Repair Your Credit in 8 Steps: A How To Guide

Are you looking into repairing your credit? We have curated 8 steps you can take to repair your score, from reducing your credit utilization to monitoring your credit report, all to boost your credit score for free. When you are actively improving your poor credit score, companies promising credit repair might seem like saviors. Professional help sounds appealing at first, but when it comes to repairing your credit, taking matters into your own hands can keep thousands of dollars in your pocket.

Here are 8 steps you can take on your own to steer your credit in the right direction.

Repair Your Credit in 8 Steps A How To Guide

1. Check Your Credit Report

Credit report inaccuracies are rare but can show up from time to time, and depending on the information involved, can negatively affect your credit score. Reviewing your credit report from the three major credit bureaus can help you spot problems, at least once a year. Review your credit report for the following:

  • Accounts: Open credit accounts and accounts closed for up to 10 years appear on your credit report. Keep an eye out for accounts you don't recognize, payments inaccurately reported as late, and other potential errors.
  • Personal Information: This will include your name, variations, birth date, and current and past addresses and employees.
  • Credit Inquiries: Inquiries occur when a company or individual accesses your credit report.

2. Dispute Any Errors

Credit bureaus sometimes can make errors, and if you happen to find mistakes on your credit report, like accounts that you don't own or an incorrect payment history, make sure to report them to the credit bureau immediately. Negative information can impact your credit score, which is why it is important to monitor this activity. Common mistakes on credit reports include the following:

  • Incorrect identity information such as a name, phone number, or address.
  • Accounts that belong to other people with the same name or a similar name to you.
  • Fraudulent accounts result in identity theft.
  • Closed accounts, like credit cards or car loans, are reported as open.
  • Incorrect late or delinquent status on accounts.
  • Repeat listings of the same debt.
  • Incorrect current balance or incorrect credit limit.

3. Pay Bills on Time

Your payment history will make up about 35% of your credit score. If you wish to fix your credit score, you should focus on ironing out your monthly payments. It might feel like a challenge to pay all of your bills on time, but there is a simple hack to getting this right, which is autopay. For any bills that don't permit autopay, pay them as soon as you get them. If you cannot afford your current balance or minimum monthly payment, you can contact the office and devise a payment plan. Avoid overdrawing your account by setting up a budget or scheduling your autopay to go out at the same time you are paid.

4. Focus on Keeping Your Credit Utilization Ratio Below 30%

The credit utilization ratio is measured by comparing your credit card balances to your overall credit card limit. Lenders may use this ratio to evaluate how well you will manage your finances. A ratio of less than 30% and greater than 0% is considered good.

Repair Your Credit in 8 Steps A How To Guide

5. Pay Down Debts

If you have outstanding debts, paying them off can help to improve your payment history and reduce your credit utilization ratio. When you are planning to repay your credit card debt, consider the debt avalanche or snowball method. To get a better understanding, the debt avalanche method focuses on repaying your high-interest cards first while the snowball method focuses on repaying your smallest balance first. Evaluate both to determine which method is best for your situation.

6. Keep Old Credit Cards Open

It might be tempting to close old credit card accounts when you have paid them off. Don't be too quick to do so. In keeping them open, you can establish a long credit history, which will make up 15% of your credit score. However, your issuer might close your card after a certain period of inactivity. If the card charges an annual fee, it may be worth closing.

7. Don't Take Out Any Credit Unless it is Needed

Each time credit is applied, your creditor will run a hard credit check, which can drop your score by up to five points. It can also lower your average account age, which can decrease your credit score. So, as a rule of thumb, try to avoid applying for credit unless you truly need it.

8. Build Toward a Target Credit Score

Once you know your score and the steps you are willing to take to repair it, you can decide on a plan to see how aggressively you should try to improve your score. Though a higher score is always better, most consumers aim to get their credit score to the "good" threshold or above. While ranges will vary between the FICO and VantageScore 3.0 score models, 850 is the highest possible credit score for both.

Tips to Fix Your Credit Score

  1. Check your credit report and look for errors.
  2. Focus your attention on small, regular payments and control your spending.
  3. Reduce your high-balance accounts and use credit cards sparingly.
  4. Consider a debt consolidation loan.
  5. Work with a credit counseling agency.
  6. Build a target credit score.

The Bottom Line

Whether you are looking to finance a home or take out another type of loan, it is a good idea to work toward improving your credit. Fixing your credit score doesn't happen overnight, but there are plenty of small steps that can be taken every day to fix and maintain a solid credit score. Contact Your San Jose Realtor for more information on loans that fit your lifestyle and budget.

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