Neglecting your credit for long periods of time can have disastrous consequences. The longer your credit remains bad the harder it can be to claw your way back to having good credit. That doesn’t mean that it is impossible to repair your credit however, so don’t give up before you have even started.
Looking at the big picture can be overwhelming so it is important to break the process down into smaller, more manageable steps. Trying to tackle all of your bad credit at once is likely to cause you to feel that it is hopeless to even attempt to get good credit. Nibbling away at it a little bit at a time may seem labor-intensive and slow but over the long term it will serve you best to do it this way.
It is important that the process of rebuilding your credit is not difficult and so the following tips have been written to provide you with a solid understanding of how with some time, patience and faith you can turn your bad credit around and earn a credit score you can be proud of.
Keep a Close Eye on Your Credit Reports
Everyone is entitled to receive one report once a year, free of charge, from each of the three largest credit reporting companies, so you should take advantage of this and make sure you get yours. The best site to obtain the free reports from is www.annualcreditreport.com. This should be your first step in rebuilding your credit because without knowing why your credit is bad you won’t know where to start to repair it.
Identify any Errors on the Reports
It is not unusual for someone else’s bad credit to end up on your report. This can happen when you have the same name as the other person. You should know which accounts you have defaulted on so if anything sends up a red flag, such as accounts that you know are current but show as delinquent or in collections. Check also for duplicate listings that may have been placed on your report because of a sale between collection agencies. Any credit account that you know has passed the statute of limitations is grounds for concern, as are any credit accounts that you know were not opened by you. There are many reasons bad credit gets reported to the agencies and it is your responsibility to monitor your reports closely to insure you can investigate at the earliest possible instance.
Argue the Validity of Known Errors on Your Reports
The best course of action when you want to dispute a known error is to write a letter to the applicable reporting agency and send it by certified mail so that there is a record of the letter being sent, and you will be sure that it is delivered to them. No matter how small the error, even if it is just for a few cents, a bad mark against your credit is still a bad mark regardless of the amount, and needs to be disputed. Make sure that you advise the relevant reporting agency if there are any items on your report that have a wrong mailing address or a misspelling of your name because there is a high likelihood that these belong to someone else.
Demand Old Debt be Validated
Any debt that is from long ago can be difficult to prove that you still owe it due to it having possibly changed hands many times over. Any sold account is supposed to have supporting documentation but often this is either not transferred to the new collection agency or just simply gets mislaid. While the current collection agency may be able to prove you still owe the debt there is enough of a chance that they won’t, which justifies making the effort to dispute it by requesting proof that you are legally responsible for it.
Negotiating a Debt Settlement Agreement
On occasion a creditor will agree to accept a lesser amount that what is owed to remove the negative item from your credit report. They are not legally obligated to do this but if they do agree to settle for less than you owe get it in writing and don’t ever rely on verbal agreement.
Record Dates When Negative Items Automatically Get Removed from Your Credit Report
There are several instances where negative listings will no longer show on your credit reports and it is important that you are not only aware of these, but also record them so that you can monitor to insure they happen when they should.
Listings that will be removed after 7 years:
- Late payments should fall off after 7 years from the date the payment first became late
- Charge-offs are removed 7 years from the date the account was charged-off
- Tax liens fall off 7 years after the taxes were paid or settled
- Judgments that are paid fall off 7 years after the date the court enters into record or if unpaid judgments may take longer to be removed
- Repossessions will remain on your credit until 7 years have passed since the date of repossession
- Chapter 13 Bankruptcy takes 7 years to fall off from the date the bankruptcy was filed
- Other dates that listings fall off credit reports are:
- Collection accounts should fall off after 7.5 years from when the original debt first became delinquent
- Bankruptcy takes 10 years from the date it is filed to be removed
By knowing when these items should fall off your credit report you can quickly dispute any with the credit bureaus if they don’t fall off as scheduled. The sooner you can dispute them the quicker action can be taken.
Application for New Lines of Credit
While you may think that this is the last thing you should do when working to repair your credit score, it is in fact one of the best ways to rebuild credit. It is true that you will have to apply to companies willing to grant credit to someone with poor credit. Here are some things you can do despite having bad credit:
- Make application for a secured credit card that guarantees to report all activity to the credit agencies
- Have someone make you an authorized user on a credit card that will report activity to the credit agencies
- Open a credit union account and make application for a loan. Credit unions are far more understanding and show a willingness to find a reason to grant you a loan, unlike banks who seem to focus on reasons to deny you a loan. Don’t let it discourage you if at first the credit union turns you down for a loan. Just ask if you obtain a loan that is secured with a certificate of deposit or a savings account.
Using Credit Cards Wisely
Being responsible with the use of credit cards will over time demonstrate that you are serious about rebuilding your credit. Don’t run around making purchases you will later regret. In instances when you would normally pay cash use your credit card and then pay off the balance at the end of the month with the cash you would have normally used. Groceries, utility bills and other day-to-day expenses can all be paid for with a credit card to rebuild credit. Just make sure that you do not put more expense on the card than you have the funds to cover when the bill comes due. The goal is to charge items to your credit card and then pay of the total amount due, returning the balance to zero so that interest charges are not incurred. This will keep your credit utilization ratio at a low level.
Below 30 Percent Credit Utilization Ratio
While this may seem like a fancy term all it means is that you never put more than 30 percent of the total credit value on the card at any given time. In fact it is wiser to keep that figure lower, with somewhere between 10 and 25 percent being ideal.
Pay Your Bills on Time
This seems like the most obvious step to rebuilding credit but it cannot be emphasized enough how important it is to insure that all existing accounts are paid on time regardless of who you owe money to. Paying your bills on time will insure you have positive listings appear on your credit report.
Constantly Monitor Your Credit Score
It can be particularly beneficial and encouraging to see how much your effort to improve your score impact your credit reports. It is also a good way to see where more effort is required. Staying motivated through what can be a lengthy process is imperative if you are to succeed.
Spend Less, Save More
A well-prepared budget can reveal a lot about your spending habits. It will also help keep you on track with bill payments, show you where you can reduce expenses and spending, and give you a goal to work towards. It is important to have an emergency fund and a budget will show you where you can siphon a few dollars off each month to get that emergency fund growing.