When you have bad credit it feels like you are stuck in prison. You are forced to pay high interest rates and have trouble getting approved for new lines of credit.
According to the Fair Credit Reporting Act, your bad credit is only supposed to last seven to 10 years. Once this time window expires your debt must be forgiven and your credit report is wiped clean, with a few exceptions.
What Is Bad Credit?
In today’s economy bad credit is considered a score of 650 and below. The most common way to get a bad credit score is by having derogatory items listed on your credit report. These items include:
- Late payments
- Debt collections
- Credit card charge offs
- Repossessions and more
When you have negative information on your credit report, it will damage your payment history. According to FICO the company that calculates your credit score, your payment history is responsible for roughly 40% of your overall credit score. This is the most important factor when your score is calculated.
The second key piece of information for your credit score is your utilization ratio. This is also called your available credit to debt ratio. When you have credit available that you are not using, it makes you appear to be in a more secure financial position.
On the other hand when your credit cards are maxed out and you don’t have a dime available to use on any of your credit lines. It will lower your credit score because you don’t appear to be in a good financial situation. Additionally you will have a poor utilization ratio.
How To Fix Bad Credit
1. Improving your payment history
If you pay your current bills or choose to get a new credit card for rebuilding credit. Simply by paying your monthly bill on time you will create a record of a positive payment history with the credit bureaus.
Often folks will get a credit building credit card that will report their account information monthly to all three of the credit bureaus to do this. It is not required for you to get any new lines of credit however.
2. Clean up credit report errors
Federal laws have been passed to protect your right to dispute any inaccurate information on your credit report. This is called the Fair Credit Reporting Act.
For you to remove bad credit and errors from your credit report, you will have to file a credit dispute directly with the three major credit bureaus. You may find it helpful to hire a legal credit repair company to assist in this process.
Another way to erase bad credit information is to negotiate and settle outstanding debt in collections. You should always start by validating a debt account before you negotiate payment.
Always avoid just paying a debt from the past because you will likely continue to have bad credit on your credit report. If you’re suffering from this avoidable expense, it’s okay. You’re not alone. Experts estimate that two in every three Americans have bad credit.
When all is said and done, your credit score is just like your Grade Point Average in school days past. If you’re acing all your classes, but failing Art class it’s going to destroy your overall cumulative GPA. This same principle is true with your credit score.
And the bad credit items, are exactly like failing Art class. We encourage our members to consider legal, reputable, and legitimate credit repair firms to help. Because in 2016 alone, over 9 million negative items were removed from consumer’s credit reports.
One of the best firms is The Credit Pros. They’ve helped client’s successfully remove late payments, collections, charge offs, judgements, liens, and many more negative credit report items.
Get a free credit consultation with a certified FICO professional by calling toll-free 1-877-418-7596. And for more tips, techniques, and strategies about how to improve credit rating with Dan Willis, sign up for our free newsletter and join our congregation.
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