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How to Repair Bad Credit When a Credit Freeze Is In Place

October 31st, 2017 · No Comments · Credit Repair

by Credit Info Center

How to Repair Bad Credit When a Credit Freeze Is In PlaceWhen you have bad credit, making it better can depend on your ability to do a couple of things that a credit freeze could impede: 1) monitoring your credit through credit monitoring services (with some exceptions), and 2) applying for new credit. That said, the last thing you want to do is forgo the credit freeze altogether. On the contrary, in the wake of the Equifax hack, a credit freeze — also known as a security freeze — is being recommended across the board. What you need to do instead is learn how to work around a credit freeze when you need to.

Get the facts about credit freezes

When you place a credit freeze on your credit reports, access to these reports is restricted. This means that when you try and sign up for most credit monitoring services (credit bureaus being the exception) or apply for a new line of credit, access will be denied.

It is this restriction that embodies the benefit of the credit freeze — if someone gets their hands on your personal information, they won’t be able to open a credit account in your name (assuming a credit check is required).

That said, it is important to understand that restriction during a credit freeze is not universal.

Restrictions on credit do not apply to:

  • You (meaning you can still access your own reports and scores)
  • Existing creditors
  • Existing credit monitoring
  • Debt collectors collecting for your existing creditors
  • Government agencies (under certain circumstances)

This means that, even with a credit freeze in place, credit monitoring services can continue to monitor your credit and existing creditors can check your credit when you request a credit line increase (a good credit-building tactic).

But what if you placed the freeze before you signed up for credit monitoring? Or you want to apply for new credit while the freeze is in place? You can remove a freeze (for credit monitoring) or lift it temporarily (to apply for credit).

Keep your PIN in a safe place

When you place your credit freeze, each credit bureau will give you a unique PIN number. You’ll need this number to remove the freeze or lift it temporarily, so do not lose it.

Remove the freeze to sign up for credit monitoring services*

A credit freeze will not prevent you from seeing your credit reports through AnnualCreditReport.com every 12 months. However, credit monitoring — during the credit repair process and beyond — needs to be year-round. And to get that, you’re going to have to sign up for some sort of credit monitoring service. If you haven’t done that yet, and you already have a freeze in place, you are probably going to have to remove the freeze to sign up. That’s certainly the case with Credit Karma, which is the credit monitoring site we recommend most.

As stated on their website, “Though you may be able to temporarily remove a freeze for other purposes, like applying for credit, a bypass code or temporary lift will not work on Credit Karma’s site.”

That said, keep in mind that fees for unfreezing (and then re-freezing) your credit may apply. There are some states and some circumstances under which a credit freeze if free, but as we blogged in May, “Expect to pay anywhere from $3 to $15. Just keep in mind, that’s per bureau, meaning it could cost $9 to $45 to freeze all three of your credit reports from TransUnion, Experian, and Equifax.” See freezing and unfreezing fee breakdowns by state from TransUnion, Equifax, and Experian.

Don’t know all your credit monitoring options? Check out 22 ways to monitor your credit, some for free (which we recommend), others for a fee.

*You do not need to remove (or lift) a credit freeze to sign up for credit monitoring through the credit bureaus. The question is, do you want to use those services? Equifax is offering credit monitoring for free through TrustedID Premier, but many consumers are understandably uncomfortable trusting them with the job in light of how they handled the breach. Experian’s CreditWorks Basic plan is also free (but very limited). All other credit monitoring services through the bureaus come with a fee, so weigh that against the cost of unfreezing (then re-freezing) your credit to to go through a free credit monitoring site like Credit Karma.

Try fixing errors and negative listings you find on your credit reports

When you have bad credit, the credit monitoring process should start with looking for the source of the problem. That means going through your credit reports carefully, looking for any errors that can be disputed or negative listings that can be addressed. There is nothing about a credit freeze that will prevent you from dealing with any of these things during the credit repair process.

As outlined in our 20-Step Guide to DIY Credit Repair, errors that need to be disputed include:

  • Incorrect personally-identifying information
  • Incorrect credit limits and balances
  • Late payments you believe you paid on time
  • Paid-off accounts listed as open or delinquent
  • Credit accounts you do not recognize
  • Hard credit inquiries you do not recognize
  • Negative listings that should have fallen off by now
  • Incorrect judgments, defaults, liens, or bankruptcies

Get the facts about credit disputes, including how to file and what to do if it doesn’t work.

As for negative listings, you’ll want to address:

Just remember, before you pay anything, try debt validation with collection agencies and check the statute of limitations on old debt first. And, when you do pay, try settling for less than you. Get tips on DIY debt settlement, including how much you should offer to settle, how you should pay, and negotiating your credit report listing.

Lift the freeze to apply for a new credit

If you have bad credit, applying for new credit may be the last thing on your mind. And with good reason. One, you may assume you wouldn’t qualify anyway. And two, the last thing you need is the temptation of charging up a bunch of new debt.

