Repairing your Credit

Everyone makes mistakes, but a low credit score isn’t a permanent black mark on your record. With time, effort and negotiation, your credit can be repaired.

1. The first step to repairing your credit is assessing the damage. The free Annual Credit Report website allows individuals to request their report for free once every twelve months from each of the three credit reporting agencies (Equifax, Experian, and TransUnion). If you are not eligible to receive a free credit report, there are several websites that will allow you to receive a free credit report and score with a trial of their monthly services. One site that is especially useful is MyFICO  because it highlights the positive and negative aspects of your credit history that impact your score.

2. The next step is addressing any mistakes in your credit report. Make sure that the status of each credit account are accurate. It can be common for closed credit lines to be listed as open, and for some long-forgotten accounts to show delinquency. In addition, it is critical that you identify any signs of identity theft. If you see any listing that you don’t recognize, contact the credit reporting agencies and creditor immediately.

3. Once errors have been resolved, you will need to dig in to any specific problems you may have. One of the most important things to improve your score is the status of your federal student loans. If you have declared bankruptcy in the past, remember that your federal student loans were not discharged. If you have fallen behind in your payments, apply for hardship deferral or forbearance instead of falling further behind.

4. Some small debts, including overdue book fees, video store late fees, or parking tickets may have gone to collections. If these types of debts show up on your report, make an effort to pay the debt and ask the creditor or collection agency to report payment to the credit bureaus. For extra protection in this area, also ask for a letter indicating the debt type and improved status.

5. For larger debts or any debts that you are unable to pay on-schedule, try to negotiate a repayment plan. Hospitals are especially willing to work with you on payment plans if you are diligent in making the reduced payments.

6. A large percentage of your credit score is based on your ability to make payments on installment loans such as car, mortgage and  home equity loans. If you are not current on all installment payments, working to be up-to-date will yield a large boost in your score.

7. Late credit card payments are another warning sign that indicate that you are a credit risk. Every effort should be made to pay at least the minimum payment on time on all credit card accounts.

8. Having a large total credit limit available to you is not necessarily bad, but the percentage of the credit limit that you use, or credit utilization, is important. From the bank’s perspective, someone with several maxed-out credit cards could be seen as less responsible than someone who is not utilizing all of their credit. Paying off your credit card balance each month would be ideal, but most experts suggest that you use not more than about 50 percent of your available credit. If you do pay off accounts that you have held for several years, do not close those accounts because it will increase your credit utilization by decreasing your available credit. In addition, the length of your credit history will also have an impact on your score.

9. If, after reading the above, you think that opening new credit card accounts will help your credit score by increasing your available credit, remember that the inquiries that credit card companies make to approve your credit will have a negative impact on your score. Avoid adding any new debt unless it is absolutely necessary.

10. Finally, if you are unable to negotiate with creditors, you may be in need of a debt repair company. The National Foundation for Credit Counseling (NFCC) is a non-profit organization that can recommend a certified consumer credit counselor who will work with you confidentially and assist you in creating a Debt Management Plan (DMP).

Repairing your credit now will allow you to qualify for lower interest rates in the future. With some effort, and possibly the assistance of a credit counseling service, you could save thousands or tens of thousands of dollars and have peace of mind.