A quick guide on how to fix your credit
If you're like many consumers across the country, the current economy has probably motivated you to reexamine your finances. You may be considering ways to save money, like cutting spending on entertainment or vacations, or budgeting on essentials like groceries and gas. Or perhaps you're reconsidering the timing of purchasing big-ticket items like a vehicle or home. You may also be part of a growing number of consumers who are looking to improve their financial situation by dealing with their credit score.
Facing the realities of having poor credit can be overwhelming and stressful for anyone. But even if your credit score has been negatively affected by activities like missed mortgage or car payments, or even a bankruptcy or lawsuit, there are still steps you can take improve your credit and regain your financial footing. Here are some tips on repairing your bad credit and improving your credit reports.
Improve your credit utilization ratio
One way to improve your credit score and your credit report is to maintain a low credit utilization ratio.
Credit utilization ratio, also known as a balance-to-limit ratio, is an important percentage used in the calculation of credit scores. The figure represents the percentage of credit limit that is used compared to the total amount available. If you have a low ratio, then you have more available credit than you have debt, which will be reflected positively in your credit score. In contrast, the opposite is also true. Maxing out your credit cards or keeping your account balances close to their available limits will reflect poorly on your credit.
Your credit utilization ratio is also considered more significant than the total amount of available credit on your accounts. Experts recommend consumers keep their account balances at less than 25% of their available credit.
Lowering your credit utilization ratio can make you appear lower risk to lenders, and is also be a vital tool that can help repair your credit.
Dispute inaccurate information in your credit reports
Another tip that can help improve your credit is to notify the credit bureaus of any errors in your credit report. Whether the incorrect information is due to an accounting or clerical mistake, or a misunderstanding with a business or lender, errors on your credit report can have a negative impact on your credit.
Under the federal Fair Credit Reporting Act (FCRA), credit reporting agencies like Equifax, Experian, and TransUnion are responsible for correcting information on your credit report that is inaccurate or outdated.
An important first step to correcting such errors is to order your credit report, which, by law, you are entitled to receive for free once every 12 months, upon your request. The easiest way to get a copy of your report is to submit an application online at Annual Credit Report website or over the phone, by calling 1-877-322-8228. Once you receive your report, you can review the document for any inaccurate and potentially negative information.
The next step in disputing errors in your credit report is to notify the credit reporting agencies in writing of the specific information you have identified as outdated, incomplete, or simply incorrect. Before mailing your letter, make sure to also include copies of any supporting documentation, along with detailed explanations on the reasons for your dispute. The Federal Trade Commission recommends sending a copy of your credit report that shows items you are disputing either circled or highlighted. It's also a good idea to make copies of your letter and all additional documentation before you mail it. In addition, the FTC advises consumers to send their disputes via certified mail and to request a receipt. Taking this extra step will let you know when your letter and other important materials are received by the credit reporting agencies.
By law, credit reporting agencies are required to investigate claims within 30 days of receiving a dispute. But be aware, these agencies can and do decide some disputes or claims are too frivolous to investigate.
Negotiate with your creditors
Although this option may sound intimidating, communicating with your creditors can actually be a beneficial step in the process of repairing your credit. Most creditors prefer to help consumers pay their balances instead of having them default on their loans or credit card payments. In addition, creditors may be willing to remove negative listings they have added to your credit reports in exchange for payment.
Since the economic recession is affecting record numbers of people from many financial backgrounds throughout the country, creditors may be even more receptive to helping you establish a payment plan that can help you address your debt while making ends meet.
Some credit card companies may also offer you the chance to settle your account in one payment at a significantly reduced fraction of the original balance.
Undoubtedly, it is better for your credit to contact your creditors and advise them of the difficulties you are having making your regularly scheduled payments. By doing nothing, you risk having your account sent to a debt collecting agency. In addition to the inconvenience of receiving regular phone calls and letters, having accounts in collection status can have serious negative effects on your credit.
Seek professional credit repair services
Even with all the resources available to assist consumers with their credit, fixing poor credit can be a complex, lengthy and stressful situation. Professional credit repair services can guide you through the process of understanding your credit report while offering valuable knowledge and resources to help get your credit back on track.
For 25+ years, Lexington Law has been helping people legally take action on their credit and has assisted in the removal of millions of questionable negative items from clients' credit reports. In addition, Lexington Law's PremierPlus Service Level includes your FICO® Score based on TransUnion data each month as well as real-time identity fraud alerts and tools to manage your personal finances.