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How to Repair a Bad Credit Score: Complete Guide

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Are you thinking about buying a new car or going house-hunting? The chances are you don’t intend on paying cash for these items. We live in a credit consumer society, and we rely on credit from financial institutions to fund our large ticket purchases.

Imagine if you had to purchase your new house with cash. If that were the case for every American, then most of us would be stuck renting our home for the rest of our days. Credit makes it possible to acquire anything we please, enabling us to take monthly bite-sized chunks out of our promise to repay.

Credit built the modern world. Everyone from private citizens to banks and governments relies on a steady flow of credit to manage finances.

What if You Have Bad Credit?

Everyone experiences a time where they couldn’t afford to pay off their debts. Life is full of financial ups and downs, and we rarely see financial misfortune before it arrives. If you get retrenched from your job, you’ll probably rely on credit to fund your lifestyle, while you find a new position with a company.

People use a revolving line of credit to fund their monthly purchases, and then pay off their credit card balance at the end of the month, before starting the credit cycle again.

What if you can’t afford to pay your bills? Credit cards, auto loans, student loans, mortgages – Most Americans have these types of debt. In most cases, we don’t give a second thought to mounting debt loads – until we can no longer afford to pay our monthly installments.

If you fail to meet your payment obligations, then the chances are that the creditor will give you a few months grace to catch up on your outstanding debts.

However, there comes a time when they will try to recover their money from you. If they believe you can’t pay your debts, then they’ll file with a credit bureau like Equifax or TransUnion, and lodge you as a non-payer.

The credit bureau places your name of a list of non-payers and adjusts your credit score to suit your financial position.

Failing to pay your debts is not the only reason why you may end up with bad credit. Americans that try to obtain too many credit facilities, or experience multiple enquires on their credit score from lenders, may also end up with a poor credit score.

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What is a Credit Score?

The United States has four major credit bureaus that act as watchdogs over the credit market. TransUnion, Equifax, and Experian, and Innovis. These four bureaus rely on credit reporting agencies to collect information from consumers regarding their credit health. These reporting agencies look at your financial and legal health.

How you pay your bills, lawsuits against your name, criminal records, and bankruptcy filings – all play a significant role in determining your financial health.

The credit bureaus collate this information from credit reporting agencies to create your credit profile and issue you with a credit score. Your credit score is a vital component of your financial health. If you have a credit score below 500, you’ll find it challenging to get any credit facility.

A low credit score means that you might not be able to rent an apartment. You may struggle to lease a car, apply for a personal loan, or obtain a credit card facility. Insurers may deny you coverage, and you can forget about applying for a mortgage with a lender.

A low credit score significantly reduces your opportunity in life. Some employers don’t like to hire people with low credit scores, as they see these individuals as desperate. As a result of their financial position, they may do something that harms to the company. Selling information to competitors or stealing assets from the business are real concerns for business owners.

How to Check Your Credit Score for Free

Read: 5 Ways to Easily Check Your Credit Score for Free

Credit Scores: The Numbers Explained

If you have never checked your credit score, then visit one of the online credit bureaus. Most of these institutions allow you to obtain a free copy of your credit report once a year.

Your credit report contains all of your outstanding debts, as well as any judgments or non-payment issues creditors lodge against you.

All of these factors determine your credit score.

The bureau issues you with a credit score between 0 to 850, which lenders look at to determine your creditworthiness.

  • People with a credit score of 500 or under, are in seriously poor financial shape. Individuals with this score can forget about applying for credit, as most lenders refuse to open accounts with individuals who have this low score.
  • If your credit score is between 580 and 640, then the lenders consider you as an average to moderate risk. You may find that most lenders are willing to open credit facilities for you, but they often come with unfavorable terms, such as high-interest rates.
  • Credit scores between 680 and 750 are considered good, and you won’t struggle to open any credit facility.
  • If you have a credit score of 750 to 850, then lenders will do anything they can to obtain your business. They see you as the lowest risk, and offer favorable terms with the lowest interest rates, on any credit facility you desire.

Top Tips to Repair Your Credit Score

If you have bad credit, then it’s possible to improve your credit score and your financial health, returning you to a credit-worthy state with the bureaus. Here is a step-by-step process you can follow to rehabilitate your credit.

  1. Get a Copy of Your Credit Report

Knowing your current credit score is the first step in getting back on the path to financial health.

All three of the credit bureaus, TransUnion, Experian, and Equifax, operate as “for-profit” companies that make their living out of monitoring and assessing the credit market, keeping consumers in check. When applying for a credit facility, lenders check on your credit report with one or more of these institutions. The lender pays a fee to the credit bureau for accessing your information.

However, all three of these institutions allow you to download a free copy of your credit report once a year. There are some private companies, such as Credit Karma, that also will enable you to view a free credit report as well. However, we don’t recommend using these services, as many of them sell your information to your creditors, allowing them to tighten the noose around your financial situation.

After downloading your credit report from one of the credit bureau’s, you’ll be able to see the exact state of your credit health. The report lists all of your outstanding non-payment accounts with lenders. You’ll also be able to view any judgments against you, including defaults on credit facilities. The report issues you with your credit score, between 0 and 850.

It’s a prudent strategy to obtain your credit report from all three bureaus, as they may not all have the same information.

  1. Lodge a Dispute Against Errors or Negative Marks

The internet changed the way credit agencies report to the bureaus. Today, a few clicks of a mouse and a quick entry on a keyboard is all it takes to ruin your credit score. Fortunately, this is a double-edged sword, and it’s simple for you to use the same online process, to dispute any errors or negative marks you find on your report.

In the past, you had to write a letter to the credit bureau to dispute any errors, but email simplifies this process, allowing you to obtain an electronic copy of your request.

When disputing any errors, start with judgments and collection accounts. These derogatory marks carry the most weight with the credit bureaus, and they create the most significant amount of damage on your report. It’s relatively common for most people to have at least one collection notice on their credit report, with most of them being from healthcare providers.

In many cases of medical collection notices, it’s typically not your fault, as there may be a dispute between the provider and your healthcare company. As a result, the provider issues a collection against your name, not the insurance company. In this case, you have two options.

The first method is to dispute the claim with the bureau. The bureau notifies the collection agency, and they have 30-days to confirm the collection. Should the collection agency fail to reply to the bureau with valid paperwork to prove the mark, then the bureau will wipe it from your report, and your credit score will increase.

If this dispute fails, then you have the option of paying the collection and restoring your credit score.

  1. File to Dispute Any Invalid or Incorrect Late Payments

Unfortunately, many collection agents or creditors rely on employees to lodge complaints or non-payments with the credit bureau. Humans are flawed creatures, and its more than possible that someone on the admin team mistakenly filed against you, instead of the correct person. However, while this mistake may seem innocent on behalf of the creditor, it affects your credit score.

Creditors may not update your payment into their system, or they may enter an incorrect amount. Therefore, you have the right to dispute these claims. The creditor must comply with your request to the bureau to investigate your request. In most cases, the creditor has 30-days to answer the application, or the bureau removes the mark from your credit report.

It’s also possible to dispute late payments using the same method. The payment history on your credit report is another area where you can challenge these entries. While it may take time and effort to remove these marks, the result is an improvement in your credit score, so don’t let them slide.

  1. Use the Same Process to Dispute other Marks

We discussed the importance of challenging inaccuracies and mistakes on your credit report. Fortunately, you can use this method to dispute valid claims as well. If you had an account that went to collection, and the collection agency gives up on chasing you, then the mark remains on your credit report.

Using the previous method described, you can challenge the mark. In many cases, this strategy works, and the bureau will remove it from your report. The credit bureau will send the request to validate the claim to the creditor, most of which they ignore. If the creditor does not protest the demand in 30-days, the bureau removes the mark from your report. While this strategy is not ethical, it’s worth a shot.

  1. Increase Your Credit Limit

There are more than 1.27-billion active credit cards in use across the United States. How you use your credit card plays a significant role in your credit score. The ratio of unused to used credit on your facility is a leading factor in determining your creditworthiness and credit score.

If your credit card is close to maxed out, then call the bank and ask them to extend your credit facility on your card. While this strategy may not work for those individuals with poor payment history, or a credit score under 560, it’s a viable option if you have a good payment history with your credit provider.

Applying for another credit card with another lender is another workaround to increase your credit limit. After you receive the card, your credit score improves to match the new total credit threshold under your name. Make sure that you don’t spend anything on the new card, or you are going backward.

If you can’t get the lender to increase your credit card facility, then consider paying down your credit card debt as a priority.

  1. Pay High-Interest Accounts First

Try using the “debt-snowball system.” Make a list of all of your creditors. Classify the list based on the size of the debt and the age of the account.

Credit bureau’s measure the average length of time it takes you to pay off debt. If you have new accounts, then pay those down first before focusing on your older debt. This strategy helps to drop the ratio and improve your credit score.

Pay debts with the highest APR and monthly payments first. Doing this helps you avoid paying unnecessarily high interest, giving you more funds available to pay off any other sources of debt.

Wrapping Up

Paying accounts late negatively affects your credit score as well. If you do have to make a late payment, prioritize whom you pay first. Credit cards, mortgage facilities, and auto loans are the top-tier for creditors you should concern with paying immediately. These lenders are the most likely to report your current non-payment or slow-payer status.

Cellular providers and utilities are more likely to give you a grace period before they report you to a bureau or credit agency. On your credit report, there is a section listed as “Accounts.” Check the accounts listed on this page, and prioritize these payments first.

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Oliver Dale is Editor-in-Chief of MoneyCheck and founder of Kooc Media Ltd, A UK-Based Online Publishing company. A Technology Entrepreneur with over 15 years of professional experience in Investing and UK Business.His writing has been quoted by Nasdaq, Dow Jones, Investopedia, The New Yorker, Forbes, Techcrunch & More.He built Money Check to bring the highest level of education about personal finance to the general public with clear and unbiased reporting.oliver@moneycheck.com


Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank or credit card issuer and have not been reviewed, approved or otherwise endorsed by any of these entities.


Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.


1 Comment

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    Eli Richardson Reply

    We founded it helpful that the bureau can dispute late payments on your credit score if the creditor does not respond in 30 days. My dad had a few mistakes done in his credit report, and he wants to fix his credit but doesn’t know how. I will suggest to him about finding an advocate to provide him options about how to fix his credit.

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