How to Fix A Bad Credit History?

How to Fix A Bad Credit History

You have seen adverts of people claiming they can help you repair your bad credit within no time. Those are just scammers and have no solution to your problem. There are even more likely to make your situation worse. The good news is that you can fix your poor credit score in simple steps.

However, you must understand that cleaning up your bad credit history will not happen within a single day. It is a process that will require your dedication and patience. If you expect miracles to happen, you will be disappointed as soon as you get started.

With that in mind, this piece will take you through the steps you need to take to improve your credit score. But before that, let’s see why it is necessary to clean up a bad credit history.

Why Is Cleaning Up Your Bad Credit History Worth?

In this day and age, your credit history is not only worth to lenders but also to your future employers. So, don’t be surprised potential bosses requiring to see your credit history before hiring you. No to mention that your credit history also can hurt your day to day life. Basically, your credit score means a lot in today’s world. So, do everything possible to keep it spotlessly clean.

When Your Credit Will Be Pulled

Often your credit report will be used to determine your creditworthiness. For example, a credit company may pull your report when applying for a card. A mortgage company will use your report to decide if you qualify for a mortgage.

Apart from companies pulling your report when you need financial support, there are other reasons that may trigger them to ask for your report. 

  • Applying for a job: Today it is common for employers to pull applicant’s credit reports. But why? Employers believe that if you are responsible for handling your credit, you will also be a responsible employee. So, if you happen to have a bad credit history, that automatically means no job for you.
  • Auto insurance: To auto insurance companies, bad credit is equated to risk. This means the lower the score you have, the higher the risk they take on when insuring you. Additionally, this means you must be ready to pay for higher insurance premiums rate. Are you prepared to pay a higher premium rate while you can clean up your score? Of course not.
  • Renting a property: Bad credit histories often will piss off most rental management companies. You will find some companies making it mandatory for new tenants to produce their credit reports in advance. These companies believe how you handle your credit account, and pay bills is going to be reflected in how you will pay rent. So, if you happen to have a bad report, that automatically means your chances of renting a quality home are low.
  • Determining Loan Rates: It is obvious bad credit history affect loan approval. But are you aware that also your score help determines your rates too? For example, if you have a good score, you may find getting a loan payable with an interest rate of 5%, while another person who has bad credit and applying for the same amount being slapped with a 15% interest rate by the same lender. That is how punitive a bad credit is.

A Quick Overview of Bad Credit

Credit reports contain detailed information about bills you have now and those you have had in the past. Whether you had a mortgage loan, utility bill, or car loan, all these will appear in the report. Below are a few things that can indicate bad credit on your report.

  • Those bills that have been turned over to a collection agency due to non-payment. Note that this can happen even if you weren’t aware you owed the bill.
  • Those credit cards with balances over 70-80% of the total credit limit.
  • Payments made over 30 days late.
  • Loans that you have co-signed on for someone else. If they don’t pay on time, you get dinged.
  • A high dollar amount total of credit cards owed on.

Note: Even when you pay on time, high balances on credit can lower your score. This is usually based on your Credit Utilization Ratio (CUR). In case your CUR gets high, your credit score gets lowered. So, try to keep your CUR under 30 percent.

What is a Good Credit Score?

The factors we have seen above can affect your credit score. Your credit report usually contains a number called a FICO score, which ranges from 300 – 850.

800 -850 means your score is exceptional, and 300 – 579 means your score is very poor. See the categories below for more information. 

  • Exceptional Credit: 800-850
  • Very Good Credit: 740-799
  • Good Credit: 670-739
  • Fair Credit: 580-669
  • Very Poor Credit: 300-579

The Best Way to Clean Up A Bad Credit Score

From the above categories, you have a bad score if your score is below 580. Any score below 580 can hurt you in many ways. Fortunately, there are possible ways to clean up a bad credit score. Follow these steps to learn how.

Pull Your Credit Report

The first step to repairing a bad credit score is getting your report. Obtaining your copy allows you to see what other people are seeing when they look at your report. Besides, you get to all the information when you have a copy.

The good news is that it is easy to get your report. In fact, you can even get one free copy of your credit each year. Often, free copies don’t include the FICO number, but you can always request it for an additional cost. You can go to www.annualcreditreport.com to get your free annual copy of your report.

