Keep Credit Cards Open
If you’re racing to improve your credit profile, be aware that closing credit cards can make the job harder. Closing a credit card means you lose that cards credit limit when your overall credit utilization is calculated, which can lead to a lower score. Keep the card open and use it occasionally so the issuer wont close it.
Don’t Panic If Your Credit Score Drops Slightly It’s Actually What’s On Your Credit Report That Matters
The idea that getting accepted for credit is all based on a simple score given to you by one of the credit reference agencies is false. At best, it’s a guide to roughly how good or bad a risk you are. As we say above, lenders will judge you on three main criteria when you apply for credit:
Yet the first two aren’t factored in to your credit score so it’s based on incomplete information. Plus, different lenders are looking for different things. When you apply, they assess you based on their own ‘ideal customer’ scorecard and each lender is different. Just because one lender rejects you doesn’t mean another will do the same. So bear in mind:
The impact of a slight credit score drop is near meaningless
It’s inevitable at some point that your credit score will drop. However, this shouldn’t be a cause for panic, especially if it’s only a slight dip. In general, the impact of your score going down a small amount is near meaningless. Have a watch of this video to see why:
What Are The Risks Of Credit Repair
There is no guarantee your credit report can be repaired as there may be no inaccuracies, you may just have to sit tight, seek free financial advice and put a plan in place to improve your credit rating through improved financial management and behaviour. Remember, this process wont happen overnight. It will take time and patience to make a difference.
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The Mse Credit Club Which Includes Experian Credit Report
Our totally free MoneySavingExpert.com Credit Club helps you keep a track of your credit record. You can here’s what it does:
You can get your full Experian Credit Report for FREE through Credit Club. See our full details on how this will work.
You’ll get a free Experian Credit Score. This will give you an indicator of how lenders see you when assessing you for credit applications.
Our unique affordability score. This clever tool will help you work out how much you can afford to borrow, using calculations based on your income and estimated spending.
Our unique Credit Hit Rate this will show you your chances of success, expressed as a percentage, of grabbing our top cards and loans.
Eligibility tool to show your best credit deals. It reveals the likelihood of you getting top credit cards or loans.
Wallet workout tool to check if youre on the best credit products for YOU.
Your credit profile explained. It shows the key factors affecting your score and how to improve them.
Some Defaults Or Missed Payments & Declined Applications
Defaults or missed payments will usually stay on your report for six years. If you close an account, the missed payments could stay on the account for six years after the closure, so keep that in mind. Bankruptcy is wiped six years from the date you’re declared bankrupt, provided it’s been discharged.
And when it comes to declined applications, lenders can only see whether you’ve applied for credit elsewhere, not whether you’ve been accepted or declined. However, they may be able to guess by examining the credit accounts you have open and when they were opened.
If you’ve attempted to, or have successfully reclaimed PPI or bank charges, it won’t appear on your credit files. If you’ve had bank charges, the penalties will show on your records.
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Open Another Credit Card Account
Another way to increase your credit card utilization ratio is to open a new account. As long as you don’t carry a balance on that card, your available credit immediately increases by that card’s limit.
Try to get a card that doesn’t charge an annual fee, though. Your best bet is through a bank where you already have an account. Granted, cards with no annual fee tend to charge higher interest rates, but if you never carry a balance, the interest rate is irrelevant.
But again, be smart: The goal isn’t to get access to more cash, the goal is to improve your credit score. If you think you’ll be tempted to run up a balance on a new account, don’t open one.
Try A Secured Credit Card
Secured credit cards are a stepping stone to building credit for those with a bad or missing history. With this type of account, a lender will ask you to deposit money into a savings account in exchange for a line of credit. Youll still have to make payments out of pocket for any balance you accrue on the card, but if you miss a payment, the creditor will take the outstanding balance out of your savings account. Remember late payments on secured credit cards will show up as derogatory marks on your credit report, just like any other delinquency.
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How To Fix Your Credit Score In 6 Simple Steps
Wrap Up
Bad credit scores can be detrimental to your life. But what is a bad credit score?
A bad credit score is a financial grade that adversely affects not only your finances but also your employment opportunities and professional relationships. Its important to fix it right away before your situation worsens.
