Credit Infocenter

How to Fix Your Credit in 5 Steps

October 25th, 2019 · No Comments · Credit Repair

by holly

(Last Updated On: October 14, 2019)

Your credit is worth a lot of money, and bad credit can really cost you.  If you’ve had missteps in your credit history, you may wonder how to go about getting your credit back in shape.  Before hiring a credit repair company like Lexington Law, you should take the time to do what you can yourself first.  Fortunately, it’s not difficult to do. 

1.  Pull Your Credit Report and Review Your Credit Score.

Due to the Fair Credit Reporting Act, every American is entitled to view his or her credit report once per year for free.  There are several ways of viewing your  credit report:  You can go to Annualcreditreport.com, or the three credit bureaus:  Experian, Equifax and Transunion.  Getting your credit score is pretty easy these days:  most banks are issuing credit scores for free, whether you have a traditional checking or savings account or a credit card account.  The type of credit score you get is important.  There are two credit score types, the Vantage score and the FICO score.  Most lenders use the FICO score, so if the score you get is a Vantage score, try to obtain a FICO score.

Credit scores range from 350 to 850.  A good credit score is between 680 and 720, an excellent score is anything above 720.  If you are below a 680, it’s a sure sign your credit could use some improvement. 

The types of things you will see on your credit report are:

  1. Your personal information, such as name, address, employment history and social security number
  2. Any collection accounts you may have
  3. Any public records such as delinquent child support, bankruptcies or judgments
  4. A list of all your credit accounts such as credit cards, personal loans, mortgages or auto loans. 

The areas you should pay the most attention to are negative accounts, such as public records, collections or any late pays on your credit accounts. 

2.  Dispute anything erroneous on your credit report.

Negative information can sink your credit score by up to 100 points.  Make sure everything on your report is correct.  Once you have your credit report, it helps to print it out and highlight any errors you see on your report.  This includes any errors in your name, address or social security numbers.  Having inaccurate personal information can lead to credit merging or mixing, something that happens when two people’s credit reports are accidently combined.  If your credit report gets merged with someone else’s, you could get bad credit on your credit report that takes extra effort to clear up.

To correct information on your report, the most effective way to dispute is to write a letter.  Clearly identify the mistakes you are disputing, and include any supporting documentation you may have to substantiate your claims.  Send your credit disputes return receipt requested and keep copies of your letters and documentation for your personal records.  The credit bureaus have 30 days to investigate your claims and correct mistakes. 

3. Maintain a good payment history.

Your credit history makes up 35% of your score, so it is the most important thing to monitor and correct.  Even if you have a poor payment history, negative information does not stay on your credit report forever – most bad credit marks drop off of your credit report in 7 years.  In addition, the older negative credit marks lose some of their “sting” as time goes on.  Having a recent, a positive paying record will always help your credit score – it’s never too late to start building a good credit history. 

If you find it hard to pay off your debt each month, now may be a good time to start budgeting your money so you have enough to meet your financial obligations each month. 

4.  Pay down your credit cards.

Your credit utilization is 30% of your credit.  Simply put, your credit utilization is the ratio of your total credit balance divided by your total available credit.  A “safe” credit utilization rate is 30% or below, however the best credit utilization rate is below 10%.  Paying off or down your balances will result in a near immediate credit boost if you get them below the targeted utilization rates. 

Another thing you can do besides pay down your balances is to increase your credit limit.  If you have been a customer for several years or if your overall credit history with the bank is good or excellent, the bank may be willing to increase your credit line by a significant amount.  You have nothing to lose and everything to gain by calling your creditor and asking for a “raise”. 

5. Keep a Good Mix of Credit and Don’t Close Old Accounts

The “mix” of credit on your credit report is 10% of your credit score.  There are two different types of credit accounts, in the eyes of the credit bureaus:  installment accounts and revolving accounts.  Revolving accounts have a credit limit – the amount up to which you can borrow money, whereas an installment account starts with a balance of a set borrowed amount and regular periodic payments are made over a set amount of time to pay it off.  A good example of a revolving account is a credit card or an equity home line of credit.  Installment loans are usually mortgages, personal loans or auto loans.  If you are looking for ways to get extra points, opening a new credit card if your only accounts are installment loans will help boost your score.  Likewise, opening a small personal loan or buying a new (or newer) car will help round out your credit balance if the only things are your reports are revolving accounts. 

The age of your accounts comprises 10% of your score.  Opening a new account will definitely help your score, as the credit bureaus reward new accounts on your credit report with higher scores but if you have older accounts on there as well, don’t close them, even if you are not actively using the account.  While closing an account does not remove it from your credit report, open accounts in good standing are weighted more heavily and positivity towards your credit score.

In conclusion

Before you hire a credit repair company like Lexington Law, it makes sense to see what you can do to reduce the overall costs by fixing your credit yourself.  Fixing your credit can take 6 months to a year and the less that needs to be done means the cheaper the cost. 

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