It can take several years to build your credit and just seconds to damage it. But a mangled credit score isn’t the end of the world. It can make getting approved for a loan or credit card more challenging. Or you could pay more for housing or insurance premiums and have limited employment opportunities in select industries. That’s just a shortlist of all the ways a lower credit rating can be frustrating.
But there’s a major upside. Damaged credit doesn’t have to haunt you forever. There are several ways to pick up the pieces and start rebuilding your credit health sooner than later. Read on to discover why it’s vital to start fixing your credit sooner than later and why your credit score and credit report matters. You’ll also gain insight on six things to know when working towards better credit and how to decide if you should hire help during the process.
Is Fixing Your Credit Important?
Credit impacts practically every area of your life. Here’s a closer look at how it’s used:
- Lending decisions: The most competitive financing terms on loan and credit card products are generally reserved for consumers with good or excellent credit. A lower credit score doesn’t automatically result in a denial for all forms of credit, but you’ll likely pay steeper borrowing costs. Plus, you’ll have fewer opportunities to capitalize on lucrative credit products that offer generous rewards programs and other incentives.
- Housing: If you’re considering a home loan, most loan programs have minimum credit score requirements. You could be eligible for a mortgage with a lower credit score but expect a higher interest rate and increased lender fees. Renters with lower credit scores also face challenges. If you fail to meet the landlord’s credit guidelines, you’ll be denied housing and forced to make a higher security deposit. The latter could stretch your finances thin if you’re already struggling to make ends meet.
- Employment: Some employers, particularly those operating in the financial service industry, require credit checks as a condition of employment. If their findings are unsatisfactory, you could be turned down for a lucrative employment opportunity.
- Auto insurance: Credit-based insurance scores can be used by providers in select states to set auto insurance premiums. If your credit score is lower, you could be perceived as riskier in the eyes of the provider. In turn, they may charge you a higher rate for coverage.
- Service providers: Whether you’re applying for a cell phone, internet, cable or utility services, the service provider may run a credit check to gauge your creditworthiness. If there are negative items on your credit report, you may be required to pay a significant deposit.
Why Your Credit Score and Credit Report Matters
The information included in your credit report is used to generate your credit score. So, the accuracy of the contents is vital to ensure your credit score accurately reflects your credit history.
The three major credit bureaus – Experian, TransUnion and Equifax – create credit reports for consumers based on data provided by information furnishers. This data is then used to calculate what’s referred to as a FICO score.
FICO scores are used by 90 percent of lenders and creditors to make decisions. However, there are many variations of FICO scores, including industry-specific versions.
Here’s a breakdown of how FICO scores are calculated:
- Payment history: 35 percent of your FICO score
- Amounts owed: 30 percent of your FICO score
- Length of credit history: 15 percent of your FICO score
- Credit mix: 10 percent of your FICO score
- New credit: 10 percent of your FICO score
DIY Credit Fix vs. Professional Credit Repair
According to FTC.gov, “Anything a credit repair company can do legally, you can do for yourself at little or no cost. Only time and a plan to repay the debt will fix your credit. You can improve your credit by showing over time that you can pay your debts on time.”
Still, that doesn’t mean you shouldn’t hire a credit repair company to lend a helping hand. This is especially true if inaccurate or untimely information is on your credit profile, and you don’t have the time or expertise to work on having it rectified.
But if you’re willing to do the legwork and file disputes with the credit bureaus, you likely won’t need to hire help to fix your credit.
7 Things To Know on How to Fix Your Credit
If you’re ready to start the journey towards fixing your credit, here’s how to move forward.
1. Getting and Reviewing Your Credit Report
The first step in the process of repairing your credit is to access copies of your credit report from Experian, TransUnion and Equifax. Without these reports, you won’t know what to focus on when attempting to fix your credit.
You can get free copies of your reports and other information from the three credit reporting agencies at Annual Credit Report.com. Prior to the coronavirus pandemic, free credit reports from each credit bureau were offered annually unless you met select criteria.
However, you can now access free weekly credit reports from the three major credit bureaus now through the end of 2023. So, it’s ideal to visit AnnualCreditReport.com often and request your reports throughout the credit repair process.
2. Checking Your Credit Report for Errors
In 2021, Consumer Reports conducted a study regarding the accuracy of credit reports. It found that over 33 percent of consumers had one or more errors in their credit reports. Hence, examining each credit report in its entirety is paramount to ensure no errors are present.
Otherwise, erroneous information could be present on your credit profiles. Even worse, it could be dragging your credit score down.
Examine your credit reports for accuracy and highlight any errors you notice.
3. What Credit Items to Look For
In case you aren’t sure what to look for during your analysis, the Consumer Financial Protection Bureau (CFPB) provides a list of the most common credit reporting errors. Each falls into one of four categories: identity errors, account status errors, data management errors and balance errors.
