- Posted by admin
- On June 5, 2017
- 0 Comments
Once you have a low credit score, life can become a lot more expensive. Getting approved for a mortgage or credit card with a score below 650 can be challenging. Even if you are approved, the interest rate will be shockingly high. In most states, even your auto insurance premium will be higher if you have a bad score.
Fortunately, fixing your credit score is a lot easier than it might seem. All negative information will eventually leave your credit report, typically after seven years. But you don't need to wait that long. If you want your score to improve quickly, here are three simple steps that can help:
Check your credit report and dispute any incorrect information. Do not waste your money or time with credit repair agencies that charge money to dispute accurate information.
- Focus your resources on open accounts and keep those accounts current. The collection agency for the older debt might be the most vocal, but once there is a collection item the damage is done.
- Get a secured credit card that charges no annual fee and use it monthly. Don't use more than 10% - 20% of the available credit each month, and pay the balance in full and on time. You can find the best secured cards without an annual fee at sites like MagnifyMoney or NerdWallet.
1. Check Your Credit Report
You can check your full credit report for free at AnnualCreditReport.com. Review all the information and look for information that is not accurate or correct. If you see something that is inaccurate, you should dispute the information with each credit bureau. You can make the dispute online, or in writing. Some experts even suggest doing both in parallel. Here is where you can make the disputes online:
Keep a paper trail of your disputes. If you do not feel like you have been treated fairly, you can always complain to the CFPB online. But the CFPB will want to understand the history of your dispute, which is where the paper trail becomes important.
If you spend much time searching for credit repair advice on the internet, you will probably read about people who dispute everything - including accurate information. That is a very bad idea. The information might disappear from your credit report initially - but it will most likely return. The CFPB warns against "anyone who claims that they can remove information from your credit report that’s current, accurate and negative. It’s probably a credit repair scam."
2. Keep Open Accounts Current
Once your debt goes to a collection agency, the intensity of collection activity usually increases dramatically. You can expect to receive daily calls, text messages and even threats of litigation and wage garnishment. You might not have enough money to pay all your creditors. As a result, you might have to make tradeoffs and decide who gets paid first.
People often prioritize paying the most aggressive collectors or the oldest debt first. That makes logical sense: if a collection agency is calling you every day, you will want to make that stop. However, from a credit scoring perspective, that might not be the best answer.
Once a debt is with a collection agency, the damage is done. The only thing that heals that wound is time. Although FICO 9 will start giving credit to people who pay off collection items, FICO 8 (which is still the most widely used model) does not give credit for paying off debt in collections.
If you have open (and current) credit cards and medical debt with a collection agency, you would be wise to keep the open credit cards current by paying them first. And you get an added benefit: the older the debt with the collection agency, the better the negotiated settlements can become.
3. Consider A Secured Credit Card
Time will heal the wounds of old, negative information. However, if you want your credit score to improve you will need to provide your credit report with positive, new information. You need to demonstrate that the mistakes were in the past and you know how to handle credit responsibly now. But that can be difficult if no one is willing to give you affordable credit. Enter secured cards.
With a secured credit card, you provide a deposit to the credit card company, and you then receive a credit limit that is typically equal to your deposit. Why would you do this? Because your credit limit gets reported to the credit bureaus. And why would a credit card company do this? Because the deposit ensures that they won't lose money.
To get the biggest impact on your score, you should make sure to use your card every month. In general, try to use only 10% - 20% of your available credit limit. This will keep the utilization on your secured card low, and it will provide a strong positive indicator to the scores that you are responsible with credit. Most importantly, pay your statement balance in full and on time every month. The best secured cards charge no annual fee - which means you will only be out of pocket your security deposit until your score improves. Once you have a good enough score for a standard credit card, you can get your security deposit back.
Time will reduce the impact of negative information. A secured card can fill your report with positive information. And a thorough scrubbing of your credit report can remove any inaccurate information. If you do these three things, you should be on the path towards an improved credit score.