How to Repair Bad Credit
Welcome to the Financially Free Journey podcast and I am your host, Courtney Dyer.
This podcast aims to dispel the seemingly complex topic of personal finances, money management, debt, credit, investing and even retirement.
In todays episode we will be talking about credit and specifically how to repair bad credit.
Before we dive into the episode, I have to quickly say thank you to all of the listeners and each of you that have taken the time to leave a 5-star review for the podcast. Reviews help our podcast be discovered by new listeners through various podcast platforms.
I would like to shout out to reviewer hohoho2300. They wrote:
“I look forward to listening to this podcast! Courtney knows all there is to helping you financially and she makes it seem so easy! She gives you the keys to help you become successful in your goals and budget”.
Thanks again for taking the time to leave that review. You guys feeling empowered and reaching your financial goals is what pushes me to create content to share with all of you.
Ok- now it’s time to talk about credit. Living with bad credit is possible but is hard. Bad credit can make many things difficult, impossible and more expensive.
Here is one example of how bad credit can make things more expensive- did you know that insurance companies often charge a higher interest rate for drivers that have a bad credit score?
Another example of how bad credit can make things impossible- Did you know that a lot of employers and landlords will check your credit to see if they want to hire you or rent to you?
If you are getting new utilities turned on in your name, the company will check your credit to decide if you will be required to pay a security deposit.
Cell phone companies will run your credit to see if you will be required to have a co-signer to establish an account.
The list goes on and on and we know that bad credit will effect you in one way or another.
So what can you do about it? If you have already created some spotty history on your credit report or you have collection accounts that are continuing to destroy your credit, it’s time to take control of your credit now.
You may have heard commercials or seen billboards for professional companies that repair credit. The truth is, you do not have to hire a professional to repair your credit and they cannot do anything that you cant do.
Save some money and the hassle of finding a reputable company by repairing your credit yourself.
Here are some steps you can take now to start the journey to repairing your credit.
STEP #1: Get a copy of your credit report from the 3 major credit bureau’s
Before you can really start to repair your credit, you first need to understand what is reporting on your credit report. Your credit report contains all of the mistakes you’ve made that have led to your current credit condition. Take the time to read through your credit report to see what negative items are affecting your credit score.
Now, by law you are entitled to a free credit report from each of the 3 credit bureaus each year. This yearly credit report is available only through one website which is annualcreditreport.com. If you prefer to order your copy over the phone or in the mail, you can do that as well.
If you have already used your free annual report, you can go to websites like Experian to get your free credit report as well.
It’s important to keep in mind that certain lenders do not report to all 3 credit agencies which is why it is important to obtain a copy of all 3 reports. Even if the event isn’t reporting to all 3 agencies, the event still affects your credit score with all 3 agencies. Take the time to get a copy of all 3 and do the research needed before you start your credit repair journey.
STEP #2: Review your credit reports for reporting errors
Now that you have a copy of your credit reports and you have reviewed them; you might see some reporting errors. This is pretty common and if you don’t take the time to catch it, this mistake can negatively report on your history for up to 10 years!
If you have a long credit history, your credit reports are most likely several pages long. Try not to get overwhelmed by this process and take your time. It’s a lot to digest and can be pretty dry but this process is worth you taking your time.
STEP #3: Create a plan
You have ordered your credit reports, reviewed them and identified any reporting errors. Now its time for you to decide what needs to be repaired. Here are some common items that need to be repaired:
-incorrect information like accounts that aren’t yours or payments that are incorrectly reporting as late
-Past due accounts that are late, charged off or have been sent to collections
-maxed out accounts that are over the credit limit
STEP #4: Dispute credit report errors
You have the right to dispute any information in your credit report that you believe to be inaccurate, incomplete or if you think it cant be verified.
The best method for disputing items is typically going to be online as its faster and usually easier. One thing to consider though is that you can your disputes via certified mail with a return receipt requested. This is important to consider because even though it takes more time, this protects you with a paper trail and credit bureaus legally have 30-45 days to investigate and respond to your dispute.
