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