5 steps to fixing poor credit and rebuilding good credit
Your credit rating affects more of your life than just buying a house or a car. Poor credit can make it more difficult to get a loan, to set up utilities and more expensive to get a cell phone. Some careers are closed to people with poor credit, even if they are otherwise qualified. Poor credit can even make it harder to rent a good apartment.
Maintaining your good credit is important to get the most out of life, and, although it might take some time to repair, removing poor credit can have a net positive effect on all aspects of your life.
Getting the most out of your credit score
FICO scores, the basis of your credit rating, can be affected by many situations. Forgetting to pay a bill, being late while paying or not being able to pay a loan back will all hurt your credit rating. Unfortunately, errors in entry or bookkeeping can also harm your credit rating.
If your credit rating is poor, the best thing to do is to improve it. Find any errors and have them corrected, pay off late charges and discharge old debts that are still listed. Obviously, the first thing you must do is to get a hold of all three of your credit reports and make sure there are no errors in them.
- Getting your credit reports. Once every twelve months, you can order a free copy of your three credit reports. You can do this either over the phone (1-877-322-8228) or online. You will need to order credit reports from the three major credit bureaus (Equifax, Experian and TransUnion) because different companies report to different bureaus. It is a straightforward process, and it is free.
- Review your credit reports for errors. Mistakes happen. You want to review your credit reports for any mistakes they may contain. Identity theft, bookkeeping errors and incorrect accounting can damage your credit rating. If you find any errors, report them to the credit bureau. They will need to see corroborating documents so expect to spend some time going through the process. Once the mistakes have been rectified, you will have a good idea of where your poor credit is coming from.
- Create a payment plan. At this stage, you want to avoid any debts being charged off. Overdue payments need to be paid up, collections need to be stopped and your accounts need to be made current. This step, and the following one, can benefit from having the help of a credit repair company. Dealing with collection agents, creating timetables to pay off debts that can work for both you and your creditors can be overwhelming. Credit repair companies are trained and familiar with the process.
- Pay charged off accounts. Even though the damage has already been done with charged off accounts, you are still responsible for the debt. Paying off charged off accounts will stop the collection agencies from hounding you and stop the poor credit from appearing on your credit report.
- Rebuild your credit. Once you have cleared off your poor credit, you will have to rebuild it. Don’t apply for credit you know you cannot get as it will be noted on your credit report. The easiest way to rebuild credit is to start small with a secured loan or a secured credit card. Make your payments and practice financial discipline. As you pay off the loan or maintain your card, you can increase the amount you can borrow.
Rebuilding your credit will take time and discipline. It is much easier to ruin your credit than it is to rebuild it, but the results of fixing poor credit can be substantial.