If you want to know how to fix your credit, you need to understand a few important things; Fixing your credit is a bit like losing extra weight. It takes knowledge, time and perseverance. You cannot expect overnight success.
Just like excess weight, bad credit affects every single aspect of your life – it causes depression, it kills your dreams and it prevents you from getting a business loan. It doesn’t let you buy that home or car that you have always wanted. You feel trapped in your current miserable situation.
Often, you cannot even get a better job since many employers refrain from hiring people with bad credit! However, there is definitely a way to fix your credit and improve the quality of your life.
Read on to find out how:
How To Fix Your Credit – 8 Crucial Steps to Take:
1) Find out your credit score:
Your credit score is basically your solvency rating or in simple terms – it denotes your ability to repay loans. Credit score is calculated by credit bureaus based on your credit history, income and a number of other complex factors.
There are several ways to find out your credit score for FREE. You are also entitled to one credit report in a financial year – at no cost whatsoever. We have an entire article about knowing your credit score. Read it.
If you want to get loans from reputed financial institutions at low interest rates, you score should be more than 720.
2) Check your credit report for errors:
Errors made by the bureaus can lower your credit score. So scan your credit report meticulously and make sure that there are no mistakes.
If you do find any mistakes, you can dispute them with the credit bureaus (you can even do this online). According to the Fair Credit Reporting Act, credit Bureaus and the financial institutions that provide them with information are required to investigate errors within the 30 days of filing the dispute.
Attach copies of supporting documents to substantiate your claims (do NOT send original documents).
3) Set up a reminder system to make payments on time:
Late payments have a drastic effect on your credit score. Often times, people forget to make payments even though they have the money.
Most banks and credit companies offer payment reminders – you will get a text message and/or an email informing you that a payment is due on a particular date.
You can also opt for automatic payments wherein the amount will be debited directly from your account.
This too, requires smart management on your part – if there is not enough money in your account on the date when the amount is set to be deducted, it will further decrease your credit score.
4) Get out of debt:
This is easier said than done of course. It’s nearly impossible to pull off if you don’t have a proper repayment plan in place first.
First, Check out these 9 steps from Dave Ramsey!
Now, Take a note of a few things:
- How many bank accounts do you have?
- Which accounts have the largest debt?
- Which ones have the highest interest rates?
Set up a system to pay off the debts that have the highest interest rates first – these are really draining you.
While you do this, maintain the minimum payments on your other credit cards/loans.
A great way to get out of debt is to stop creating more of it. Learn to use credit cards responsibly – don’t buy it if you cannot afford it.
Start living within your means and try to create an alternative source of income. You can do this by working a couple of extra shifts each week or by taking up a second part time job. Starting a home based business is also a great idea since it requires minimal investment – teacher, agent (insurance, real estate etc.), blogger, caterer, baby sitter etc. are good examples of home based businesses.
5) Payment history accounts for 35% of your FICO score:
The best you can do to improve your history is to pay all your bills on time and never miss a payment. However, note that once you pay off an owed amount, it does not suddenly disappear from your report – it stays there for seven years. Thankfully, your recent history is more important than past credit issues. So your past problems won’t haunt you forever.
If you’ve been managing your credit well during the past few months, your FICO score is bound to increase. If you’re encountering severe financial problems and are unable to make ends meet, we advise you to contact your creditors and/or seek help from a professional credit counselor. We suggest GreenPath in this case, their services are 100% Free AND Government Approved as well.
6) The amount you owe contributes 30% to your FICO score:
This is easier to fix than credit history but you still need a lot of discipline. It is important to keep outstanding debt low otherwise it has a negative impact on your score. Don’t keep moving debt from once account to another – pay it off as quickly as possible. Don’t open too many new accounts just to increase your available credit. This looks risky and can backfire.
7) Don’t open too many new accounts if you have been managing credit for a short while only:
This lowers the average age of your accounts and can lower scores if there isn’t much credit data available about you.
8) Don’t just stop using credit cards altogether:
Consider the lenders’ perspective – someone who has credit cards and has managed them responsibly is much lower risk than someone with no credit cards at all. Get it? Have credit cards but do not use them mindlessly.
Do not fall prey to agencies that frivolous claims like ‘fix your credit in thirty days’. Set up a strategy to pay off your creditors and reduce the amount of money you owe. Start making payments on time and don’t miss payments. If you begin to manage your finances responsibly – your credit score will take care of itself.
So What Next?
Get off your butt and start with the things I mentioned above. They take work, but THEY work and I know you CAN do this!
Next, check out the article below talking about Alison’s Smart Money Secret – it has the potential to change your life!