For some consumers with low credit scores, seeing a credit report filled with negative marks can be sobering. What’s worse is when you’re seeking out new credit for larger purchases and are declined due to a poor credit history. Credit repair can be daunting, but with the steps provided, you can be on your way to having great credit. Repairing your credit isn’t a process that happens overnight, but with the tools provided you can take that first step today.
Understanding Credit Report Terminology
The first step in repairing your credit is to understand the terminology associated with your credit report. A credit report is a history of your credit accounts and loans as reported to the credit reporting agencies by your lenders.
The three major credit reporting agencies are Equifax, Experian and Transunion. These agencies may format your credit history differently, but they all contain the same basic information.
Included in your credit report is the following information: Your personal information (name, address and occupation), credit accounts, inquiries, collections and public records. In reviewing your credit report, you will see a list of lenders who have extended you credit in the past along with your ability to repay the debts on time.
Credit accounts comprise a list of creditors along with the type of loan offered and your history of repayment. Inquiries occur when creditors (or future creditors) pull your credit report to determine your credit worthiness. Usually, inquiries can lower your overall credit score, but typically fall off of your report within two years. Collection accounts are for the loans that are past due – usually creditors contact you to negotiate repayment. Public records consist of any liens on your property, bankruptcies, foreclosures, judgments or repossessions on your credit file.
Obtaining a Copy of Your Credit Report
In order to get a clear view of your credit history, you can go to http://freeannualcreditreport.com in order to retrieve a copy of your file. You may utilize this free service once a year and can choose from one of the three agencies to view and print your credit report.
Conversely, if you have requested new credit and were denied, you will receive a letter in the mail providing directions on how to obtain your credit report.
Reviewing Your Credit Report for Errors
The next step in credit repair is to look over your history and review it for any possible errors. Errors can place a negative light on your credit history, but are easily corrected. If an error is found, you may file a dispute with the credit reporting agency using the guidelines provided on their website.
When you dispute an item on your credit report, lenders are typically given a time frame in which to correct the information on your file. If they do not offer corrections within the specified time, you may request to have the item removed by the agency.
Budgeting Your Finances
You must next learn how to adequately budget your finances in order to repay your current debts. Create a spreadsheet in Excel and list out all of your creditors along with the payment amount and the corresponding due dates. In addition, you will need to have a list of all of the income coming into your house as well as expenses (utilities, etc).
After you have a good picture of your debt to income ratio, you can prioritize your creditors and pay them accordingly. Reducing unnecessary purchases goes a long way in helping you save money and repay your debts on time. If you have a good budget in place, you are already on your way to maintaining good habits with regard to your financial situation.
Negotiating With Debt Recovery Specialists
If you have a low credit score, then chances are good that you’ve been contacted by a debt recovery specialist working for the creditor. These individuals contact you through any means possible in order to secure the repayment of a debt that is past due or charged off.
In dealing with collectors, it is best to have a plan to negotiate your debts down based on your availability of funds. If you have a certain percentage of the debt, usually 75 percent or higher, you may be able to take a settlement on the account. If a settlement is offered, ask the specialist for the agreement in writing. Once received, make the agreed upon payment. Following that, the creditor will update your credit report to show that a settlement has been reached.
If you are unable to work out a lump sum payment for a settlement, work out a payment plan with the specialist. When the credit line is paid, your credit report will update to reflect that information.
Using Credit Cards Wisely
If you have all of the previous steps taken care of, then you are well on your way to having a good credit history. In obtaining a revolving account such as a credit card, you can pay the balance on a monthly basis in order to build your credit score.
The last step is to use credit cards for low cost purchases that you were already planning to make. Even though you have cash tucked away, use your credit card for grocery store items and small balance purchases. Instead of paying these balances off in one payment (as you would with cash), pay the balance monthly until it’s down to zero. When the balance is zero, you can either buy another small balance item or request an increase in the credit amount. Either way, you are building your credit score as the lenders report your positive payment history to the credit reporting agencies.
All in all, credit repair doesn’t have to be a task that causes you grief. Seek out the information, correct any errors and budget your earnings wisely. If necessary, negotiate repayment plans or settlements with creditors and your history will reflect your payments or payoffs. Lastly, don’t be afraid to use a credit card in order to rebuild your credit. The more you show future creditors that you are likely to repay loans, the more credit you will receive.