FINANCIAL ADVICE | improving your credit
How to Fix Your Credit
Published February 11, 2019
- Keeping a good score is very important.
- There is nothing a credit repair organization can do that you cannot do yourself.
- It’s a good idea to start by making copies of your reports.
The Importance of Good Credit
Unless you are living off the grid in the middle of the desert with no intent to come back to civilization, you are going to need to establish good credit. Otherwise, things are going to be difficult and more expensive for you. You may not realize how often your credit history is used to determine aspects of your life. There are the obvious ones like when you get a credit card, buy a house, or purchase a car. Then there are ones you may not be aware of like your auto insurance company charging you a higher interest rate or your utility company asking you for a security deposit because of a low credit score. Employers are now looking at your credit score too. Your credit score can now determine if a potential employer hires you or not. As you can see, keeping a good score is very important, and if it’s not so stellar now, then there are ways to make it better.
Where Do You Stand in the Credit Score Pool?
First, you must see how good or bad your credit is, and the only way to do that is checking it yourself. All the information you need is in your credit reports. Yes, there are more than one, and you should get a copy of all of them. According to the Fair and Accurate Credit Transactions Act of 2003, you are entitled to a free credit report from each of the three credit bureaus (Equifax, Experian, and TransUnion) once a year. You can get your free credit reports at AnnualCreditReport.com. You should make a habit of getting your free credit reports every year. Put it on your calendar, so you don’t forget. Why is it important to get reports from all three credit bureaus? Sometimes they don’t share information, so it’s possible to have different credit information from each credit bureau. Moreover, the companies that report and access your credit may only do it from one credit bureau.
Know your credit score. Once you have a baseline credit score to work from, you can start taking steps to improve it.
Credit Repair Agencies
"There is nothing a credit repair organization can do that you cannot do yourself," says an Experian senior level marketing manager. Not to say there aren’t any reputable credit repair companies out there, but many shady outfits are wanting to scam you for your money. They can also make your credit worse by allowing your accounts to go further and further delinquent. This is so that eventually, they can settle your accounts after they are charged off. The truth is It only requires a little time, effort, and planning on your part to fix your credit.
If you do decide to use a credit repair company, here are a few things to look out for:
- Companies asking you to pay money upfront
- Not disclosing your legal rights
- A non-detailed contract with actual services they would provide you
- Recommending you altering your information
- Asking you to not deal with the credit bureaus directly
Super Sleuthing Your Credit Report
It’s a good idea to start by making copies of your reports. You can have your working copy, which you can mark up and take notes and other copies to send to credit bureaus in case of disputes. These are going to be the road maps to a good credit score. Take your time and familiarize yourself with them and highlight all the negative items so that you can tackle them one by one. Look for any information that isn’t correct like accounts that aren’t even yours and late payments that were falsely reported. Are any of your accounts past due? Have any accounts been sent to collection agencies? Are any of your accounts over their credit limits? These are all things that hurt your credit report and should be addressed.
Dispute Any Errors
You’ve gone over your credit reports with a fine-tooth comb, and you found some negative marks or some late payments you want to dispute. Now what? Check your credit reports, because they should have information regarding disputes and how to report them. You can make disputes online, which is probably the fastest and easiest way of doing this. You can file a dispute over the phone or by mail. If you send it by mail, make sure you send it certified, so you can get a record of when you sent it (creditors and credit bureaus have only 30-45 days to respond to your request). You can search online and download a dispute letter template to make things even easier for you.
Remember those copies you made earlier? This is when you use them. Include a highlighted copy of your credit report with your dispute. Include any supporting materials that prove your claim. If there is insufficient evidence, the credit bureaus may decline your request. If your claim is successful, the change will be made to your credit report, and all the bureaus will be notified. If it’s not, your credit report will show that you made a claim and you have the opportunity to write in a statement about the dispute. This statement doesn’t affect your credit score but is available to companies reviewing your credit report.
Past Due, Present Do
After taking care of your disputes, it’s now time to do some repair. This means looking at outstanding balances, delinquent accounts, and charge-offs. Make it a goal to get all your delinquent accounts either paid off or current. Doing so will impact your credit score the most since your credit history accounts for 35% of your credit score. Remember to be patient, this may not happen overnight, and it even may take a few years to achieve. The object of the game is to be diligent and pay off as much as you can, even if it’s just a little every month. You can work with creditors to set up payment plans. If creditors see your willingness to pay off your debt, they may waive late fees and other charges.
If any of your accounts are 180 days past due, it turns into a charge-off and may go to a collection agency. These hurt your credit the most, so start paying these off. If you contact the agency or creditor, and they may be willing to settle the account for a fraction of what you owe them. Even after paying these accounts off, charge-offs and collections stay on your report for seven years. Although, even a charge-off status can be deleted if you can negotiate with the creditor to do so.
If you are going to go with a settlement or a payment plan, be sure you take some action to protect yourself. Before paying any money to a collections agency, be sure to get the terms in writing. Once you have fulfilled the terms of your agreement, be absolutely sure you get a Release of Claim letter. This letter will provide proof that you have paid off this account. Be sure you retain this letter in a safe place for 10-20 years. It is not uncommon for unscrupulous collection agencies to offer a settlement and then re-sell the unpaid portion to another agency. Without the Release of Claim letter, you have no proof that the previous agency agreed to consider the debt paid in full.
Bring High Balances Down
The second thing that impacts your credit score the most is a ratio of your outstanding credit to your total credit (on a credit card, this is your credit limit); this is called credit utilization. Credit Utilization accounts for 30% of your credit score, so you want to keep the ratio of available credit to balance used down to 30% or less, but 10% utilized is best. Say you have a balance of $200 on a credit card and your credit limit for that card is a $1,000, then your credit utilization for that credit card is 20%. The object is to keep your balances low or at zero, because the higher the balance, the more it hurts your score. So, if you have high balances on any of your accounts start paying them down, this will help improve your score. The other thing you can do to improve credit utilization is to increase the credit limits on your accounts, giving your current balances a lower percentage. Although, that shouldn’t stop you from paying down your balances as soon as you can.
Since you probably have a limited amount of funds to spend on repairing your credit, you should prioritize your credit repair to do list.
- Pay all your bills on time.
- Start paying off accounts that are less than 180 days past due, get them current as soon as you can.
- Next, start bringing your credit utilization number down by paying down the high balances on your accounts.
- Last, work on accounts that have been charged off or sent to a collection agency.
Establish New Credit
Once you have your credit repair plan running smoothly, you may want to consider establishing new credit and open a new credit account. It sounds counter-intuitive, but it will help your score. Think about using a new card to pay your rent or mortgage. Since you factor in these payments every month, just pay the credit card every month instead of the mortgage company or rental agency.
If your credit was in already in bad shape, you might have a hard time getting a new credit card. You may consider a store card (idea: buy budgeted items with a store card like groceries or diapers) or a gas card since they are more lenient with applicants with bad credit. Be absolutely sure that you pay this card in FULL every month. Do not let all your hard work go to waste. The other option is getting a secured loan, credit card, or line of credit. Basically, you put down a deposit, and the bank gives you a line of credit against the deposit.
There’s a Reason Credit is in Our Name
The Credit Union of Texas (CUTX) has all types of loans and credit cards including secured ones. CUTX offers secured savings, secured certificate of deposit loans, and secured credit cards. If you have a savings account with us, you can use the funds in your account for a secured credit card.
Whatever your credit situation, we urge you to either come into one of our CUTX locations and speak with one of our staff about how we can help you. You can also call us at 1-972-263-9497 and speak with a member of our loan team.