Another tip: if your sending multiple disputes you can look up credit dispute templates and save one to your computer. This will help you save time and send a professional looking dispute.
Now, when you send your dispute you need to include a copy of your credit report with the item your disputing highlighted and a copy of any proof you have that supports your dispute. If you don’t take your time and provide enough information when sending a dispute, the credit agency can decide your dispute is frivolous and decline to investigate.
Make sure you are disputing items that you can send in some type of documentation to support your claim.
An alternative to disputing items through the credit bureaus is to dispute your items directly with the banks or companies that reporting the negative item in the first place. The bank or business has the same legal obligation to investigate your dispute and remove the inaccurate information.
#4: Tackle past due accounts
You’ve tackled the inaccurate information on your credit report, now its time to tackle the past due accounts that are reporting. Your payment history is one of the biggest areas that impacts your credit score…in fact your payment history accounts for 35% of your score to be exact.
Now putting that into perspective- if you have a bunch of past due accounts reporting, this will significantly decrease your credit score and it needs your immediate attention.
The goal here is to have all of your past due accounts reported as current or at least paid. First, get current on the accounts that are past due but haven’t charged off yet. If you don’t know what a charge-off is, its where you are 180 days past due on an account and is one of the worst account statuses you can have on your credit report.
Accounts that are delinquent are accounts that are past due but haven’t hit that 180 day mark yet. These are accounts you can save from being charged off and where you should focus.
First thing you need to do is contact that creditor and see what type of arrangement can be made in order to bring the account to a current status. Many times the creditor will drop late fee’s and interest that was charged in order to recover some of the funds. They may also be willing to work out a payment plan with you to bring you current on a past due balance. Another option is a credit may be willing to do what’s called “re-aging” your account which will show your payments as current rather than delinquent.
Now you need to look at your accounts that have already charged off. You are still responsible for a charged-off account and the balance owed. As charged-off accounts age, they start to hurt your credit score less and less but the outstanding balance can make it hard or even impossible to get approved for new credit in the future. Once you pay a charged-off account, typically the account status will change to paid with an account balance of $0. The charged-off status will continue to be reported for 7 years from the date it charged off.
Another option with charge-off’s is to settle the charge-off for less than the original amount you owed the creditor. This means that the creditor agrees to accept a settlement amount and cancel the rest of your debt. You may even be able to convince the creditor to delete the charge-off status from your credit report in exchange for your payment…but I have to warn you even though its possible, its not easily done.
STEP #5: Bring high account balances below your limit
Your credit utilization rate is the next heavily hitter when it comes to your credit score. If you have any accounts where your balance is higher than your credit limit, you need to immediately pay down your balance and bring it below your limit. Your credit utilization rate accounts for 30% of your overall credit score so this is an important step you will not want to skip.
If you are not able to immediately pay down your balance, you may want to look at a debt consolidation loan if you are able to get approved for one.
STEP #6: Get new credit
As I mentioned earlier, your payment history accounts for a large part of your credit score so creating positive credit history through new credit can do wonders for you.
If you don’t have any credit accounts open and available to you to create new positive credit history, you may have to establish new credit accounts. Some easy ways to reestablish credit can be through a retail store credit card or a secured credit card through companies like Capital One.
Lets recap some credit repair tips to make sure you are well on your way to a better credit future:
-salvage what you can and don’t compromise and accounts in good standing while working to repair your bad accounts
-spread your disputes over time. Don’t send all of your disputes at the same time in order to make sure your disputes are being fully investigated.
-Be cautious of closing out credit accounts once you have paid them. This can actually temporarily lower your credit score and an open credit account can come in handy if used to strategically build new, good credit history.
I hope that todays episode helped give you guidance and ideas on how to tackle your credit. Know that you can do it but it takes work and follow through on the process. Repairing your credit is a critical step when it comes to achieving your financial goals and freedom.
Thanks for tuning into todays episode- If your not already, make sure you are following us on Instagram @financiallyfreejourney and twitter @financiallyj for daily tips and motivation to help you on your financially free journey.
Until next time!