Secured credit cards can be a good answer to both concerns. They’re intended for consumers with bad (or no) credit. And your credit limit is only as big as the deposit you put up, which could be as little as $200, making it hard to get in over your head. Plus, your $200 deposit secures the credit so, worst case scenario, they can pull from that if you can’t pay the debt (not something you want to do, though, as it will make your credit even worse).

By the way, just because you don’t need good credit to qualify for a secured credit card doesn’t mean there will be no credit check. Not all secured credit cards come with a credit check, but most do. So before you apply (for any type of credit that requires a credit check), lift the credit freeze temporarily so the card issuer can check your credit.

Get tips on fixing your credit with a secured credit card. Just be sure to shop around for the best terms first. Credit card comparison sites like Bankrate, Nerdwallet, and WalletHub can help. We also have our own secured credit cards list.

You may also want to check out credit builder loans. This is an installment loan that, combined with a secured credit card, can make for a good credit mix. (Just don’t let a preoccupation with credit mix get you in over your head.)

Build positive credit with the credit you already have

We discuss this extensively in 9 No-Nonsense Ways to Build the Best Credit, but here’s the gist of it, including a couple of detailed excerpts.

1) Pay all of your bills on time, every time

Your payment history represents 35 percent of your FICO Score and is “Extremely Influential” on your VantageScore. And just one late payment can knock 100 points off of that. So pay on time, every time. This not only includes credit cards and loans that get reported no matter what, but also bills that only get reported if they’re late (e.g., utility bills, cell phone bills, medical bills).

2) Be mindful of your credit mix

The best mix of credit combines revolving and non-revolving accounts, which will be reflected in your credit score. That said, as important as it is to have a credit card (revolving), it’s probably not worth taking on an installment loan (non-revolving) just to build credit. If you need it for something, like a car, college, or house, great. If not, think twice. With a credit card, you can avoid interest rates by paying off your balance every month. With an installment loan, you’re paying interest no matter what, which can be costly.

3) Shop around for the best credit terms

Are you looking for a secured credit card? Look at:

  • Annual fees
  • Interest fees
  • Balance transfer fees
  • Cash advance fees
  • Foreign exchange fees
  • Late payment fees
  • Returned payment fees

In the market for a credit builder loan? Look at:

  • The interest rate
  • Your monthly payments
  • Length of the loan
  • How much the loan will end up costing you
  • Late payment fees
  • When late payments are reported to the bureaus
  • What will happen if you default on the loan

4) Apply for credit offers compatible with your credit score

As explained in 9 No-Nonsense Ways to Build the Best Credit:

“When you shop around on credit comparison sites, pay attention to the kind of credit needed to qualify. Otherwise, you could end up in of one of two situations:

  • You apply for credit that requires better credit than you have. That means you’ll be turned down, making the credit application good for nothing. Not only did you not get the credit, but it left a hard inquiry on your credit report.
  • You apply for credit intended for consumers with worse credit than you have. Getting the credit isn’t the problem. The problem is you’ll likely be charged higher fees than if you’d applied for credit better suited to your credit score.”

5) Minimize credit applications

The more times you apply for credit, the more hard inquiries get logged onto your credit report. That’s not good, as too many are red flags to creditors, signalling to them that you are “credit hungry” and might be a bad credit risk.

6) Watch your credit utilization ratio

Ideally, you do not want to use more than 10 to 30 percent of your available revolving credit at any one time. (This is called your credit utilization ratio.) So, for example, if you have one secured credit card with a $200 limit, you don’t want to use more than $20 to $60 of it.

7) Pay off your credit card balances every month

No matter what you owe — be it $20 or $200 — pay off your credit cards every month (whether they’re secured or not). This will not only enable you to avoid interest charges, but the more available credit you have, the better it is for your credit score.

8) Think twice about cancelling credit cards

Whether you never use it or you’re afraid you’re going to use it, cancelling a credit card may not be a good idea. As explained in 9 No-Nonsense Ways to Build the Best Credit:

“The length of your credit history counts as 15 percent of your FICO Score. And the age and type of your credit history count as ‘Highly influential’ on your VantageScore. In other words, the older the credit card, the more canceling it will likely hurt your credit score. Not anytime soon, as the account will still show up on your credit reports for up to 10 years. But after the 10 years is up, it will fall off and the age of that card will go with it.

“Plus, this card you’re thinking about canceling is contributing to your overall credit limit and credit utilization ratio.”

9) Monitor your credit

Again, don’t limit your credit monitoring to one look at each report every 12 months. Use your credit monitoring service(s) to track the progress of your credit repair efforts on a regular basis. Did that error you disputed get corrected? Does that debt you settled show up as paid now (or in whatever terms you agreed)? Check regularly and check everything, for updates like these, as well as fraudulent activity.

Learn more about DIY credit repair.

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