Anyone can make mistakes — and some of those mistakes can impact your credit standing. Even if you’ve always taken great care with your credit, unforeseeable crises can easily undo all your good work. Just as a few serious problems can torpedo your credit rating, a few smart strategies can help you bring it back to life. Fortunately, you don’t have to carry that burden indefinitely. Here are some simple, effective things you can do to repair your credit.
Repair Your Credit Tip 1 – Start Over With Secured Credit
The worst-case scenario in the credit world is bankruptcy. This last-ditch move can indeed give individuals a fresh financial start, but in the process, you can expect to lose your credit. Oddly enough, you may start receiving credit card offers in the mail sooner than you’d expect. But this can prove a dangerous kind of trap. The creditors making the offers know that you won’t be permitted to file for bankruptcy again for at least 7 years, meaning that you’ll be stuck with paying them back even if you get into trouble.
Still, there is one kind of credit card you definitely should look into: a secured credit card. This card is backed up by a cash deposit, with the credit limit typically equalling the deposit amount. Use this card carefully and pay it off in full every month. By doing so, you’ll be rebuilding a positive credit history that can set the stage for your successful credit repair journey.
Repair Your Credit Tip 2 – Reduce Outstanding Credit Balances
You could have an excellent credit payment history, with multiple lines of credit going back many years, and still get turned down for a loan because of a high credit utilization ratio. This term refers to the amount of your credit tied up in outstanding balances. Lenders generally recommend that you keep your credit utilization ratio under 30 percent of your total credit limits. If you need to reduce your outstanding balances, you may want to try either of two popular debt payment techniques:
- Snowballing – Snowballing involves paying down one credit line at a time, starting with the lowest balance. For instance, you might pay $25 above a $25 minimum payment (or $50 a month total) to accelerate repayment until the balance hits zero. You then take that $50 monthly payment and add it to the monthly minimum payment on the next-lowest balance. Repeat this process, and you’ll see that credit utilization drop at an ever-faster pace.
- Stacking – Stacking is the same basic technique as snowballing, except that it involves paying the credit lines down in order of interest rate, with the highest interest rate going first. This may be less satisfying than seeing those smaller balances disappear quickly, but in the long run it’ll save you more money.
Repair Your Credit Tip 3 – Go Easy on the Applications
If you’re tempted to obtain a new credit card to make your credit utilization ratio lower, take care. While your utilization will indeed drop as your total available credit rises, that new credit line will require what’s known as a “hard pull,” or credit review. This type of review can temporarily make a bad credit score even worse. Actually using the card will compound your troubles if you don’t make certain to pay it off faithfully each month.
Other types of loan applications can also ding your credit, at least in the short term. Each car loan, home loan, or other kind of bank loan application will result in a hard pull. Too many of these inquiries can seriously disfigure your credit score. The fewer credit lines or shorter credit history you have, the more damage your score will take. If you need to shop around for the lowest rate among multiple lenders, make all those credit applications within the same 30-day credit cycle. Creditors recognize rate shopping when it occurs in this pattern, and they will score those multiple applications as a single hard pull.
Repair Your Credit Tip 4 – Watch Your Credit Report
Consumers who struggle with credit issues are only human — but so are the people who enter information into creditors’ databases and credit reports. It’s always possible that inaccurate data is depressing your credit score unfairly. You may also be suffering the effects of a co-signer or other party who has damaged your credit without your realizing it.
You can catch these issues by requesting and studying copies of your credit report from each of the three major credit reporting agencies (Experian, Equifax, and TransUnion). You’re legally entitled to one free copy of each report per year, and you can also purchase additional copies. If you see something wrong, you can dispute that entry and possibly get it expunged from your record. Once you’ve sent a written dispute letter, ideally via Certified Mail, the reporting agency is required to investigate the possible error within 30 days’ time.
As you can see, there’s no single “magic bullet” to repair your credit. But the right combination of best practices, implemented with patience, intelligence, and consistency, can give you the power to fix those nagging credit issues and prevent them from recurring. Last but not least, you’ll enjoy the tremendous feeling of accomplishment and empowerment that comes from taking control of your own destiny — and that’s surely something worth taking credit for!