Having bad credit can be devastating and constrain people from achieving their goals. Whether your credit is poor, fair, or good, unless it is excellent, there is room for improvement.
DIY credit repair is quite feasible, and certain techniques and practices can help most debtors increase their credit scores by a relatively high number of points. Depending on which issues may be weighing your credit score down, credit repair statistics reveal that setting a few things straight can help you increase your score by up to 100 points and do it reasonably quickly.
Below you can find some of the most helpful tips on repairing credit and keeping a good credit score. Feel free to check them out.
Examine Your Credit Reports
The first step of repairing credit on your own would be getting fresh credit reports from the three major credit bureaus (Equifax, Experian, and TransUnion). When creditors check information, they pull records from these three bureaus, so you need to keep a good record with all of them.
Moreover, the three major credit bureaus work independently, which means you will have to fix your credit with each one of them individually.
All items on your credit report affect your credit score, either negatively or positively. By removing the items with a negative impact, you can effectively repair your own credit and improve your credit score.
That being said, it is not uncommon for credit reports to contain errors, like reporting closed accounts as opened, which may negatively affect your credit score.
If your reports have such mistakes on them, you will need to dispute the reports with their respective bureaus. Remember, if you find an error on your report from Equifax, you need to dispute it with Equifax, as Experian and TransUnion will not be able to correct it. The same goes for the other two.
How much will correcting an error on a credit report fix your credit score depends entirely on the mistake in question. Some items have a larger impact than others, so if the error on your report showed a late payment, which was, in fact, timely, so can expect a boost in your credit score, once you have the late payment removed from your credit report.
Please note that it might take up to 30 days for credit bureaus to rectify their mistake and even longer to update the correct information in a new credit report. Finding errors in credit reports is one of the best ways to repair credit, but its effect is not immediate.
Furthermore, consumers can only request one free credit report per year, so you can’t fix your credit on your own, relying solely on this technique. There are also a few best practices that can help you repair, build, and maintain credit you need to consider.
Pay Your Bills on Time
Easier said than done, right? However, we can’t stress enough just how important it is not to be late with your payments. The payment history is the single most important item with the largest impact on your credit, accounting for 35% of your credit score.
So if late payments can have a massive negative impact on your credit, it is only natural that paying bills on time will help you repair your credit on your own and ensure it stays healthy.
If you are having trouble staying current with all the bills, there are ways you can get ahead. Setting reminders, setting up an automatic payment, or simply paying your bills as soon as you get them are a few common methods people use to keep up.
And if you currently have missed or late payments, avoid prolonging and try to pay them as soon as you can. The longer your account remains delinquent, the more it will damage your credit score. So even if paying off all your late payments won’t increase your credit score fast, it will at least stop the situation from deteriorating any further.
Additionally, when you settle your late payment, try to get the creditor to stop reporting the late payments to credit bureaus to help you fix your credit on your own. They may not necessarily agree, but it is worth trying as it will have a significant impact on your credit score if they do.
Pay Off Your Debt Strategically
Obviously, the best way to repair your credit is to pay off your debt, though this is a challenging task that requires a strategic approach. While late payments, delinquent accounts, and accounts in collection should always be a priority, there are a few other things to consider.
Right after payment history, your credit utilization ratio has the second-largest impact on your credit score, and maintaining it below 30% will help you build credit fast.
In case you didn’t know, credit utilization ratio is the percentage of credit you are currently using out of the maximum limit of credit you can potentially use. Generally, any percentage under 30% is considered a good credit utilization ratio, but the lower you can get it, the better. Just so you’re aware, consumers with the highest credit scores have ratios under 7%.
So while paying off outstanding debt will lower your credit utilization ratio and help you repair credit on your own, to achieve the best results, you need to find the optimal way to do it.
Most financial experts agree that allocating 20% of your income to paying off debts is ideal, though you need to decide which debt you want to settle first.
Some debtors like to start with the cards with the lowest balances and work their way up. This is known as the snowball method, and it is a great way to feel your progress when repairing credit on your own and get that extra motivation to be successful.
Others prefer the avalanche method, in which they start out with the balances with the highest interest rates. Of the two, the latter is the more efficient method, and it allows debtors to pay off their debts quicker. However, in order to fix your credit using the avalanche method, you need great financial discipline and a steady income, so not everyone can rely on it.
Furthermore, for some consumers with crushing debt, the best way to build credit would require getting a debt consolidation loan. Others with fair credit can try increasing their credit limits to reduce their credit utilization ratio and improve their credit score.
Ultimately, you know your financial situation and your spending habits better than anyone else, so you need to create your strategy yourself.
Improve Your Spending Habits
Your credit score, in a way, is a grading system for your spending habits. If you are in a situation where you are looking to fix your credit, chances are, you are doing something wrong.
Unsurprisingly, some of the best ways to repair credit have to do with making the right financial choices. While unpredictable things happen all the time, and sometimes they force us to get unplanned loans, some habits can help you build better credit and maintain it as such.
Avoid Taking Out Credit
Controversial as it sounds, the best financial advice in this credit repair guide is only to take out credit when you absolutely need it. Most credit repair DIY guides would advise you to take more credit to fix your credit score, but that will only add to your debt and make settling it even harder.
Additionally, every hard check on your credit will deduct five points from your credit score, and every new credit you take out will reduce your average credit age, lowering your score even further. Unless you have no way of settling your debt without a new loan, do your best not to take out more credit.
Diversify Your Credit
If you must get more credit to fix your credit on your own, try to open new accounts different from the ones you already have.
Having a good mixture of credit can help you increase your credit score, so if you only have a loan, consider getting a credit card. On the other hand, if you have too many credit cards, consider getting a credit-builder loan.
Once you start improving your credit, getting a secured credit card can help you increase your credit score fast, so you should consider it as an option.
Keep Your Accounts Open
Unless you have a very compelling reason not to, try to keep your old accounts open. Debtors with poor credit make the common mistake of closing all of their accounts but doing this can actually make it harder for you to fix your credit on your own.
You need to keep as many of your old accounts open as you can afford to because 15% of your credit score is accounted for by the length of your credit history. Only close the accounts for which you are being asked to pay a hefty annual fee to keep open.
Try Credit Piggybacking
If you have a friend or relative with an excellent credit score, you ask them to help you boost your credit score by credit piggybacking. They don’t need to let you use their credit card or give you their account number, but only add you as an authorized user to their credit card.
If they agree and add you, credit bureaus will have to consider their card when they create your credit reports. And since their card has a higher limit and a much better credit utilization ratio, it will improve your overall credit score just by being on your credit report.
The Bottom Line
In a nutshell, the best way to fix credit is by being a responsible debtor and making the right decisions.
This includes keeping an eye on your credit reports and correcting them when necessary, using the right strategy for settling your debts, and maintaining healthy spending habits.
Our DIY credit repair guide has shown you a few ways you can boost your credit score, but if you feel like it isn’t enough, you can always try hiring credit repair companies that will repair your credit for the right price.
