So, how do you fix your credit? Well, you need to have a proven strategy instead of just randomly trying things. You don’t realize how important your credit score is until you’re sitting in the finance manager’s office hearing that they denied your request for financing because your score is too low. Other times, your score may get you approval but will come with an astronomical interest rate.
Lenders check your credit score for purchases like car loans or mortgages, but they also check for credit card applications or even employment. Your score may be low for many reasons, and we’re here to help you identify those reasons so that you have the tools to fix your credit. If you’re unsure how to begin to fix your credit, don’t go anywhere. We have all the tips you need for how to fix your credit.
How to Get Your Credit Report to Fix Your Credit
The first step to fixing your credit report is to know what you’re working with, so you’ll need to run your credit report. You can get your credit report a few different ways.
You can contact the credit bureaus that update your credit score, inquiries, and information. TransUnion, Equifax, and Experian are legally required to provide you with one free credit report per year. We recommend requesting your credit report from one of the credit bureaus every four months so that you stay up to date on your credit year-round.
Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281
Everything you need to know about your credit is included in your credit report. All your credit card accounts, loans, mortgages, bankruptcies, past due amounts, and collection attempts are on the report.
While it’s important to check your credit report for accurate accounts, it’s just as important to check your credit report for errors. Errors on your credit report can lower your score when you may otherwise be approved, so it’s important to rectify any error as soon as you find it.
How to Check Your Credit Report for Errors
As soon as you receive your credit report, you should check it for any of the following errors:
- Incorrect name(s)
- Misspelled name(s)
- Incorrect previous or current addresses
- Accounts that aren’t yours
- Missing accounts
- Missing or incorrect public record information
- Incorrect account information
- Duplicate accounts
- Incorrect inquiries
- Fraudulent activity
Reviewing your credit report not only helps you correct any reporting errors but is also a great way to ensure you haven’t become a victim of identity theft or any other fraudulent activity.
What to do When You Find Errors
If you find any errors on your credit report, you should dispute them immediately. Errors in your credit report can contribute to a low credit score. Even something that appears to be a minor error, like a credit account being closed by a grantor rather than by you, can cause your credit score to be lower than it should. As soon as you notice an error on your credit report, dispute it immediately so that you can begin to fix your credit.
How to Dispute Errors in Your Credit Report
Once you discover an error in your credit report, you can first contact the lender or creditor that created your account to begin your dispute. The lender or creditor of the account may correct it without you having to notify the credit bureaus.
Once the lender or creditor corrects the mistake, they will report it to the three major credit bureaus, and your report will be updated. Once updated, your credit report will reflect the correct information with your updated credit score.
You can also contact the credit bureau directly to dispute the error. The credit bureau that reported the mistake is required by law to review and fix the disputed error. You can dispute the error online, by phone, or by mailing the request to the corresponding credit bureau.
- File a dispute online
- Call 800-916-8800
- Mail to:
P.O. Box 4500
Allen, TX 75013
- File a dispute online
- Call 800-916-8800
- Mail to:
P.O. Box 2000
Chester, PA 19016-2000
- File a dispute online
- Call 866-349-5191
- Mail to:
P.O. Box 740256
Atlanta, GA 30374-0256
How to Deal with Late or Past-Due Accounts
Late and past-due accounts can significantly lower your credit score, so it’s important to pay off all overdue accounts listed in your credit report. Try to prevent any account from becoming more than 30 days late.
If an account is less than 30 days late, the creditor or lender won’t report the overdue account to the credit bureaus. That said, you must ensure you pay it within the first 30 days so that it doesn’t negatively impact your credit score.
What Happens When a Past Due Account is 30 Days Late
Late and past-due accounts are accounts that are over 30 days late. When an account is over 30 days late, it is reported to the credit bureaus, and your score will be subsequently affected. Late and past-due accounts can significantly impact your credit score, so it’s important to take care of these accounts as soon as possible. Don’t let them go ignored. The longer the account goes ignored, the more significantly impacted your credit score will be.
Eventually, past-due accounts are turned over to a collection agency. When that happens, you can’t pay the creditor or lender directly, and you have to go through a collection agency to settle the debt.
Creditors and lenders check if you have any overdue accounts to determine if you should get approved for credit or financing. The more past-due accounts you have, the more it impacts your credit score and the less likely you may be for credit approval.
If you see any account in your credit report that is late or past due, and it is because of a MISTAKE, not an ACTUAL financial hardship, you should pay it immediately.
