How to Repair Your Credit in 7 Easy Steps – Forbes Advisor

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Although the average credit score in the United States is 710, that doesn’t mean everyone has good credit. If you happen to have a poor or damaged credit score (usually less than 670), it can prevent you from achieving what you want, whether it’s buying a new car, renting a beautiful car. apartment or buy the house of your dreams.

However, there are some steps you can take to repair your credit which we outline below.

1. Check your credit score and report

Your credit report contains information about how you have used credit over the past 10 years. You have a credit report from each of the three bureaus: Equifax, Experian, and TransUnion. Most creditors report to all three, but not all, so it’s worth checking the information on all three reports. You can get free weekly credit reports until April 20, 2022, at AnnualCreditReport.com.

Your credit report is used to calculate your credit score, and it’s important to check it as well. You can check your credit score for free through credit rating websites or some credit card providers. Checking your own score only requires a gentle credit check, which doesn’t damage your score. We recommend that you check your score once a month.

Related: How to check your credit score

2. Correct or dispute the errors

Unfortunately, sometimes the credit bureaus make mistakes. According to a study by Federal Trade Commission, a quarter of people had errors in their credit report and 5% of people had errors that could have made it more expensive for them to obtain a loan.

So while knowing your credit history and credit score is a good first step, it’s also crucial to find errors. If you spot any, it’s a relatively straightforward process to dispute these errors and get them removed.

3. Always pay your bills on time

Your payment history represents 35% of your credit score. So if you want to repair your credit then you need to focus on ironing your monthly payments. While it might seem like a challenge to pay all of your bills on time, there is a simple trick to achieve it: automatic payment.

If you have bills that don’t allow automatic payment, like one-off medical bills, pay them as soon as you receive them. If you can’t, contact the office and work out a payment plan.
If you are worried about being overdrawn on your account, we recommend that you set a budget and / or schedule your automatic payment when you get paid.

4. Keep your credit utilization rate below 30%

Your credit utilization rate is measured by comparing your credit card balances to your overall credit card limit. Lenders use this ratio to gauge how well you are managing your finances. A ratio of less than 30% and greater than 0% is generally considered good.

For example, let’s say you have two cards with individual credit limits of $ 2,000 and $ 500 of outstanding balances on one card. Your credit utilization rate would be 12.5%. In this case, add up your debt ($ 500), then divide it by your total credit limit ($ 4,000).

5. Pay off other debts

If you have unpaid debts, paying them off can help improve your payment history and lower your credit utilization rate.

When planning to pay off your credit card debt, consider the debt avalanche or snowball method. The Debt Avalanche method focuses on paying off your high interest cards first, while the Snowball method focuses on paying off your smaller balances first. Evaluate both to determine which method is best for your situation.

If you are considering paying off loan debt, it is important to note that you may experience a temporary drop in your credit rating. But rest assured, it will improve your credit score in the long run, according to Experian.

6. Keep old credit cards open

You might be tempted to close old credit cards when you’ve paid them off. However, don’t be so quick to do it. By keeping them open, you can build a long credit history, which is 15% of your credit score.

There are a few caveats here, however. Your issuer may close your card after a certain period of inactivity and if it charges an annual fee it may be worth closing.

7. Don’t take out credit unless you need it.

Every time you apply for credit, your creditor will perform a rigorous credit check. This can lower your score from one to five points. It will also lower the average age of your account, which can lower your credit score as well. So, as a general rule of thumb, try to avoid applying for credit unless you really need it.

Can you pay a business to repair your credit?

Credit repair companies work primarily by removing negative information from your credit report, usually errors. But that’s only a tiny part of fixing your credit score. And you may be able to dispute errors yourself faster.

So not only are credit repair companies expensive (often between $ 50 and $ 100 per month, according to Experian), but you can do it yourself. And if you really need help with credit, you can always seek affordable help from a nonprofit credit counselor through the National Foundation for Credit Counseling.

How long does it take to repair your credit?

While there are things you can do to improve your credit, like paying off your credit card balance, it might take longer than expected to see results. Sometimes it can take at least a few weeks for creditors to report your payment information and companies to update your score because of it. In general, fixing your credit score is a long term game.

Increase your FICO® score instantly with Experian Boost

Experian can help you increase your FICO® score based on paying bills like your phone, utilities, and popular streaming services. Results may vary. See the site for more details.

Next Steps: Regularly Check Your Credit Score

Once you start taking the necessary steps to repair your credit, it’s a good idea to keep tabs on your score by checking it once a month. This way you will be able to spot any errors and see how your actions play a role in improving your score.

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