Taking action to repair your credit score can be overwhelming. Where to begin, what exactly should you do, and how long is it going to take?
The big picture goal is to show current responsible use, along with removing negative items from your credit history. You see the credit scoring algorithm is a complex beast, that can be tamed.
The two biggest influences on your credit score is payment history, this is roughly 35% of your score. The second is your amounts owed, which is about 30% of your score. These two pieces represent around 65% of your credit score and are the two parts most directly under your control.
The five strategies to repair your credit score are focused on improving these two indicators. You should know the other three factors include: how often you’re applying for new credit, length of credit use, and the types of accounts. The only thing you need worry about here is to avoid applying for new credit, every other weekend.
1. Create a Trail of Positive Payment History
We need to build a trail of positive payment history on your credit reports. This is how you’ll go about building credit, and you can do this by paying your current monthly bills on time. Many consumers will also investigate a credit card for building credit. Should you pursue this path please, double check and make sure the account will be reported monthly to all three credit bureaus.
2. Utilization Ratio
This is your amounts owed. It’ll be based upon your overall total debt, compared to your available unused credit. As a rule of thumb, you’ll want to keep low balances on your credit cards. For example, if you have an $800 limit then you’d want to keep a monthly balance of around $240.
The objective is to keep your monthly balance at around 30% of your credit limit. This will make you appear to be a responsible borrower, otherwise your credit card would be maxed out. The big takeaway isn’t to focus on reducing your debt, instead aim for keeping available unused credit. In our example you’d be showing $560 of available credit.
3. Outstanding Collections
If you’re being contacted by debt collectors, it’s vital to address this issue and head on. Many consumers will ignore debt in collections, hoping they’ll just go away. The unavoidable truth is this industry will often file civil lawsuits against consumers for repayment of an alleged debt.
This can result in a judgment, which annihilates your credit worthiness. Moreover depending upon your state of residence, you can have your wages garnished for repayment. This industry is like the wild west with debt collectors violating every possible rule, regulation, and law.
The Federal Trade Commission (FTC) consistently issues fines to companies in this industry for breaking the rules and violating consumer rights. You see Congress passed the Fair Debt Collection Practices Act (FDCPA) which gives you some clear cut definable rights when dealing with debt collectors.
The two most effective weapons include account validation, and the statute of limitations. Account validation is how you say to the collection agency, first prove this is my debt and then we can possibly talk about repayment.
Many accounts aren’t validated. If this is your result, you’re no longer legally responsible. The debt collector is also suppose to notify the credit bureaus to have them remove collections from credit report files.
The statute of limitations is the time period for which you’re legally responsible for a debt. This applies to the vast majority of consumer debts, with few exceptions and it varies from state to state so please check your local listings.
One of the sneaky collection tactics is to re-age consumer debts, so the collection agency can continue to seek payment from you. If you’re suffering from past collection agencies reporting negative credit about you, then check out the next step for how to erase bad credit.
4. Clear Credit History
It’s mission critical that you clear credit report errors, inaccuracies, and questionable items. This is the most profound and effective way to improve bad credit. It directly influences your payment history which is roughly 35% of your overall credit score.
You see the negative listings are what’s damaging and causing your low score. This is your right protected by the Fair Credit Reporting Act (FCRA). This gives you the right to dispute and challenge any item on your credit report, that you believe is inaccurate.
This law also requires the credit bureaus to investigate consumer credit report disputes. Often you’ll hear so called experts claim it’s illegal to remove accurate bad credit. This is a false belief and leaves many consumers living on the forsaken path of less than perfect credit, and often for much longer than seven years.
Listen every single law has been passed to protect you, the consumer. If you really examine the FCRA, you’ll see that it only states a maximum amount of time an item can remain on your credit report. There is no minimum amount of time.
Moreover when you dispute credit report errors, you’re simply exercising your rights. It’s the same as when you exercise your right to vote. No different. Did you know the credit bureaus have been fined by our government and the FTC multiple times, for allegedly violating consumer rights and not investigating disputes?
The credit bureaus are not government agencies, they’re for profit businesses. They’ll often respond to consumer disputes with stall tactics. They’re hoping you’ll just give up and live with bad credit, because few folks are aware the credit bureaus must spend money when they conduct an investigation.
It’s akin to going to your local grocery store and convincing the cashier to give you $1.00 out of the register, not very likely to happen. Further when you challenge items on your credit report, you’re trying to do this online, over the phone, or by mail. Even less effective.
This is how credit repair services really work, to legally remove negative items from your credit report. This is also why smart consumers will turn to these services with the legal resources to enforce their rights.
5. The Good Life
It’s vital to transform this current liability of a low credit score, into an asset. This requires you to simultaneously build credit with responsible use, and also remove the bad damaging items from your credit report. It won’t happen overnight, but you certainly don’t have to just live with bad credit for seven long years.
The average consumer isn’t an expert in all these alphabet soup laws and want to believe the credit reporting and scoring companies, and even collection agencies have some ethics. It’s an unavoidable truth that when you’re dealing with these predators it’ll often leave you feeling as if you’re Nemo’s dad, when he’s frantically fleeing the crazed, wild-eyed shark that’s just gotten a taste of blood in the hit Disney movie, Finding Nemo.
Your credit score impacts every facet of your life, from the car your driving, to the place you call home. Avoid getting bite like so many consumers do in these shark infested waters. We encourage our members to consider professional credit repair help.
Because in 2016 alone, over 9 million negative items were removed from consumer’s credit reports. There are many legal, reputable, and affordable credit repair companies. One of the best is the Credit Pros. They’ve helped clients remove all sorts of credit report dings including: late payments, collections, charge offs, judgments, tax liens, and many more.
Get a free credit consultation with a certified FICO professional by calling toll-free 1-877-418-7596. And for more tips and strategies to repair bad credit with Dan Willis, sign up for our free newsletter.
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