Fixing a bad credit score, unfortunately, is something a lot of people have to deal with. The god news is that a bad credit history does not always mean that your future will have to be mired with this doom and gloom. Although it may seem irreversible, there are several steps you can take to repair a bad credit history. Here are 10 ways to to fix your credit:
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1. Keep an eye on your credit report
First thing you should do is to keep an eye on your credit report so you can check and correct any mistakes. You’d be surprised how many people end up with unbelievably lower credit scores because of simple mistakes on their report. So, it would also be a good idea to check your report once in a while. Find out how to get a real free credit report here.
2. Do not close your credit card accounts
The first instinct you have when clearing your debt is to cancel credit cards you do not have a debt on. However, for the sake of your credit ratio, it would be prudent to keep it but curb spending on it.
This is how it works: If on all of your credit cards the maximum credit available is $10,000 and you have a debt of $5000, it means that you have 50% more credit available to you. If the card you want to close has a $2,500 credit limit, what it means is that your total credit will be reduced from $10,000 to $7500, thus affecting your credit rating, which will appear as if 66% of your credit has been used.
3. Deal with the collection accounts properly
You may not know this, but paying a collection account can actually lower your credit score. It’s because the credit scoring software determines the impact of each account’s activity on your overall credit score by looking at your credit report for each account’s last date of activity.
Which means, when you pay your collection account, collection agencies normally report this activity to the major credit bureaus, marking your account status as “Paid Collection”.
Obviously, this makes your accounts activity date a recent event. And because the credit scoring software uses the last date of each account’s activity to determine the score, that recent payment on your collection account ends up hurting your credit score more than it not being paid. I know, it’s not fair, but that’s just how the system works.
Now, what if you want to be an honest persona and actually pay off your debt?… Well, in that case, you should try to establish the conditions for which you are entering an agreement with them. Make sure that your agreement, which should be in writing, stipulates that all reporting by them will be withdrawn from credit bureaus.
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Only then should you agree on a way to pay off the account. Ensure you get a letter from them once you have completed paying the debt. Removal of reference to a collection account or deleting it completely will increase your credit score, thus is worth every effort spent trying to set up.
4. Do not get rid of your older credit cards
The age of your credit card is a determinant of approximately 15% of your credit score. The assumption made is that the longer you have owned a credit card, the less likely it is for you to default on your payments. Although these older cards have terrible interest rates, keep them active by using them at least once every six months and pay their balances without fail.
5. Request a good faith adjustment from creditors
This would be important when dealing with creditors who report late payments on your account to the credit bureaus. Initially, they may not be willing to remove the late payments but if you persist, they probably will. Good faith adjustments will enable you to continue clearing your debt as soon as you are able to without damaging your credit report.
6. Prioritize charge off and lines for repayment
It would be important to pay the past due balance on any liens or charge offs that are less than 24 months old as these have a bad effect on your credit score. Those older than 24 hours do not have any effect on your credit rating, thus do not require your immediate attention.
7. Settle the delinquent accounts
When going through your credit report, ensure that any entries under the ‘Past Due’ column on your delinquent account are paid up with immediate effect. Any accounts kept past due are penalized by the credit score software, causing further damage to your credit score.
8. Report your credit limits to the credit bureaus
Most people ignore the importance of their creditors reporting the credit limits on the credit report. This is because they are unaware that the credit scoring software assumes that your current balance is maxed out, therefore calculates your rating as if you actually owe the maximum amount possible from the card, which most often isn’t the case. Try to carry your credit card balances as close to zero as you possibly can to avoid bad credit ratings.
9. Use secured credit cards
A secured credit card can assist you in cases where you need to re-establish your credit. A secured credit card is a great credit card for college students with no credit history and in fact anyone else who is building credit for the first time. This will require you to deposit a sufficient amount of money in an account to enable you to use this card. Making timely payments on these cards is important when using these cards.
10. Use Prepaid MasterCard to improve your credit rating
Few people may know this, but using a prepaid MasterCard could actually help improve your credit rating, since Cashplus does actually report your monthly fee payments to one of the 3 major credit bureaus, Experian.
Repairing, as well as establishing credit is not an over night thing. It takes time and commitment to fix your credit history. If you don’t want to spend money hiring professional credit repair companies, you will have to familiarize yourself more with your credit profile and more importantly, how the whole system of credit scoring works (you can learn more here). I hope reading this guide will give you a better understanding of how to fix your credit.