Even though it may show up on your credit report for the next seven years, being able to prove that you have paid the debt can help get you approved for financing when your credit report shows otherwise. So make sure you pay the overdue account and keep a record of the payment in case you need it during the loan or credit application process.
How to Increase Your Credit Limits to Improve Scores
You can also increase your credit limit to help fix your credit. I know this seems counter-intuitive and should not be done if you are in real financial trouble. This is only if you have a steady income, are financially responsible, and know that you WON'T spend the new credit they may give you.
Here is how it works. When you apply for a credit card, the creditor lets you borrow a maximum amount of credit when you are approved. Your credit score determines this limit.
As soon as you receive a new credit line, you will establish what’s known as a credit utilization rate. A credit utilization rate is a ratio calculated by the amount of debt you owe divided by your credit limit. You always want your total credit limit to be significantly higher than the amount of debt you owe.
If you have a credit utilization ratio of 30% or more, your credit score may be impacted negatively. A high credit utilization ratio may still get you credit approval, but it will likely come with a high-interest rate because creditors will want to ensure the risk to approve you will be profitable.
Borrowers with a low credit utilization ratio get zero percent interest or a very low-interest rate, which is one of the many reasons it is important to have a low credit utilization ratio.
To reduce your credit utilization ratio, you can ask your creditor to increase your credit limits. When your credit limit increases, that new number determines your credit utilization ratio, reducing your credit card utilization rate, which can help improve your credit score.
Should I Pay Off High-Interest or New Credit Accounts First?
You may have a combination of new credit accounts and older, high-interest credit accounts that you need to pay off, so which one should you pay off first?
Look at the balance you owe on each credit card to determine which one to pay off first.
When you pay off a credit card, that zero-balance is reported to the credit bureaus and significantly lowers your credit utilization ratio. We recommend paying off the credit card with the lowest balance first so that you can begin to lower your credit utilization ratio. The lower credit utilization ratio will increase your credit score even if you continue paying on a credit card with a high-interest rate.
Don’t close the credit card account when you pay it off as it can cause your credit score to drop even if the debt is paid in full. Instead, you should leave the account open with a zero balance. The AGE of accounts is important, this is why keeping accounts open even if not using can be helpful.
Then use what I call Micro-Utilization for the max benefit of your open accounts. What I mean by this is ONLY BUY NECESSARY THINGS ON IT. Basically monthly expenses you would pay anyway like phone, electric, or groceries. Then, PAY it OFF in FULL every month.
Should I Open a New Credit Card to Help Fix My Credit?
Opening a new credit card is a great way to fix your credit because it increases your total available credit. Because your total available credit establishes your credit card utilization ratio, increasing it can lower your ratio and improve your score.
However, you have to BE CAREFUL not to open a new credit card and use it without paying off the balance. If you open a new credit card and run up a high balance, you can increase your credit utilization ratio and lower your score.
A strategy that works is opening a new credit card and paying off the balance each month so that you increase your credit limit while lowering your credit card utilization rate. Just make sure you open the right type of credit card.
If you are looking to open a new credit card, we recommend a credit card with no annual fee. We also suggest ONLY opening ONE new card at a time. Opening too many credit cards at one time, or getting them too close together, can negatively impact your credit score, which can do the exact opposite that you are trying to accomplish.
Keep in mind that new credit accounts aren’t as impactful as established credit accounts, so opening a new credit account may only increase your credit score if you do it the right way.
How Does Paying Balances On-Time Affect My Credit?
Slow and steady wins the credit score race. Making payments on time and paying balances are important steps to take when fixing your credit. When you pay your balance on time, it tells lenders and creditors that you are a reliable borrower who will make responsible payments each month.
If you pay off your balance on time each month, you can improve your credit score by 10 points or more for each account that is paid on time. It can take three to six months for paid balances to show up on your credit report. Your score should increase during that three to six-month period as well.
Fixing Your Credit Wrap Up
Fixing your credit isn’t an overnight process, but it’s not an impossible one either. Take it from someone who has done it before, it is VERY possible. You have to know what you’re working with and where to start.
The first step is to obtain your credit report and review it. You will need to make sure the information on the report is correct and free from errors. Should there be any discrepancies, you can dispute them with the lender, creditor, or the credit bureau.
From there, you need to make sure that you make your payments on time each month. If possible, pay off at least one credit card so that your credit utilization ratio decreases. You can also add a new credit card or increase your credit limits to decrease your credit utilization ratio as well.
Making payments, paying off debts, and decreasing your credit utilization ratio are steps you can follow when trying to fix your credit. It is all about having a simple sustainable strategy to follow!