Wish you knew how to repair credit?
There are plenty of easy ways to repair credit problems — most of them won’t require much action on your part.
And when you consider the benefits of a higher credit score — better interest rates, easy access to new lines of credit, etc — any work you put toward repairing your credit will be well worth the effort.
In the following article, I’ll discuss 8 steps every consumer can take to begin rebuilding their credit score.
Eight Ways to Repair Credit
Here are eight ways to repair credit that you can start on today.
None of these are hard to do. They take time and patience, but are sensible ways to handle your finances. Dallas Cowboys owner Jerry Jones has a saying: “Don’t let your money get mad.”
That’s simple and good advice. Debt collectors are a nuisance; we all agree. Keep your cool, stand your ground, and negotiate a better deal. It might be galling. It will be less galling when your credit score improves and those calls stop.
1. Obtain a Copy of Your Credit Score and Credit History
Some people aren’t aware that a credit history and a credit score are two different entities. Your credit history is like a narrative of the past 7 or so years of your credit activity, and this history is what credit bureaus use to determine your credit score. Your first step towards repairing your credit should be to pull a copy of your credit history from AnnualCreditReport.com. This website is sponsored by the three major credit-reporting bureaus: Equifax, Experian and TransUnion. AnnualCreditReport.com is the only source I have found where consumers can can go to get a truly free copy of your credit history. By law, each credit-reporting bureau is required to give you one free copy of your credit history once a year. After you have pulled your free credit history report copies from each of the bureaus, you’ll have a solid idea of what your credit history looks like, all written down in black and white.
Why is it important to get all three credit histories?
Each of the three major credit bureaus will have different information, and every creditor you may look to for a credit extension in the future will use a different combination of these credit bureaus — sometimes, they may only look at one, or a combination of two of them. Knowing where you stand in terms of credit history is one of the best ways to repair credit. How can you know where you stand without seeing it on paper?
Once you’ve gathered your credit history reports, you’ll want to see your current credit score — this will help you set goals and understand why creditors are setting your interest rates and fees at the levels they are using. Unlike credit history reports, you’ll have to “buy” a copy of your credit score — I use Equifax.com. Equifax offers a FICO score, also known as a Beacon score, which is from a company known as Fair Isaac. This is the company that created the concept of credit scoring years and years ago, and is the most trusted source for credit score reports. Most creditors will pull a FICO score, so it would benefit you to see exactly what score they’re seeing. For a small fee, your credit score will give you a snapshot of what your credit information looks like to your potential creditors. The FICO score runs from 350 to 850. The higher the number, the better. It is impossible to know how to repair credit without knowing your current credit circumstances.
2. Stop Sharing Your Credit
Do not agree to “co sign” for anyone other than a spouse. Many times, friends and relatives will look to us to help them obtain a line of credit — but if your co signee defaults on a loan or doesn’t make proper payments, your score will be affected too.
3. Don’t Try to Open and Close Multiple Credit Accounts in the Same Year
Everytime a creditor makes an inquiry about your credit, this information is stored on your credit history. Too many inquiries will alert your creditors to the fact that you’re strapped for cash and desperate for credit. A great way to repair your credit is to limit the number of “inquiries” on your credit history to two or less per year.
4. Pay Everything on Time
Every bill you pay could be affecting your credit. Your ability to pay your bills on time each month is a major factor in your credit score, and has a huge impact on how your creditors see you as a consumer. By paying things like utility bills and even fines at the video store on time, you’ll be increasing your standing in the eyes of future creditors.
5. Pay Off Debts, Starting with the Highest Interest Rate
It doesn’t make sense to pay off low interest debts before you tackle the high interest ones. After you’ve paid your bills in full each month, spend your spare cash at paying off those high interest credit cards. After the highest interest rate line of credit is paid off, move on to the next highest, and on and on until you’re carrying little or no debt.
6. Work Toward a Credit Score “Goal”
One crucial step to repairing your credit is having a goal to work toward. Credit counselors will tell you that an “ideal” credit score is at least 720. I have talked with lots of people about their credit, and very few of them actually have a credit score this high — even the ones with great credit habits. Still, “shooting for the moon” isn’t a bad idea. If you set your credit score goal at 750, you won’t be disappointed to find that at the end of one year, your score has rocketed to 650. Had you set your goal lower, you may not have reached even that high.
