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Before embarking on doing your own credit repair, it's essential to obtain complete copies of your credit reports from all three major bureaus (Experian, TransUnion, and Equifax).
You can get your reports genuinely free once a year through www.annualcreditreport.com or by calling 1-877-322-8228. Although some websites may claim to offer free reports, the Federal Trade Commission (FTC) warns that these offers are often misleading.
Additionally, consider using free credit score monitoring apps to get a clearer view of your financial situation.
Credit scores range between 300 and 850. A score between 700 and 740, depending on the scoring method used, is considered "good credit" and is usually enough to qualify for the best credit cards and the lowest mortgage rates.
The next crucial step in the credit repair process is to dispute any incorrect information that may be present on your credit report.
Although errors are not common, they can occur. While it is true that sometimes bad credit can be the result of your own actions, when errors, even small ones, are identified, it is essential to address them. Here I show you how to do it:
Once you have a complete copy of your credit report in hand, verify your identity information, including your Social Security number, the spelling of your name and address, and your credit history.
Examine in detail the list of credit cards, outstanding debts and significant purchases. If you find any errors or questionable items, make a copy of the report and highlight the error.
Gather all supporting information you have, such as bank account statements, and make copies of them. This step is crucial, as credit agencies require concrete evidence to take action.
Write a letter to the appropriate credit reporting agency, whether Experian, Equifax, or TransUnion. In the letter, clearly explain the error and include a copy of the highlighted report along with all supporting documentation.
Although some offices now allow disputes to be filed online, it doesn't hurt to send this letter via certified mail and keep a copy for your records.
The credit reporting agency has 30 days from receiving your letter to respond. The Federal Trade Commission offers guidance on how to contact credit reporting agencies about discrepancies.
Below are the contact numbers and websites of the three credit reporting agencies:
Once you've corrected any errors on your credit report, it's critical to make sure you don't go over your financial limits each month.
WHY IS THIS SO IMPORTANT? Because there are only three simple actions that really impact repairing your credit history:
However, before you can implement these actions, it is imperative that you do not spend more than you earn; It is necessary to have a budget.
To get started, review your tax returns from the last two years to understand your actual annual income. Next, calculate your monthly spending habits, considering areas like gas, food, and entertainment. Set limits based on your income for each spending category.
For example, if you usually spend $400 a month on groceries, try sticking to a limit of $300 a month by making changes such as buying generic brands, using coupons, and resisting impulse purchases. This approach will allow you to maintain financial balance and work towards improving your credit history.
If you are looking to improve your credit history, it is essential to start by paying all your monthly bills on time, without exceptions.
If you find yourself behind on a payment, catching up as soon as possible is crucial. Timely payments are the most determining factor for your credit score. In short, you won't see improvements in your credit until you manage to pay all your bills on time.
A limitation of this approach is that regular payments, such as utility and telephone payments, are often not recognized in your credit history. However, to address this drawback, Experian Boost offers a solution. This free service links your bank account to Experian to track your monthly payments. On average, users have experienced a 13-point increase in their FICO score using this service.
Take control of your credit cards by managing the payment of your balances.
If you have outstanding balances, allocate part of your budget to pay off these debts gradually, making monthly payments until they are completely paid off.
It's crucial to know your credit card limits and strive to keep a balance significantly below the maximum allowed when making purchases.
This is because credit agencies evaluate your debt load in terms of ratios. For example, if you spend $500 on a card with a limit of $1,500, you have used 33%, which is more beneficial for your credit score than loading the same amount on a card with a limit of $1,000 (50%). In general, it is more favorable to be below the limit (100%).
While it's important to pay off credit card debt, avoid paying it off. The total amount of available credit impacts your credit score, even if you have no outstanding balances.
Finally, resisting the temptation to open new credit cards is key, even when stores offer discounts in exchange.
Every credit request is recorded on your credit report as a “hard inquiry.” If you accumulate too many inquiries in a two-year period, your credit score can suffer. Generally, a consumer with good credit can apply for credit several times a year without significantly affecting their score. However, if you start with below-average credit, these inquiries can have a more noticeable impact and delay your goal of improving your credit score.
When the dust settles, consider a unique strategy for building your credit, like the one offered by Self.
Self provides four types of loans, each with monthly payments. At the end of the term, Self refunds you the original loan amount, minus interest and a small application fee. Each on-time monthly payment is reported to the credit bureaus, which can help improve your credit score over time. Although the initial application may lower your credit score, making all payments on time should result in an increase.
Another option is to use Experian Boost™, especially useful for those with limited credit history. Often, people have a positive utility payment history that is not reflected in their credit profile. Experian Boost™ allows you to include these payments in your credit score for free. It's important to note that results may vary, and not all lenders use the data affected by Experian Boost™.
Start by reviewing your credit reports to get a clear view of your situation. If you find errors, discuss them with the credit reporting agencies. Focus on paying off credit card debt while maintaining timely payments on all your bills. Avoid applying for new credit. In short, to repair your credit, it is essential to limit its use.
It may take months or even a few years to see significant improvements in your credit score, but if you plan to take on major debt, such as buying a home, the effort will be worth it.
