Has your
credit score taken a hit because of the current recession? Foreclosures,
unemployment and other financial struggles have hurt a lot of people's credit
history. So how do you go about fixing it? Here are five ways that you can
start repairing your credit score:
Organize
and prioritize. Your main concern in rebuilding your credit is making sure
every bill is paid on time. Sit down with your finances and find places where
you can cut corners so that every bill is paid on or before the due date. Set
up auto-pay for each credit card so you don't accidentally miss a payment. Your
payment history is the largest percentage of your credit score, so it must be
perfect going forward if you want to rebuild your credit.
Negotiate
down your debt. Many lenders understand that people have financial hardships
and will work with you to pay down what you owe, whether it be setting up a
payment plan or cutting you a deal if you pay it all at once. Focus on your
credit cards, or any other "revolving" debt. Paying off mortgages,
auto loans and other "installment" debts don't do as much for your
score. Make sure you ask the lender how they will be reporting your new terms
to the credit bureaus. They can report them as "Not paying as
agreed," which can further hurt your score, or they can report them as
"Paying as agreed," which can help your score. Don't agree to any
terms that are reported as "not paying as agreed" and make sure to
get everything in writing.
Don't close
out accounts. It may seem like a good idea to close out your credit card
accounts once you pay them off, but doing so can hurt your credit score. One of
the main factors of your credit score is your "credit utilization
ratio," which measures your credit limit-to-balance ratio on your credit
cards. So if you can keep these accounts and manage to maintain a low balance on
them, this will help show that you know how to handle your credit.
Get a
secured credit card. If your credit score has taken a big hit, it might be
impossible for you to be approved for any line of credit. If that's the case,
look into getting a secured credit card. With secured cards, you pay an upfront
deposit, which in most cases will reflect your credit limit, just in case you
have issues paying off your balance. Make sure your secured card reports to all three of
the credit bureaus (Experian, Equifax and TransUnion) every month so that you
can start building your credit again.
Make sure
any mistakes on your credit report are fixed. Check your credit report to make
sure there are no mistakes or identity theft-related issues in your credit
history. This also includes any negative information on your credit report that
can be easily removed. Contest any negative information on your report from any
company that no longer exists or has been bought by a larger company. All
information on your report must be verified, and if the company isn't there to
verify it, it must be removed.
The most
important factor in repairing your credit score is time. It takes seven years
for most negative information to fall off your report.