7. Find Errors in Your Credit History
Most people are shocked to learn that there are errors on their credit history that are negatively affecting their credit score. According to research by Consumer Reports, up to 40% of all credit reports have errors in them that are dragging down credit scores. Having already obtained your credit history, analyze it for errors — if you don’t feel totally capable, one way to repair your credit is to work with a credit counselor or accountant who can examine your credit history and, for a nominal fee, suggest errors that may exist. If you find that your credit report shows something that simply is not true, you need to write to the creditor, or contact them more directly by phone, with all the details and your questions. If you’re going to write to the creditor, be sure to send your correspondence by certified mail. This will ensure that you can keep track of who you wrote to, when you wrote the letter, and who received the mail on the creditors end. Then, simply ask the credit bureau to send a corrected report to anyone who has requested a report on you in the last 6 months. This is a great way to repair credit, as it requires very little effort on your part, and why should a clerical error drag you down in terms of credit?
8. Talk to Your Creditors
It is no secret that creditors want the money you owe them. If their phone calls and letters havne’t communicated that to you, then the very fact that you owe someone money should. Carrying a debt is more damaging to your credit score than almost anything else, and an easy way to repair credit is to communicate with those that you owe money to. Creditors do not want you to default on their credit extension — a default means that you’ve simply quit paying. In fact, most creditors will work with you to get a reduced payment schedule, simply because they want to clear their books. If you can keep a creditor from reporting you to the credit bureau, a debt or near default won’t hurt your credit score. There is a catch — you must be willing and able to stick to the new plan you’ve negotiated. Creditors make a habit of stopping all future negotiations for customers who faily to comply with old negotiations.
These eight steps will get you started on the road to better credit. Still wondering how to repair credit? There are plenty of non profit organizations that can help you. Check out Consumer Credit Counseling Service for free information and tips related to repairing credit. The ball is in your court. Repairing your credit is your responsibility. The good news is that repairing a poor credit history doesn’t have to be a burden. The sooner you start repairing your credit, the sooner you’ll reap the benefits.
Reputation Capital by Rachel Botsman
If you need a little inspiration, take a look at this 20-minute lecture by Rachel Botsman on the subject of “reputation capital”. It’s Rachel’s contention that a persons reputation is now their most valuable asset, because of the power of the Internet. Her lecture’s title is “The Currency of the New Economy is Trust”.
She talks about collaborative consumption. We are entering the new trust wave. Like Uber in the transportation industry, new industries are emerging based on a person’s reputation. Reputation has a real-world value.
In the online world, the breadth and depth of data information about you is astounding. Rachel Botsman says you should always protect this reputation, because it might help you in your next career. If you can manage your good rep, you’ll be able to trade on that good reputation in order to make a better living.
This is part of a new paradigm. One idea of the younger generation which is seeping into many arenas is that traditional zero sum propositions shouldn’t be zero sum after all. The idea isn’t that your creditors win and you lose reputation. Instead, both of you should be motivated to help one another. Work with the credit card companies and they’ll protect your reputation.
Rachel Botsman suggests that we’ll eventually have a trust score online, defined by all the various reviews and responses people give you through your life. It’s almost like the concept behind keeping a credit history is going to be crossed with Amazon ratings to create something like your life rating.
What a wild concept.
This is not some distant future idea. Right now, Ms. Botsman discusses how people are starting to put their reputation score at the top of their resumes. That is going on right now, as you read this. Rife in her lecture is a discussion of your credit score. A reputation score is going to be more important than your FICO score, but your credit history is still going to fold into your overall reputation.
Think about it…managing your credit rating is major part of managing your reputation with all those people out there who don’t know you. A credit score is your calling card, anywhere you go to shop. When you’re dealing with businesses or service providers, they treat you differently when they know you’re a good credit risk. People are no longer trying to keep up with the Joneses. People are trying to get to know the Joneses. Repair your reputation by repairing your rebuilding your credit history.