You can as well access your credit report from:

  • Experian
  • Equifax
  • TransUnion

Analyze Your Report Well

Now that you have your report, the next step is to check each reported item for accuracy. Don’t assume everything is ok. Creditors can also make a mistake, which can greatly hurt your score. For example, you might find your report indicating you have a pending bill, yet to you, the bill is paid.

Basically, scan your report thoroughly to make sure everything it contains is about you, and it is correct. 

Take Note of Items That Have Been Written Off or Are in Collections

“Written off” is messy words, and in case it appears on your report, contact the creditor or collection and make arrangement to pay those bills. Written off means the company has tried to reach you and have given up. In other words, the company does not expect to be paid.

In case your bills have been entered for collection, make sure to contact the collection agency, and make plans to pay off your debt. Setting up a zero-sum budget once you agree on any arrangement is a good idea. You can as well use tools like personal capital, which will help you budget your money well.

Take Note of Any Credit Card Balances That Are Within 20% Of the Limit

We talked earlier about keeping your credit utilization ratio. Now credit cards that have balances within 30% of the limit can affect your credit score. So, it is prudent to check those credits that are nearing their limit, and if they are some, work to get them paid down as quickly as possible. The best way to raise your FICO is by paying for things using cash instead of your card and by adding payments to those cards.

Resolve Any Errors or Disputes

In case you find fraudulent or incorrect information, it is prudent to work with the collection agency or creditors to get the errors resolved. If you follow the right procedures, you are always assured of having it smooth. Basically, if you analyzed your report thoroughly, resolving any error or dispute is a simple task.

Keep in mind any error you leave unsolved will taint your credit score. You don’t want a single mistake, which you had a chance to ruin your reputation and especially in the eyes of employers.

Using Tools to Build Your Credit

It is never an easy task to build your credit. It takes time and requires patience. Luckily, the presence of tools like Self Lender makes building a credit score an easy task.

Now let’s have a look at some of the reasons why you may want to use Self Lender:

  • It let you monitor your credit score for free.
  • It offers you a credit-builder account, which allows you to build your credit score as you save.

Facts About Self Lender

  • It works like a regular lender. You make your payment late, and they will report you as late to the credit bureau.
  • In the event your loan is overdue, you pay a late fee of 5% of the amount. Your payment is late if made 16 days or more days after the due date.
  • If you decide to close your account earlier, you will pay an early withdrawal fee of $1 or less.

Building Credit Without Borrowing

Companies like Self Lender make it easier to build credit without borrowing. They don’t give you a room to add your debt. We have already seen the benefits of using the company’s tool. Feel free to visit that section again. By allowing you to make payment to them, these companies will enable you to build a good credit as you save. And the fact they report to the credit bureaus you are always guaranteed to build your credit score.

You can equate these companies to how secured credit cards work. Secured credit cards have savings balances attached to them. First, you are required to deposit money into a savings account. After that, you are issued a credit card with a limit that matches your savings account balance.

When you use secured credit cards, you make payments back to them each month. You can pay the balance in full or make a minimum balance. And if, for some reasons you stop making payments, the company takes the balance due from your savings account.

Building Good Credit Through Saving

The best thing about building good credit through saving is that you never have to worry about your debt accumulating. Secured credit cards can be risky for that reason. Yes, the balance is secure because of your savings account match. However, it is a habit that can be risky.

The habit of spending money you don’t have by accruing credit card balances can be dangerous. This often encourages you to live outside your means. Companies like Self Lender are a big plus if looking to nurture the habit of saving money, lookin to build your credit through saving and serious about eliminating the spending component.

Your credit bureau sees your account as a loan. That is how you can raise your credit score. However, it is really your own money you are borrowing.

How to Get Your Credit Report for Free

Annual Credit Reports

Fair Credit Reporting Act allows consumers to get one free credit report each year. And as said above, you can get them from the three main reporting agencies. That is Equifax, Experian, and TransUnion. Alternatively, you can access their websites at Annual Credit Report. The Annual Credit Report allows you to access each of the three reporting agencies’ bureaus per year.

Getting Your Credit Score for Free

The above reporting agencies will charge you a fee to access your credit score. If not ready to pay, you can use companies like Credit Sesame. They will let you access your credit score for free at any time. Alternatively, use services like Credit Karma to access your credit score for free.

Conclusion

In this day and age, having a good credit score is a big plus. Your good score will not only help you secure a job but also reduce your auto premiums. Why then not work toward cleaning up your bad credit history? Although it is not easy to repair bad credit, the struggle is worth it. Need more information about cleaning a bad credit history? We are here to help!