In this article, well teach you how to fix your credit score. Youll also find out how to get credit reports regularly to monitor your performance.
More importantly, well provide effective steps to repair your credit and teach you how to improve your credit score fast.
Read on!
How Can I Improve My Credit Score
If you want to repair or improve your credit score, keep in mind that doing so generally wont be a quick and easy process. It may take a significant amount of time and require an extended period of financial responsibility on your part.
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Equifax Financial Health Index
The Equifax Financial Health Index uses information from Open Banking or the information that customers supply themselves, which they combine with existing credit record information, to develop a fuller picture of customers financial circumstances.
The Financial Health Index lets you add information to your credit records about:
- savings and investments.
The Index can also fill in credit information gaps, by including information such as rent and utilities payments.
There are other credit reference agencies joining the market, such as Credit Kudos, which also take Open Banking into account.
Make Your Payments As Agreed
Once you have caught up your late payments and are now paying your debts on time, it is important to continue paying as agreed if you want to re-build your credit. This is the simplest way to restore and maintain good creditjust make your payments as agreed. Pay on time every month, and work at paying down your balances and everything else should take care of itself. It really isnt any more complicated than this.
When it comes to paying your bills on time, just remember that computers keep track of your payments, not people. If you are late, there are no excuses. Computers are ruthless when it comes to keeping track of things, and you cant argue with them. Always pay your bills two or three days before they are due just in case there is a delay in your creditor receiving your payment.
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Think About Your Credit History
Credit scoring models, like those created by FICO®, often factor in the age of your oldest account and the average age of all of your accounts, rewarding individuals with longer credit histories. Before you close a credit card account, think about your credit history. It can be beneficial to leave a credit card open even if you’ve paid it off and don’t plan on using it anymore.
Of course, if keeping accounts open and having credit available could trigger additional spending and debt, you may choose to close the accounts after all. Like fingerprints, every person has a unique financial situation, and only you know all the ins and outs of yours. Make sure you carefully evaluate your situation to figure out the approach that works best for you.
Contact The Credit Bureaus
Both Equifax Canada and TransUnion Canada have forms for correcting errors and updating information. Fill out the form to correct errors:
Before the credit bureau can change the information on your credit report, it will need to investigate your claim. It will check your claim with the lender that reported the information.
If the lender agrees there is an error, the credit bureau will update your credit report.
If the lender confirms that the information is correct, the credit bureau will leave your report unchanged.
In some provinces, the credit bureau is required to send a revised copy of your credit report to anyone who recently requested it.
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Prioritize What Needs Fixing
The best way to repair bad credit is to pay off debts. This can be a challenge if you have little funding, but there are good ways to go about it.
Prioritize debts that turn into charge-offs, which are debts deemed unlikely to be collected. Do that by paying past-due accounts first.
You should also target the most expensive, high-interest rate debts. Make sure youre not breaking any agreement with other providers or incurring penalties for overpaying.
If the majority of your debt comes from credit cards, a credit card consolidation loan might do the trick. Read the features and terms of the best credit card consolidation loans you find and choose one that fits your situation best.
If you have maxed-out credit cards, how do you repair credit on your own? You must bring them below the limit by:
- Asking your credit card issuer for an increase in credit limit or
- Paying down the balance due as much as you can.
If you can pay in full, you can consider paying a significant chunk of the balance. If that doesnt work for you, consider searching for bad credit loans with guaranteed approval. These have flexible terms you can leverage to minimize your debt.
Figure Out Where You Stand
Before you begin do-it-yourself credit repair, youll want to get copies of your full credit reports from all three bureaus .
You can get your reports truly free, once a year, at www.annualcreditreport.com or by calling 1-877-322-8228. Other websites may claim to offer free reports, but the Federal Trade Commission warns that these offers are often deceptive.
You can also try free credit score tracking apps or to get a sense of where you stand.
Credit scores range from 300 to 850. A score of between 700 and 740, depending on the scoring method used, is considered good credit and usually enough to qualify you for the best credit cards and lowest mortgage rates.
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The Following Are Some Of The Most Often Made Errors When Trying To Repair Their Credit
* Not checking your credit reports. Credit scores are built from information in your credit reports. It is critical to do frequent credit reports checks to make sure your credit score is accurate.
