In a perfect world, all of us would have an excellent credit history. But in reality, sometimes things happen, and mistakes are made. Unfortunately, these mistakes can stay with us long after we’ve dealt with them in the form of our credit history.
As it turns out, as of 2016 the average credit score in America is 695 on a scale of 300 to 850 (with 620 or lower considered “Bad” and 720 and over considered “Excellent”) according to ValuePenguin.
However, many others are struggling to obtain a car loan, mortgage, or even qualify for an apartment due to low credit scores and marks on their credit history.
Fortunately, there are options available today to help you begin repairing your credit history so you can get back to pursuing your financial goals.
This article will help you do that in a very simple, three-step process:
- Identify your specific “credit score killers”
- Remove any mistakes from your current credit reports
- Start building a positive credit history
But before we get to these steps, the first thing to do is make sure you know exactly where your credit stands. You can do this by getting copies of your credit score and credit reports from each of the three credit agencies: Equifax, Experian, and TransUnion. You can do this for free at AnnualCreditReport.com.
Doing this will ensure that you know exactly what your score is and why. It will also alert you to any mistakes on your reports and allow you to fix them before a future lender finds them first. (More on this soon.)
To begin, it’s important to understand the five factors that influence your credit score:
- Payment History
- Credit Utilization
- Length of Credit History
- Types of Credit
- Credit Inquiries
These are the factors we will address to begin improving your credit going forward.
It’s also important to understand that credit repair is NOT an easy fix. You won’t be able to get yourself from 400 to 800 in the next 30 days, but if you make a commitment for the long-term, you can build yourself excellent credit as time goes on.
Let’s start by first addressing what is actually hurting your credit score.
1. Identify Your Specific “Credit Score Killers”
These will be different for everyone but will all involve some combination of the five factors listed above.
Look at each of your three reports and identify what specific factors are hurting your credit score. Is it late payments, repossessions, judgments against you, or even bankruptcies? Each of these factors can lower your credit score and take different time periods to “fall off” your report, usually 7-10 years once the issue is resolved.
Once these issues are identified, you’ll know exactly where you need to focus your efforts going forward. (More on that in Step 3.)
2. Remove Any Mistakes From Your Credit Reports (If Needed)
It’s also important as you’re going through your credit reports to make sure there are no mistakes. While uncommon, these types of mistakes do happen and can easily make a bad situation worse through no fault of your own.
If you do happen to find any errors, start the process of getting them removed immediately. This is done by contacting the credit agency and filing a formal dispute. The agency then has 30-45 days to respond depending on the specifics of the dispute.
When it comes to mistakes on your credit reports, you are required to file individual disputes for each one separately (and with each agency, if applicable). Unfortunately, fixing a mistake on one report that appears on all three will only apply to that report. So you must make sure to file separate disputes with every agency, for every mistake, no matter how tedious the process.
The good news is that you don’t have to do this by yourself. If you’d rather hand the problem off to professionals, there are numerous credit repair agencies and law firms willing to do the heavy lifting for you, for a fee.
But no matter which route you take, it’s important to get your credit report as accurate as possible before moving forward to tackle your payment history directly.
3. Start Creating a “Positive” Payment History
With your actual payment history being the most important factor in your credit score, this is the first hole you’ll want to plug. And there are several ways to go about it, which we’ll now discuss in detail:
Tip #1: Open a New Line of Credit
This is one of the quickest ways to go about rebuilding your credit history. Your sole purpose here it to open a new line of credit and then pay it off each and every month. This allows you to start showing a history of paying on time, every time.
One option for this is to apply for a secured credit card, which is a type of card designed specifically to help borrowers with bad credit begin to rebuild. They work by the borrower depositing funds onto the card that serves as your “line of credit.” If you don’t pay the balance every month, the company can then withdraw the funds automatically.
This has the benefit of opening “new credit” but having it be self-funded with the goal of showing future creditors that you are now committed to paying off your bills in total each and every month.
Tip #2: Cease All Further Credit Card Use Until They are Paid Off
That means putting ALL your credit cards away, literally, for the foreseeable future and treating life like a cash-only environment.
While this may require a lifestyle adjustment for some, it will do wonders for showing creditors that you are now committed to building a solid credit history going forward (as well as help you avoid past mistakes).
Tip #3: DON’T Close Your Old Credit Cards
While it may be tempting to close your old cards once they are paid off in an attempt to avoid falling back into old spending habits, it’s important to resist this urge.
Closing old cards has the unfortunate (and often unknown) consequence of negatively affecting your credit utilization, and hence your credit score as well. While it’s true that closing old cards will help you avoid past mistakes, it will also make building a solid history going forward much more challenging.
It’s much better to simply stash them away, forget about them, and exercise financial self-control instead!
Tip #4: Pay Off Old Collection Amounts (If Possible)
If and when you are able, it’s an excellent idea to pay off old collection amounts as soon as possible. While they will still appear on your credit report for 7-10 years, they will no longer be outstanding. This can be evidence that your new financial habits will continue going forward.
Again, keep in mind that credit repair is a long-term game and there are no quick-fixes. But if you make a daily commitment to improving your credit score and history going forward, you will find yourself reaping the benefits much sooner than you thought.
If you’re looking for companies that specialize in credit repair, below are three very reputable companies that may be able to help you:
Lexington Law – Lexington Law, is the nation’s leading firm offering credit repair services. They are well-known for making the process easy and efficient for their clients and even provide free credit report summaries and initial consultations. They have extensive experience handling issues with all three credit bureaus and have served over half a million clients successfully. You can contact them at 1-844-259-3482.
CreditRepair.com – Currently ranked #2 by Consumer Advocate for the best firms to help with your credit repair needs in 2017, CreditRepair.com has helped customers gain an average of 40+ points on their credit scores in four months. They also offer an online and mobile app to help you track your credit 24/7. You can contact them at 1-844-259-3419.
Sky Blue Credit Repair – Sky Blue has an excellent reputation for helping their customers quickly and efficiently with a simple initial online process that can be completed in minutes. You can challenge up to 15 disputes in 35 days, and they offer a risk-free, 90-day money back guarantee on their services. You can contact them at 1-888-374-1062.
Compare the Best Student Loan Refinance Rates
Here are our top student loan refinance picks for 2019
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.