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.”