Even if your credit score is poor, it doesn’t need to stay this way. There are many ways to repair bad credit and raise your FICO score. And before you head to a ‘credit clinic’ and pay hundreds of dollars, you should know that there is nothing they can do for you that you can’t do for yourself, for little or no cost at all!
After you’ve figured out your problems and ordered them according to severity as outlined in Part 1 of How to Improve Credit Score, it’s time to tackle the problems themselves.
In general, you need to understand the following:
- Correctly reported negative information cannot be legally removed from your report. Most negative information remains on your report for 7-1/2 years, and only the passage of time can remove it. See How Long Do Negative Items Stay on My Credit Report for detailed information on the lifespan of negative information.
- FICO scores reflect credit payment patterns over time with more of an emphasis on recently reported information than older information (previous 2 years account for 70% of your score). This means that the weight of the negative items on your score will diminish as time passes.
- Negative items on your credit report are a lot more powerful than positive items. A late payment can affect your score in a month or two, while making payments on time can take 6 to 12 months to improve your credit rating.
With that in mind, take the following actions to fix your problem as appropriate:
Bankruptcy, Foreclosures, Paid Tax Liens, Paid Judgments
With these types of entries the damage is already done and there is nothing to ‘repair’. Instead, you should focus on rebuilding your credit by adding positive payment history and demonstrating you can manage your credit.
Simply put, pay any outstanding judgments. They’ll keep hurting your credit either until you’ve paid them or they fall off after seven years, whichever comes first.
Student loan defaults
Student loan defaults aren’t always permanent. Talk with your lender to find out what you can do to bring your student loan out of default. Often, you’ll have to make several months of timely payments before your student loan is considered current again.
Lower Your Credit Utilization
If your credit balance is more than 80% of your credit limit then it severely impacts your credit score. In fact, any credit utilization above 35% starts lowering your score. Your first step towards raising your score is to start paying of your debt and lowering your credit balance, especially if it’s revolving credit (i.e. credit card debts).
Dispute Negative Items Incorrectly Reported
If any of the negative items on your report are not yours or not reported correctly in any way – you need to dispute them in order to remove or fix them. Don’t dispute items that are correctly reported. Doing so not only waste your time – it may lead the credit bureau to think that you’re engaging in fraudulent credit repair tactics.
Charge-Offs and Collection Accounts
A charge-off is one of the worst account statuses and can lower your score by up to 90 points. Even as charge-off get older and have a lesser effect on your credit report, you may find it hard, if not impossible to get approved for new credit and loans with a charge-off on your credit report.
When you pay a charge-off in full, your credit report will be updated to show the account balance is $0 and the account is paid. The charge-off status will continue to be reported for seven years from the date of charge off.
Another option is to negotiate with the creditor and settle the charge-off for less than the original balance, on condition that the creditor agrees to accept a settlement and cancel the rest of the debt. The settlement status will go on your credit report and stay for seven years.
Some creditors may be willing for a pay-to-delete agreement, in which they remove the charge-off condition from your report in return for a full or partial payment, but this isn’t easily done. The most important thing is to pay all or some of the charge-off and get a favorable account status.
Get Current on Any Delinquent Account
Accounts that are delinquent but are less than 180 days past due can be saved from being declared as a charge-off. A charge-off is one of the worst account statuses and happens once your payment is 180 days past due.
You can avoid having your accounts being charged-off by making the minimum payments each month. However, since you are already late you will continue to accumulate interest payments and penalties. If you have extra money after the minimum payments – get current on these accounts.
In order to get current you need to contact your creditors, figure out what they require from you in order to get back current and possibly negotiate an agreement. They may be willing to waive some of the late penalties, spread the past due balance over few payments or even to re-age your account to show your payments as current rather than delinquent – but you’ll need to negotiate. Let them know you’re anxious to avoid charge-off, but need some help.
Remember that it’s better to pay before the account has been charged-off, where the damage will be much harder to fix.
Pay Back Your Debts
If you have missed payments, get current and stay current. The longer you pay your bills on time after being late, the more your FICO score will increase. Older credit information count less than new one, so poor credit performance won’t haunt you forever. As time passי, the impact of past late payments on your FICO score fades away while recent good payment patterns showing up on your credit report begin to have more weight and raises your score.
Pay Your Statements and Bills On Time
Don’t add another negative item to your report. Even utility bills, rent, medical bills, cellular bills etc that do not show on your credit report when paid on time may go to collection if you’re late, and from there will find their way onto your credit report.
Rebuild Positive Credit History
An important part of fixing bad credit is to re-establish positive credit history. Since FICO score put emphasis on previous 24 months (70% of your score to be exact), you should start rebuilding your credit as soon as possible.
Using Goodwill Letters
If you have late payment or some other negative information on your credit report that are “minor” and all other efforts to remove them have failed, you can try using a letter of “goodwill” to have the negative information removed from your credit file.
A goodwill letter is a strategy to use for negative accounts that you’ve already paid.
Seek Legal Help
If you’re unable to manage your debts and reduce them effectively, consider getting legal professional help from trustworthy credit repair debt management services.
These are legal credit repair services that offer free (in most cases) help in debt management, credit repair and education. Their counselors will discuss your entire financial situation and help you develop a plan based on the best option for your personal financial needs.
Manage your financial matters responsively
Fixing bad credit requires time, perseverance and discipline. These tips to improve credit score are good for both raising your credit score as well as maintaining it high on the long run.