Here’s a closer look at credit items to be on the lookout for:
- Incorrect personal information, including issues with your name, physical address or phone number
- Accounts you don’t recognize because they were opened fraudulently using your personal information or they belong to another individual who shares the same name as you (or a similar name)
- Accounts that are incorrectly reporting as open when they are actually closed
- Accounts that incorrectly report you as an owner instead of an authorized user
- Accounts reflecting late payments that should be reported as timely
- Accounts that are current but reporting as past-due
- Accounts with the incorrect opening date, credit limit, late payment dates (if applicable), current balance or date of first delinquency listed
- Duplicate accounts listed under different creditors should only appear once
- Accounts that include errors that were reinserted after being previously removed
- Inquiries for new credit accounts you don’t recognize
4. Disputing Information and Errors
Now that you’ve compiled your list of errors, it’s time to file disputes with the credit bureaus. It’s free, and credit reporting agencies are legally required to furnish a response within 30 to 35 days.
Here’s how to file disputes with the credit bureaus:
- Experian: You can submit an online dispute by visiting www.experian.com/dispute. Mail disputes are also accepted at Experian, P.O. Box 9701, Allen, TX 75013. If you’d prefer to speak with an agent to file a dispute, call the number at the top of your credit report. Or you can call 866-200-6020 if you don’t have a copy of your credit report handy and would like a copy mailed to you.
- TransUnion: Disputes are accepted by postal mail or phone. Send your dispute to TransUnion Consumer Solutions, P.O. Box 2000, Chester, PA 19016, or call 800-916-8800 to connect with a dispute expert who can assist you. Or you can file online at https://www.transunion.com/credit-disputes/dispute-your-credit.
- Equifax: To dispute a bankruptcy on your Equifax credit report, call 1-888-378-4329 or visit https://www.equifax.com/personal/credit-report-services/credit-dispute/ to get started. Equifax also accepts written disputes at Equifax Information Services, LLC, P.O. Box 740256, Atlanta, GA 30374-0256.
Note: It’s also best to reach out to the information furnisher – or the lender or creditor – to notify them of the dispute. They may be able to update the information right away, possibly resulting in a quicker outcome.
5. Maintaining Your Credit
Once you’ve filed disputes, move on to credit-improvement strategies. These include:
- Paying all your bills on time
- Bringing any past-due accounts current
- Reduce credit card debt to improve your utilization rate
- Refrain from closing old credit accounts in good standing
- Maintain a healthy mix of revolving and installment credit
- Only apply for new credit as needed
- Apply for a credit builder loan or secured credit card (only if you need to diversify your credit mix)
6. Fixing Your Credit Takes Time
Even though you’re likely eager to start seeing results, fixing your credit is more of a marathon than a sprint. If the primary issues were related to outdated or inaccurate credit items, you’d generally see results sooner. But if your credit issues were caused by financial missteps, it could take some time for your credit rating to improve.
7. Hiring Professional Credit Repair Companies
If you have a poor credit score, you may be considering hiring a professional credit repair company to help you improve it. But before hiring one, it’s important to understand what they do. Credit repair companies work to remove inaccurate, outdated, or unverifiable information from your credit report. They may also negotiate with creditors to remove negative items from your report. However, they can’t remove accurate information from your report, and they can’t guarantee results. Therefore, knowing what to look for when hiring a credit repair company and what to expect from their services is important. Do your research and understand the process before making a decision.
Should You Get Help in Fixing Your Credit?
If you decide to hire help, confirm you’re dealing with a reputable credit repair company. Take a look at testimonials from past and current clients to get a feel for how it’s perceived. Also, be on the lookout for scams since not all credit repair companies do business the right way.
Here are some tell-tale signs of a credit repair scam per the FTC:
- The credit repair company demands up-front payment for services.
- The credit repair company advises you not to reach out to the credit bureaus.
- The credit repair company encourages you to dispute accurate, timely negative information reflected in your credit report.
- The credit repair company suggests you falsify information included on loan or credit applications.
- The credit repair company makes inflated promises.
- The credit repair company refuses to disclose your legal rights during the credit repair process.
Ultimately, if the claims of the credit repair company seem too good to be true, they probably are. However, that’s also your sign to move on and explore other options.
You can also consider reaching out to a credit counseling agency for help. Refer to the National Foundation for Credit Counseling’s website to find reputable credit counselors in your area. Some offer services free of charge – others charge a nominal fee.
Enlisting the services of a professional expert, such as The Credit Pros, can assist you in restoring your credit. The company has an A+ rating from the BBB and offers a 100% 90-day refund policy, demonstrating its dedication to customer satisfaction. Their services are priced at a starting rate of $69 per month (with a $119 first work fee) and come with features such as assisting with credit report corrections, increasing credit scores, or establishing credit. Complete a short form or call (888) 558-1602 to get free consultations from The Credit Pros with no obligation to sign up.
