5 Steps Toward Credit Repair
Improving your credit is essential because bad credit impacts your ability to take out a loan, obtain low interest rates on loans and credit cards, get good insurance rates, buy a house or rent an apartment, and in some instances, get a job. The good new is that bad credit is fixable. Sometimes, it might take debt consolidation or a credit counseling service, but often times self help is sufficient to repairing credit. Below are steps to follow for do-it-yourself bad credit repair.
Step 1: Obtain Your Credit Report and Dispute Errors
Under the federal Fair and Accurate Credit Transactions Act, you are entitled to a free copy of your credit report from all three consumer credit reporting companies every 12 months. After obtaining your credit report from Experian, TransUnion and Equifax, thoroughly review the information on each report for errors. Errors can lower your credit score and cause lenders to deny you credit, so take the time to dispute any incorrect information or discrepancies by following the dispute errors procedure on your credit report. Also be sure that accounts in good standing are listed. If they’re not, contact the consumer credit reporting companies to have them added.
It is also your right to add a 100-word or less statement to your credit report that explains your credit problems. If your bad credit is due to a job loss, illness, or some other issue, contact the consumer credit reporting companies about adding this statement.
Step 2: Establish a Spending Plan
The road to credit repair means getting organized and creating a monthly spending plan. A spending plan removes the risk of late or missed payments. To create a spending plan, gather your bills together and organize a monthly payment schedule that fits into your budget. Your spending plan should indicate when payments are due and how much you can afford to pay each month. If you don’t have sufficient income to pay all your bills, prioritize payments according to the most important.
Step 3: Negotiate With Your Creditors
If after creating your spending plan you know you’re not going to have the funds to pay the monthly payment on some of your bills, contact the company and explain your situation. Often times, creditors will make allowances, such as not applying penalties, if you make them aware of your situation. If you’re open and honest with creditors, they will typically work with you to help you repair your credit. Creditor assistance may include establishing a manageable payment plan for you, lowering your interest rate, reducing your monthly payments, changing your due dates, or extending the repayment schedule. Be proactive and ask creditors how they can help you stay current on your account and avoid being reported as a delinquent or a bad debt.
You should definitely negotiate with creditors if your poor credit history is due to a temporary, uncontrollable problem, such as a job loss or hospitalization. Once the problem is resolved and your account is returned to good standing, creditors typically will agree to remove the negative remarks on your credit report or change them to indicate your account is current.
Step 4: Don’t Ignore Collectors
If any of your debts have been transferred to a creditor’s collection department or to a collection agency, it’s better to talk with them rather than ignore their calls and letters. Debt collectors are generally open to negotiating a pay-off settlement that reduces your balance and helps towards credit repair. Once you enter into a settlement plan, get the conditions in writing before submitting your payment. And insist as part of the settlement plan that the collector remove any bad remarks from your credit report and report the debt as paid in full.
Step 5: Start Balancing Your Credit History With Good Credit
Your credit report lists current information first, so you should start balancing your bad credit history with good credit. To reestablish good credit, open a debit card, gasoline card, or other account that report payment history to the credit bureaus. Limit these new accounts to a few and be sure to make payments on time every month to restore your creditworthiness. Also open a savings account at your financial institution. This demonstrates to creditors that you have reserved funds to repay debts and are committed to saving money.
Credit repair takes time, sometimes a few years depending on the severity of your bad credit history. But the time invested and the commitment you put in by following these steps bring rewards of good credit.