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These days, it doesn’t take much for your great credit score to deteriorate because of a late, or even a missed, payment. Before you know it, your pristine credit score has tanked.
Once your score drops, it is substantially more difficult to obtain loans in the future. When you do qualify, you will have to pay higher interest rates. It can even affect your insurance premiums.
Plus, many employers look into credit scores when making hiring decisions. A low credit score can affect many areas of life.
What are the ways that you can repair your credit report? Here are eight ways to do so.
1. Review and Fix Any Errors in your Credit Report.
You can receive a free copy of each of your three credit reports once a year at annualcreditreport.com. Once you receive your report, you can review the report to find any potential errors that could be hurting your credit score. The last thing that you need is to be penalized for mistakes that you didn’t make. If you have errors on your credit report check out Lexington Law Firm. They help consumers ensure that their credit report is fair, accurate, and substantiated.
2. Get a Secured Credit Card.
Obtain a secured credit card through your bank. A secured credit card uses your bank account as collateral. Theoretically, you can charge up to the amount in your bank account. This will help rebuild your credit as you pay off your bill each month. It demonstrates that you are, once again, handling credit responsibility.
When obtaining a secured credit card, avoid cards that charge applications fees. Look for cards with low or even no annual fees. When requesting the credit card, ask to have this credit card reported on your credit report.
3. Upgrade to an Unsecure Credit Card.
After 6-12 months of making timely payments, attempt to upgrade to an unsecured credit card. First, try to apply through your bank for a regular bank credit card. If that does not work, department store cards are usually easier to qualify for. If you are denied an unsecure credit card, continue to pay off your balances in full each month and try again later.
4. Pay Down Your Credit Card Debt.
Outside of your payment history, the most important factor is your available credit. Your credit score is partially based off of the total amount of credit that you have. Therefore, you should pay down as much of your outstanding debt as possible. Also, don’t try to be too smart and open up a lot of accounts in a short period of time in order to increase your available credit. This can actually hurt your score. Having too many inquiries with new accounts are red flags for the credit bureaus and can signal an increased credit risk.
5. Avoid Closing Credit Cards.
Another factor that can negatively impact your credit score is the length of your credit history. Therefore, it’s imperative that you keep your long-time credit cards open to show the credit bureaus that you have a credit card history of paying on time. If a long-time credit card has an annual fee, work with the provider to see if you can switch the card to one without a fee.
6. Become an Authorized User (Risky).
Rebuilding your credit can be a long process. However, one the ways to jumpstart the process is leveraging the excellent credit of a family member or friend to become an authorized user on their credit card.
This person can add you to their account, and their excellent payment record can benefit you.
A word of caution: if you go this route, please decline to receive the credit card, which theoretically, you’re entitled to. You don’t want to cause any sort of issues for the individual who is doing you a favor by allowing you to become an authorized user.
Likewise, if you go this route, make sure that they truly have excellent credit. If their credit score drops, this will affect you as well.
7. Skip the Prepaid Cards.
Prepaid cards do not typically show up on your credit report. On top of that, these prepaid cards often charge high fees and interest rates. You might end up paying more than you expected on an item as a result. Avoid them!
8. Apply New Habits to Your Life.
When it comes to rebuilding your credit score, it will take time. On average, it takes at least a year of good payment history to improve your credit score. Unfortunately, it takes a minimum of 7 years to remove a bankruptcy and around 10 years in many cases.
Moving forward, utilize only two credit cards. One should be your main credit card for everyday purchases. The other should serve as your backup credit card. Each month, try to pay off your credit card balance in full and never miss a payment again.
Like Warren Buffett says, “It takes 20 years to build a reputation and five minutes to ruin it.”
While I’m not a fan of debt, the reality is that credit scores impact more than just borrowing ability. It impacts insurance rates, getting set with phone plans, utilities, etc., sometimes even certain job applications. It can be helpful to have good credit – which unfortunately requires borrowing.
Brad – MaximizeYourMoney.com recently posted…Why You Need To Understand How Mortgages Work
It’s interesting how when you don’t need credit the banks are happy to give it to you but when you need it the most banks don’t want to give it 🙁
Agree. It’s always good to keep the score clean and as high as possible. No arguments with any of this good advice. Tom
Tom @ Dividends Diversify recently posted…My Only Regret In Life: Speed To A Million
Thanks for stopping and sharing by Tom!!!
This is a good reminder. The last time I looked at my credit report was years ago.
That was when I decided to stop opening store credit cards. I even closed most of them. We always pay off our CC balance at the end of the month.
Ms. Frugal Asian Finance recently posted…How Your Job Title Affects The Way People Treat You
Im right there with you Ms. FAF!!! I have two credit cards, one for international use and one for everyday purposes 🙂
A couple of weeks ago I was helping a family repair her credit. All the credit cards were maxed out. We paid them off and cancelled all but one. The plan is to only have one credit card left for her to build her credit. Time will tell if this method works or not.
Leo T. Ly @ isaved5k.com recently posted…My $263K DIY Investment Lessons
Thanks for sharing Leo!!! That’s amazing that you were able to help out family and she was willing to listen. I know that not everyone is always receptive 🙂
Both my fiancé and I have excellent credit scores, but when we looked at our reports, we noticed our scores got hit a bit due to our stolen wallets. He had his stolen back in 2014 and as for me, when I was 12 years old. For me, I didn’t understand why that was on the report lol…… btw, I still remember that day when it was Chinese New Year, and I received about $500 in cash. As a 12 year old, I was so heart broken 🙁
I honestly had no idea that having a stolen wallet would impact our credit score to a degree….
fin$avvy panda @ finsavvypanda.com recently posted…5 Reasons Why Starting a Blog Will Change Your Life Financially
Wow I had no idea that stolen wallets could be held against you. That’s crazy, especially when you were 12…
Love it – consistent payments is what is key to me 🙂
Erik @ The Mastermind Within recently posted…Why I Can’t Hold Back Any Longer About Cryptocurrencies
Hahaha…you are right 🙂
All great tips. And the authorized user can be risky, but that is what we did for my wife. The big thing is controlling the spending and making sure that both are on board with what can be spent/what can’t.
Jason recently posted…I Made $100 From My Blog and It Only Took 42 Months
Thanks for stopping by Jason!!! I definitely agree that communication is the key to keeping a happy marriage…especially around spending 🙂