* Ignoring negative information. If your credit reports contain negative information, such as a bankruptcy or foreclosure, youll want to address them. Otherwise, your credit score could drop even lower.
* Not using credit responsibly. Without credit, you cant build your credit rating. But credit isnt something you should use irresponsibly. Paying off credit card debt every month and using your credit wisely will help improve your score.
* Only applying for credit when needed. When you initially get a credit card, it is critical to pay it off in full each month. Credit is essential and a very useful tool, but only if you use it wisely.
* Trying to improve credit you dont qualify for. If youre trying to repair credit, dont apply for cards or loans you dont qualify for. Use cards or loans youre eligible for, and pay off those balances each month.
* Not getting help soon enough. The longer you wait to address credit issues, the more complicated it becomes. You dont want to wait until your credit score is in its deep, do-or-die stages before you seek help. The longer you wait, the more fees and interest youre likely to accrue.
What Is The Credit Repair Organizations Act
dispute negative information found on your credit reports. But in the past, some of these companies would overstate what they could do for consumers to drum up business.
The Credit Repair Organizations Act is a federal law that became effective on April 1, 1997, in response to a number of consumers who had suffered from credit repair scams. In effect, the law ensures that credit repair service companies:
- Are prohibited from taking any payment from a consumer until they fully complete the services they promise.
- Are required to provide consumers with a written contract stating all the services to be provided as well as the terms and conditions of payment. Under the law, consumers have three days to withdraw from the contract.
- Are forbidden to ask or suggest that you mislead credit reporting companies about your credit accounts or alter your identity to change your credit history.
- Cannot knowingly make deceptive or false claims concerning the services they are capable of offering.
- Cannot ask you to sign anything that states that you are forfeiting your rights under the CROA. Any waiver that you sign cannot be enforced.
The CROA adds transparency and due diligence to the credit repair process, making it less likely that consumers will be taken advantage of. However, regulators have still found wrongdoing among credit repair companies.
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Quick Ways To Fix Your Credit Score
Why do I have a bad credit score to begin with?
- Lack of financial management this includes any negative or neglectful financial behaviour, such as:
- Not paying bills on time or not paying at all
- Missing on loan repayments
- Having your home foreclosed
- Any court judgment on financial payments
What are the consequences of a low credit score?
- You might not be approved for credit or loans
- It could be difficult to get approved for a mortgage
- You may have to pay higher interest rates for loans
- Loan applications to start a business could be denied
- It may be hard to finance the purchase of a new car
- Utility and telco providers may not accept your application to switch to them
- Your applications to rent property, whether residential or for business, could be denied
So, how can you fix your credit score?
Where Can I Get Free Financial Counselling
If you have a bad credit rating, or are even in financial hardship you might also be interested in seeking support from a qualified professional.
Free financial counselling and support is available for all Australians from the National Debt Helpline . As well as running the helpline itself , NDH helps consumers find individual counsellors and organisations near to them.
Cover image source: VectorMine
Co-written by Tim Smith. This article was reviewed by our Finance Editor Sean Callery before it was published, as part of our fact-checking process.
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Rebuilding While You Repair
Its important to remember that credit repair is usually one step you take when you want to obtain a better credit score. So while the repair process may only take 3-6 months, the time it takes to rebuild your credit can take longer. It can take up to a year or more to achieve a good credit score, depending on how low you start.
One thing you can do to expedite the process to better credit is to start taking steps to build credit while youre getting items removed through credit repair. So, stay on top of your payments to create a positive payment history and take steps to reduce your credit card debt load so your credit utilization ratio is as low as possible.
This one-two punch of credit correction is how you go from a bad credit score to a good one. But you have to be patient. If youre working towards a major goal like a new home, give yourself at least six months to a year to improve. This will ensure you have time to get the credit you need before you apply.
| Step 2: Review your reports for errors | 1-2 hours, depending on familiarity with credit reports |
| Step 3: Draft dispute letters and gather documentation | A few hours to up to a week, depending on your records |
| Step 4: Await a response | Up to 30 days maximum per dispute |
| Total time required | 1-6 months, depending on the number of disputes you need to make |
Keep in mind that if you hire a credit repair service, the timetable is still the same, in total. However, most of the actual work occurs behind the scenes: