The First Steps To Take When Repairing Credit Scores

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GoFreeCredit ScreenshotCredit scores are so important these days. That’s something that we all know. With good credit scores, it’s much easier to be approved for loans, you get much better interest rates, and you’ll be able to earn rewards on credit cards. That’s aside from the fact that good credit scores will make renting a car and finding a job easier. However, if you’ve got bad credit scores, it may seem like a daunting process to start improving them. Although I won’t lie and tell you that it’s an easy process that doesn’t take much time, I am here to tell you that it may not be as hard as you think. The hardest part of repairing credit scores is finding a good place to start. That being said, here are a few of the first steps that you should take.

Step #1: Get A Copy Of Your Credit Report

Before you can start to fix your credit, you’re going to need to know what’s wrong with it. This goes for anything in life. If you call a mechanic and ask for a quote over the phone, they’re not going to give you one. Why? Well, because if they don’t know what’s wrong with it, they have no idea what it will take to fix it. You can do everything in your power to improve your credit score, but if you don’t know what’s wrong with your credit report, you’re going to have one hell of a time trying.

You’ve got a couple of options for getting a copy of your credit report. First off, we are all entitled to 1 copy of our credit reports every year from each of the 3 major reporting agencies for free. You can order your free copy by going to AnnualCreditReport.com. However, if you’re working on improving your credit, one report a year just isn’t going to cut it. In this case, you’ll want to look into a credit report monitoring service. One of my favorites is GoFreeCredit.com. Using services like Go Free Credit, you’ll be able to look into your report when you need to and track the growth of your score.

Step #2: Go Through Your Credit Report With A Fine Toothed Comb

The next thing you’re going to want to do is simply read through your credit report and try and find things that you can fix. For instance, you should be looking for loans that are past due, incorrect contact information, ect… In this step, it’s important that you read your credit report entirely. As you read through, look for things that need to be fixed and take notes. You should have 3 categories for your notes.

  1. Incorrect Personal Information – Everything on your credit report matters, and I mean EVERYTHING! This applies to your personal information. If information like your address, phone number, ect… are incorrect on your credit report, it could hinder you from being approved for the loans you need. The bottom line is, lenders are going to need to verify that you are who you say you are. If they can’t do this, you’ll have a hard time getting approved.
  2. Incorrect Reporting – While helping consumers improve their credit scores, I often take a detailed look at the credit reports sent to me by my clients. After doing so, I ask them about each loan in particular to make sure that they indeed owe the money. I can’t tell you how many times I’ve heard “No, I didn’t apply for a loan like that, I have no idea where it came from.” Unfortunately, these incorrect reports of bad loans can be detrimental to your credit score. Therefore, you’ll need to make a list of any loans that you don’t remember taking part in.
  3. Bad Debts – Finally, if you’ve got a bad credit score, it’s because you’ve got bad debts. These are debts that you may have missed payments on, or not paid at all. When you have bad debts on your credit report, it can be almost impossible to make any timely improvements. So, you definitely want to pinpoint these in order to work with them later.

When making the lists associated with debts(#2 and #3 above), you should include all data for those loans. That data includes the lender name, account number, and lender contact information. This stuff will come in handy later!

Step #3: Dispute Inaccuracies On Your Credit Report

Once you’re done making your lists, it’s time to take action. Disputing inaccurate reporting is the best place to start. To do so, send a letter to each of the 3 major credit reporting agencies letting them know that you’ve gone through your credit report and don’t agree with some of the things in it. In your letter, describe any falsely reported loans or inaccuracies of personal information in detail. When it comes to personal information, make sure to provide them with the correct information. When it comes to inaccurate reports of loans, make sure that you mention that you have no recollection of ever opening the loan.

Step #4: Start Working With Bad Debts

If you don’t start making arrangements with companies that hold your bad debts, you’re going to find it to be incredibly difficult to improve your credit score. Therefore, this is your next step. The good news is, because you made a list of all of your bad debts and the lender’s contact information for each one, it won’t be hard to get this going pretty quickly. There are a couple of steps you’ll need to take in order to get rid of your bad debts.

  1. Make Payment Arrangements – If you’ve got bad debts, chances are, you’re not going to be able to pay them all off at once. That’s OK. As long as your making an effort, you’ll see the fruits of your labor. That being said, start calling the lenders that you owe money to. When you call them, inform them that you are aware that there is money owed and you have all intentions of paying it. Then, ask if there is any way you can start making regular payments, and how much those payments would need to be. Also make it a point to ask them to let the credit reporting agencies know that payments are being made as agreed under a new agreement.
  2. Follow Through – Calling and making payment arrangements is a pointless process without follow through. If you set up an agreement, but never send in payments, you’re not doing anything good for your credit report. Whatever the agreement was that was made, make sure to make the payments. It’s a best practice to make payments that amount to more than what you agreed to on a monthly basis.

Step #5: Start Building New, Positive Lines Of Credit

Once you get everything in order, it’s time to start working to improve your credit by showing positive signs. In other words, it’s time to start taking out new loans. Now, I’m not telling you to take out more than you can afford to pay back, and I know that it can be difficult to be approved for anything with bad credit. There is one thing that you can do to address both. That’s to apply for a secured credit card.

What Are Secured Credit Cards

Secured credit cards are designed as a way for those with no credit history or poor credit to enjoy having and using a credit card while improving their credit scores. Because these cards are designed for consumers with no credit history or poor credit scores, they inherently come with low credit lines. Let’s face it, that’s a good thing as it will stop you from spending more than you can afford.

When you first apply for a secured credit card, you’ll be asked to make a security deposit. This is because when loaning money to consumers with poor credit scores, lenders take on a lot of risk. The security deposit that you pay in order to use your credit card will help to alleviate the lender of the risk involved in loaning money to you. It’s also important to note that these security deposits are refundable. As long as you use your new credit card in a positive way, after a predetermined period of time, your deposit will be refunded!

Tips For Using A Secured Credit Card To Improve Your Credit Score

Maintain Control Of Your Balance – If your balance gets out of control, your secured credit card will do nothing for you but cause more of a headache. When it comes to credit cards, the simple fact is, those who spend more than 50% of their credit limit are less likely to pay their debts back than those who spend less than 50%. Therefore, it’s best to keep your balance below 50% of your spending limit.

Make Your Payments Early – It’s OK to make payments on time, but making payments early is always better. In doing so, you will show that not only are you able to afford your payments, but that you are actively working to keep  your account in good standings.

Never Make Minimum Payments – When using credit cards, or any other loan that comes with a “minimum payment” it’s important to remember that minimums are just that. They are the lowest amount of money that your lender is willing to accept as a payment on your loan. However, you won’t be facing any penalties if you make more than your minimum payments. As a matter of fact, doing so will help you in 2 ways. For one, by making more than your minimum payment, you’ll pay your balance off faster allowing you to avoid tons of interest. Also, you’ll show credit reporting agencies that you are aggressively making payments to reduce the amount of money you owe.

Final Thoughts

I know it can seem almost impossible to improve bad credit scores. I’ve been in your shoes. I remember times thinking I should be part of debt anonymous saying “Hi, my name is Joshua Rodriguez, and I’ve got a debt problem”. But I dug my way out. And you know what? I dug my way out using the same information that I’m giving you! It’s not impossible, it just takes a bit of time and effort on your part.

Reader Question

Have you made it out of the tight grip of bad credit scores? If so, did you follow this same process or is there something else that you’d be willing to share to help those with bad scores?

4 COMMENTS

  1. My mom is using a secured card to build up her credit score post bankruptcy. I actually set her reminders to go off two weeks before the balance is actually do after I heard that paying off the balance early is better. Thanks for these great tips!

    • My pleasure Michelle, thanks for swinging by! I hope everything goes well with your mom. If there’s anything I can help with, I’d be delighted!

  2. I’m FINALLY coming to terms with the bad credit mistakes from my past. I’m over 50 years of age and I’m hoping it’s not too late. I really liked this article. . . rant and all.

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