Fix your own credit score!
With a little hard work, perseverance, and patience, it is possible to fix your credit yourself and get your credit score into the 700+ range. You just need to understand is what factors make up your credit score:
- Payment history – 35%
- Total debt owed to available credit ratio – 30%
- Length of time establishing credit – 15%
- Types of credit established – 10%
- Inquiries and New accounts – 10%
With the above in mind, these are some steps that you should do in order to get yourself in a better financial position to rebuild your score:
1. Open a checking and a savings account, if you haven’t done so already. While this won’t directly affect your credit score, it does many things. It re-establishes a relationship between you and a financial institution, which by being a customer in good standing, could help make it easier to get approved for credit cards and loans. Most importantly, by opening a checking account it gives you the single most powerful tool in building credit, to help pay your bills on time, especially if the bank offers online bill pay.
2. Gather ALL your credit reports. It is important to know exactly what entries are on your reports. Frequently, people believe that their credit is so bad, that they don’t bother to check their reports for mistakes, and mistakes DO happen. The credit bureaus don’t get paid to be accurate; they only get paid to report. It is important that you gather reports from all 3 agencies to determine not just who and how much you owe, but to make sure that the entries on your reports are correct.
If you do happen to find a derogatory credit entry which you are sure is not correct, you should dispute with all 3 agencies. They all have an online dispute feature in which you can dispute the item. Once you’ve made sure that there are no inaccuracies on your report, you should arrange your debts from most recent and lowest amount to oldest and highest amount.
Debts that are newer than 2 years are hurting your score the worst and should be handled first. What you should know that just paying off debts, especially collection debts, will not help your score. You need to arrange a “pay to delete”, or a “deletion payment”, which is a payment in exchange for removing it from your report completely. This will help your score if you are successful.
3. Open new credit. Some major banks (Bank of America, Wells Fargo, US Bank, Capital One) and some credit unions offer secured credit cards, which are credit cards that require a deposit to establish credit. Your credit line is whatever you deposit; for example, if you deposit $300, then you will have a $300 credit line. The deposit isn’t used to pay for what is purchased on the card; you would still need to either pay in full or make monthly minimum payments. The deposit is used only if the account becomes delinquent and goes to collections.
A couple of good things is that you can increase the credit limit by adding to the deposit, which can help your score because it creates a much needed cushion between the total debt which is owed and the available credit, and also the deposit is sometimes linked to a savings account which earns interest while you’re building credit, so the deposit isn’t just sitting there. A good way to build credit with the card is to make small purchases ($20/month max) and pay it off on time every month, while adding to the deposit. Usually after a year or so, of paying it off on time, the card either converts to a regular card or it is upgraded to a better card, and most importantly the deposit isn’t needed anymore and it is given back.
A good suggestion would be to open another secured card and repeat the process or open 2 at a time, which could speed up the process. If you make small purchases, pay it off and increase the limits, this will really help your score. In the end, you’ll have 2 credit cards with decent limits and an emergency fund from the deposits.
4. Enroll with PRBC. PRBC.com is America’s Alternative Credit Bureau, providing a helpful service to the over 50 million people with limited or no credit history. If you pay your monthly bills on time, PRBC can help you build credit to qualify for a mortgage and better interest rates. On-time payments for the following bills are not reported to the traditional credit bureaus: Rent, Cable, Phone, Daycare, Insurance Electric, Natural Gas, Cell Phone, etc. The only time your payments for these bills are reported to the other credit bureaus is if they’re missing or late. With PRBC, your on-time payments count. You build credit for paying your bills on time, even if you have no credit history. PRBC offers two simple ways to start building credit today.
Keep the following things in mind:
- Don’t spend more than 30% of your combined available credit on all your cards
- Only apply for credit when necessary
- Pay on time
Thanks for reading, and good luck!