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.
Estimated 15 minute phone call