit is a goal in itself and learning the habits of keeping your credit rating in good standing are worth doing, regardless of your age or economic status.
1. Review your credit reports
The three credit reporting companies (Experian, Equifax and TransUnion) all have different information so you need to review all three. What you are looking for in this step are items that damage your credit rating. High debt-to-credit limits, delinquent payments, collections, liens, and judgements are all examples of items that will hurt your credit rating.
2. Identify any errors
Banks and financial institutions make mistakes like everyone else. If you have found any on your credit reports, contact the financial institution to fix the issue and update the credit bureau. If you find discrepancies that can’t be explained, ensure that your personal information hasn’t been stolen and used. Identity theft is a real problem when it comes to damaged credit ratings.
3. Pay off your debt
If you have a lot of late or missed payments, contact the lender directly and ask them to remove the damaging items in exchange for payments. Once those debts are clear and the bad credit ratings are removed, your credit should get better.
At the same time, you want to improve your debt-to-credit limit ratio. This ratio is calculated by taking the total of your credit limits and dividing it by the amount of credit you have already used. For example, if your total credit limit is $10,000 but you already have debt totaling $6,000 your debt-to-credit limit ratio is at 60 percent. You want to pay off debt and improve your credit to get this ratio down. A 30 percent ratio is a good guideline supported by the financial industry.
4. Begin rebuilding your credit
There are two uncomplicated ways to rebuild credit. The first is to get a secured credit card. With a secured credit card, you deposit money in an account to guarantee the amount you can use on your card. Usually, your credit limit will be the same as the amount of money in the account. You use the card, pay off the balance and interest and the results will be reported to the credit bureaus. If you get a secured credit card, use it wisely. Use it wisely and make your payments on time, every month.
The second way to rebuild your credit is by getting a credit builder loan through a credit union. Credit builder loans use the money you have borrowed to guarantee the loan, you just have to make the interest payments every month. You cannot use the loan for anything else, but at the end of the term, the credit union will report your status to the credit bureaus.
Assistance for optimizing this process is available, of course. There are companies, both traditional and online, that specialize in overseeing the process and making it easier for you to rebuild your credit rating. RepairCredit says, “it’s easy to miss or misinterpret items on your credit rating. Having an expert on your side can make the process simpler, more comprehensive and, ultimately, more successful.”