I’m Ready to Repair My Credit. Where Do I Start?

credit repair

Not so long ago, when credit information was a relatively well-kept secret, most of us only found out the hard way when our credit score was not as healthy as we thought – if we were turned down for a loan, refused a credit card, or received an unpleasant letter from a collections agency.

Nowadays, with sites such as Credit Karma or Credit Sesame offering free glimpses of updated credit bureau reports, or consumers taking advantage of a yearly credit check from AnnualCreditReport.com, it’s easier for us to see when our credit issues have started to turn into a real problem.

Bad credit can affect not only your purchasing power but also impact your ability to rent an apartment or even be considered for employment, as many companies now routinely run credit checks as part of the job application process.

The good news is that you can take your credit situation into your own hands, and make some small steps to begin rebuilding your credit – as well as considering the option of enlisting some professional financial expertise to help rebuild your credit.

Setting (and Sticking to) a Budget

Everyone likes to believe that they’ve mastered the art of personal financial management. But with costs of living constantly going up and personal income remaining relatively flat for most wage-earners in the last decade or more, the ability to keep track and stay afloat financially can be a very tricky proposition for many people.

Skyrocketing rents, not only in coastal cities but also in new Millennial hot-spots like Denver or Austin, Texas, have led more and more young workers to live beyond their means, resorting to credit cards to help keep them financially solvent.

Living check-to-check, with little to no savings to cope with financial emergencies, is one of the fastest routes to credit chaos. Instead, establishing a budget for monthly necessities – rent, utility bills, student loan payments, automobile expenses, and the like – is a critical step in helping to address your credit issues.

Understanding exactly how much income you have available is an important starting point, and can help you see the real impact of spending too much on eating out, entertainment or the newest electronics. The soul-searching can be a little painful, but learning a sense of financial self-control can be instrumental in getting away from living on your cards and further damaging your credit.

Don’t Cut Up those Cards

When confronted with the reality of a deeply challenged credit report, many of us think that cutting up our credit cards will be the quickest fix to our credit woes. Certainly, adding more to your balances and pushing up your credit utilization ratio is an important habit to break, but completely severing your access to credit cards can also have negative impacts on your overall credit score.

One of the less well-known factors in a person’s credit file is the length of their credit history, and in most cases, having a card in active use can help build longevity for your credit rating. The ability to demonstrate that you’ve been able pay your bills in a timely fashion over many years is valuable to your overall credit status.

At the same time, it’s also key to remember not to exceed using more than 30% of your available credit, as that’s another potential negative factor, but keeping those credit card accounts alive and healthy can contribute to a stronger credit score. Accounts older than seven years are particularly helpful in creating an impression of financial continuity.

Focus on the Five Factors

The lucky few with near-perfect credit understand that credit agencies look for what is known as the Five Factors, the fundamentals in building and maintaining a far-above-average credit score. Knowing the targets you need to hit can help you get a better understanding of what financial activities will play the biggest part in helping to repair your credit.

  • Payment history. Keeping on top of your payments and making them in a timely fashion makes up some 35% of your overall credit score, so keep an eye on due dates.
  • Debit and credit utilization. Another 30% of your credit score is rated on the ratio of debt used to debt available – the closer you get to the credit limits on your cards or the larger percentage of your overall credit that’s in use, the worse you will do.
  • Credit length. Also an important factor in keeping those cards open and helping to build your credit history, adding 15% to your overall score.
  • New accounts and inquiries. Each application for a new card or excessive inquiries into your credit can hurt your score, so work to limit new applications when possible, as this makes up 10% of your credit score.
  • Diversification. Is your entire debt load carried on high-interest credit cards, or have you shown that you can make regular payments on a student loan or an automobile? Having a range of credit sources illustrates your credit skills, and adds a final 10% to your credit score.

Consider Calling in the Professionals

Finally, for those who feel they need to take control of their credit situation but aren’t sure what to do, contacting a professional credit monitoring service such as CreditRepair.com can be a step in the right direction.

By having up-to-date access to your most recent credit reports, being made aware of any credit inquiries and having a comprehensive understanding of potentially negative items, customers can be empowered to help change their financial lifestyle. Seeing problems as they pop up, or getting the big picture of how much you owe and to whom, can help set an agenda for correcting those credit issues and more carefully planning your financial activities.

You can take direct action and start repairing your credit. You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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