How To Fix A Bad Credit Score

Your credit score rates your credit risk. It shows lenders how creditworthy you are. With a bad credit score, you might not get approved for new credit products such as credit cards. However, that doesn’t mean that you can’t be approved for loans such as a mortgage, auto loan, etc. But, it’s going to cost you a higher interest rate.  

The good news is, you can fix bad credit and it’s essential to do so.

Steps you can take to repair your credit and boost your credit score

Review your credit report

There are a few sources for free credit reports. Once you have access to your credit report(s), review each of them closely as this will give you a proper understanding of what is working for you and what is negatively affecting your credit.

Here are the things that contribute to a bad credit score and how to fix it:

Incorrect information

Sometimes, information is inaccurate and not up to date on the credit report and it can negatively affect your credit. When reviewing, be keen to check for inaccurate information. Check your details (name, address, and social security number) and credit history.

In case of inaccurate information, make a copy and highlight the errors. Be keen to have copies of documents to be presented as proof such as bank statements. Credit bureaus need to see proof.

Then, write a letter to the credit bureau that had presented inaccurate information and attach all the relevant documents.

Late payment(s)

Late payments are the biggest factors impacting the credit score. A late payment (past due 30 days) remains in your credit report for seven good years.

Frustrating, right?

But not to worry, here’s how you can resolve that:

  • Pay it off as soon as possible otherwise, it gets worse
  • Try and negotiate the terms of debt for them to adjust your status back to current
  • Look for errors and dispute
  • If you have already paid the late payment, write a goodwill letter to the lender and ask if they can remove the debt as a courtesy.

Accounts in collections

This happens when lenders send your account to an external debt collector if you are 150 days late in your payment(s). A collection will affect your credit less the older it gets. But, it still remains on your credit report for seven years.

Here’s how you can try to fix this:

  • Dispute it if it’s not your debt by providing copies of evidence you have proving there has been a mistake
  • Dispute the debt if the seven-year period is up. Unethical debt collectors might try to re-age a debt by changing the date when an account first went delinquent so that it can last longer in your credit report. Providing any proof you have showing the first date of delinquency can help it get removed.
  • Write a goodwill letter asking for deletion of the account from the credit report for the accounts that you've already settled. This is a long short but worth a trial.
  • Pay for delete. This is a practice that happens when debt collectors delete your collection account off your credit report in exchange for payment of the account.
  • When all fails, pay off debt anyway. A paid collection account is better than an unpaid one. It shows that you’ve taken care of your financial responsibilities.

Maxed out credit cards

Maxing out your credit card means that you have reached your credit limit. There are two ways to resolve this;

The best way to resolve this is by paying down the balance as much as you can as soon as possible. If you can, it’s good to pay off the whole amount. If you can’t just pay what you can.

The other way is by contacting your credit card issuer for a credit limit increase. This is far from ideal especially with a maxed-out credit card but might be possible in some circumstances.

Bankruptcy and foreclosures

If you’ve been through bankruptcy and foreclosure, it’s hard to remove these items from your credit report. Bankruptcies remain in your credit report for seven to ten years while foreclosures last at least seven years.

With these two, unless there are errors that can be disputed, time is your best friend. The only thing you need to do is work around it and improve everything else.

The Bottom Line

Credit repair is not rocket science. The process is easy and you can do it yourself. Fixing your credit will save you a lot of money in mortgages, or any other future loans. Just follow the above simple steps to fix your credit and boost your credit score.

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