Do-It-Yourself Credit Repair: Fix Bad Credit On Your Own In 6 Easy Steps
Donât fall for scams promising easy, overnight credit repair. If you want to fix your poor credit, you can (and should) do it yourself. Follow these six simple steps to do-it-yourself credit repair. If youâve had an overdue student loan, years of high credit card balances, collections accounts, or even a foreclosure, unfortunately, you probably have below-average or bad credit .With poor credit, you may not be able to get approved for new credit products like credit cards. Although you may still be able to take out an auto loan or a mortgage, youâll pay a much higher interest rate because of your low credit score. Compared to a borrower with good credit, someone with poor credit can pay $50,000 more in interest on a mortgage. Over an entire lifetime, you could end up paying over $200,000 more in unnecessary interest just because of bad credit. The good news isâas you should know if youâve read Money Under 30 for a whileâthat you can repair your credit score all on your own. It just requires a little bit of know-how and a good bit of patience. Here are six steps towards building better credit.
1. Figure out where you stand Before you begin do-it-yourself credit repair, youâll want to get copies of your full credit reports from all three bureaus (Experian, TransUnion, and Equifax).You can get your reports truly free, once a year, at 6312325558 or by calling 1-877-322-8228. Other websites may claim to offer free reports, but the Federal Trade Commission (FTC) warns that these offers are often deceptive. You can also try free credit score tracking apps Credit Karma or Credit Sesame to get a sense of where you stand. Credit scores range from 300 to 850. A score of between 700 and 740, depending on the scoring method used, is considered âgood creditâ and usually enough to qualify you for the best credit cards and lowest mortgage rates. Related: How Credit Works: Understanding Your Report And Score
2. If you find errors, dispute them The next step in credit repair is to dispute incorrect information on your credit report. Errors arenât common, but they happen. Of course, sometimes bad credit is just your fault. You shouldnât try to argue accurate information, but if you do see errorsâeven small onesâitâs worth cleaning them up. Hereâs how:Once you have the copy of your full credit report in hand, check your identity information (Social Security number, spelling of your name and address), and credit history.Review the list of credit cards, outstanding debts, and major purchases. If you see any mistakes or questionable items, make a copy of the report and highlight the error.Next, gather any information that you have to back you up, such as bank account statements, and make copies of these as well. This is important! The credit bureaus wonât do anything without proof.Write a letter to the specific credit reporting agency that shows the falsehood, whether it is Experian, Equifax, or TransUnion. Explain the mistake and include a copy of the highlighted report along with your documentation. Although certain bureaus now let you submit disputes online, itâs not a bad idea to send this letter by certified mail, and keep a copy for yourself. The reporting agency has 30 days from the receipt of your letter to respond. The Federal Trade Commission provides advice on contacting the credit bureaus about discrepancies. Here are the contact numbers and web sites for the three credit bureaus:Experian: 1-888-397-3742 â /www.experian.comTransUnion: 1-800-916-8800 â /www.transunion.comEquifax: 800-685-1111 â tissual
3. Stop the bleedingOnce you deal with any errors on your credit report, itâs time to ensure youâre not still spending more than you can afford each month.Why is this so important? Itâs because are only three simple things to do to repair bad credit:Pay all of your bills on timePay down debt (especially credit card debt)Avoid applying for creditBut before you can do these things, you need to make sure youâre not spending more than you earnâyou need a budget.To start, review your tax returns for the past two years to get a sense of how munch money you actually take home in a year.Subtract your regular monthly expenses (rent or mortgage, car payments, and home, car and health insurance) from your current income.Next, estimate your monthly spending habits for other expenses such as gas, groceries and entertainment. Create a limit, based on your income, of what you can spend in each of the different categories of expenses. For example, if you tend to spend $400 a month on groceries, try to stick to $300 a month on groceries by making changes like buying generic brands, using coupons, and resisting impulse purchases.
4. Pay all bills on time going forward.If you want to fix bad credit, you need to start paying all of your monthly bills on time, period!If youâre behind on any bill, get caught up as soon as you can. On-time payments are the single most important factor to your credit score. Simply put, your credit wonât improve until you can consistently pay every bill on time.
5. Pay down credit card balancesTake charge of your credit cards by paying down their balances. If you have any outstanding balances, make room in your budget to pay down these debts bit by bit, every month until they are gone.Know your credit limits and make every effort to stay well under the maximum when charging items. Thatâs because credit bureaus analyze your debt load as a ratio. If you charge $500 on a card which has a $1,500 limit, youâve used 33 percent, which is better for your credit score than charging the same amount on a card which has a $1,000 limit (50 percent), both of which are better than being maxed out (100 percent).Related: Big Fat Guide to Getting Out of DebtPay these credit cards down, but donât cancel them. The total amount of available credit affects your score, even if you owe nothing.6. Donât apply for new credit Finally, resist the temptation to open a new credit card, even when a store offers a discount on your purchase for doing so. Each time you apply for credit is listed on your credit report as a âhard inquiryâ and if you have too many within two years, your credit score will suffer. In general, a consumer with good credit can apply for credit a few times each year before it begins to affect their credit score. If youâre already starting with below-average credit, however, these inquiries may have more of an impact on your score and delay your ultimate goal of watching your credit score climb.
Summary Start by looking at your credit reports to get a sense of where you stand. If you see any errors, dispute them with the credit bureaus. Then, focus on paying down any credit card debt while making every bill payment on time. In the meantime, do not apply for new credit. Basically, in order to repair your credit, you will need to limit your use of credit. It may take months or even a couple of years for your credit score to improve, but if you plan on buying a new home, or taking on any other big debt, itâs well worth it.
copyright2018 EasyCreditRelief All Rights Reserved