If you are not being offered good rates and terms on the loans, you must starting thinking about credit repairing i.e. improving your credit score. This (your credit score) is what all lenders check before offering you loans or any line of credit (including credit cards). In fact, the importance of good credit score can’t be emphasized enough – some employers, while accessing your candidature for a job, use your credit score as a measure of how responsible you are.
If you are wondering “How to repair credit”, the first step would be to check your credit report and ensure that it is correct. So, you must contact one of the three major credit bureaus (Equifax, Experian, and TransUnion) and get your credit report from them. You are entitled to receive one free copy on an annual basis.
Here is what you should specifically look out for in your credit report:
1. Identity theft: You should first check that the accounts listed in the report are indeed your credit accounts and not of someone else. This should be clear to you as soon as you look at the report. Note that besides identity theft, it might just be a mix-up that has caused unknown accounts to be listed under your name. In any case, you must immediately report the problem and ask the accounts to be removed from your credit report.
2. Accounts that should have fallen off your credit report: This is the next thing that you should be checking in your credit report. Check that the accounts that should have been removed from your credit report have actually been removed from your credit report e.g. accounts that were part of your bankruptcy 10 years back or other negative accounts that should have been taken off the report after 7 years. If you find that these accounts are still being shown in your credit report, you must immediately bring it to the notice of the credit bureaus and get it corrected.
3. Credit limits: In case you are not aware, the credit limits available to you have a bearing on your credit score. So, in case the credit limits reported for you in the credit report are lower than what they actually are, you should report this and get it corrected.
4. Wrong status of accounts: If the status of your accounts has been reported wrongly, then you should check/ contest these and get them corrected. Typical problems might include the accounts bearing a status that shows that you have made late payments or have defaulted… when in actual you have not defaulted. Similarly, charge-offs or collections might be reported when there haven’t been any. So, get all these corrected immediately.
While checking the credit report is the most important credit repair measure that you can take immediately as the first step in order to ensure that your credit is reported correctly, there are other steps that you should take in order to ensure that your credit score improves continuously. Here are some quick tips that you would find useful and which you can implement immediately:
a) Leave your card home sometimes and carry only essential cash in order to suppress the urge to buy on the spur of the moment (till the time you go back to get your credit card, you would have made more rational decision with regards to buying or not buying that item). This will ensure that you don’t end up buying unnecessary stuff through your credit card.
b) Do not spend more than 25-30% of your credit limit on your credit cards.
c) Consider selling off some assets to payback your high interest debts.
While all these measures will work towards your credit repair, you should bear in mind that the credit scores can’t become great in an instant. You have to be patient as it will take some time for your credit scores to improve.