When to Repair Credit

Your credit score is an important part of life. It can help you buy a home, get a car, and more. However, if your score isn’t in the best condition you can find yourself dealing with higher interest rates, less financing opportunities, etc. Sadly, many Americans struggle with their score. In fact, 34.8% of Americans have a “subprime” score between 580 and 669. That’s not all, 11.1% of Americans have a score below 550 and 22% don’t even have a score. Sadly, even though countless Americans could benefit from credit repair, a lot of people don’t even know where to start. Luckily, it may not be as hard as you think to improve your score!

Do You Know What a Credit Score Is?

We said earlier how important a credit score is but do you actually understand them? Your credit score is a number that ranges from 300 to 850 (however, in rare cases, it can be outside of this range). This number can show lenders your creditworthiness. Credit scores are calculated by using information found on your credit report by the credit bureaus. There are three main credit bureaus which are Transunion, Experian, and Equifax. The information on your credit report will have information about your credit file like total credit usage, credit card balances, late payments, types of credit, etc.

There are two main scoring models which are VantageScore and the FICO scoring model. Even though there are two scoring models, the most popular one is the FICO scoring model. The scoring model will affect how items on your credit report impact your score.

What Factors Affect Your Credit Score?

While the information on your credit report may vary based on the bureau, there are still five main factors that impact your score. The five factors that you will want to keep in mind include:

  • Payment History
  • Credit Utilization Ratio
  • Length of Credit History
  • Different Types of Credit
  • Hard Inquiries

Payment History

Your payment history is an important part of your score since it accounts for 35% of it! Payment history information includes items like late payments, collection accounts, on-time payments, etc. This is one of the more important factors because it plays a key role in helping lenders better understand your creditworthiness.

Credit Utilization Ratio

The second most important factor is your credit utilization ratio and it impacts 30% of your score. This ratio looks at the amount of credit you have used compared to your overall credit limit. Let’s look at an example to get a better idea of what this means! For example, let’s say that between three credit cards you have a total credit limit of $3,000. If you have credit card balances totaling $1,500 between these three cards, then your credit utilization ratio would be 50%.

Length of Credit History

Your length of credit history is basically the age of your credit. However, it takes into consideration your oldest accounts, your newest accounts, the average age of your accounts, etc. While it may not be the most important factor, your credit history still is something to be aware of since it accounts for 15% of your score.

Different Types of Credit

While the variety of credit types you have isn’t at the top of the list for factors that affect your credit score, it is still important to understand! The different types of credit you have accounts for 10% of your score. There are two types of credit which are either installment loans or revolving credit. You can show lenders your ability to handle multiple types of credit accounts if you have a good variety!

Hard Inquiries

Finally, tied with different types of credit for factors that affect your credit score, hard inquiries account for 10% of your score. There are two types of inquiries! Either soft inquiries or hard inquiries. Soft inquiries do not impact your score while hard inquiries do. A hard inquiry is when consumers provide written permission for a lender to get an in-depth look at their credit file.

How to Check Your Credit Score?

There are plenty of ways that a person can check their credit score for free! One of the most popular ways is to use a third party platform like Credit Karma. However, you can also review your score when looking at your credit report. You can get a free copy of your credit report once a year by visiting AnnualCreditReport.com.  Another way would be to check with your financial institution. For example, if you have a credit card through Discover, then you will be able to check your score for free whenever you want on their platform!

Where Does Your Score Rank?

The ranking of your score depends on the credit scoring model used. The FICO scoring model is the more popular one! When looking at the FICO scoring model:

  • Poor (scores between 300-579)
  • Fair (scores between 580-669)
  • Good (scores between 670-739)
  • Very Good (scores between 740-799)
  • Exceptional (scores between 800-850)

While those are the ranges for the FICO scoring model, the VantageScore model is a little bit different. For the VantageScore model:

  • Very Poor (credit scores that are between 300-499)
  • Poor (credit scores that are between 500-600)
  • Fair (credit scores that are between 601-660)
  • Good (credit scores that are between 661-780)
  • Excellent (credit scores that are between 781-850)

How to Repair Bad Credit?

If you see that your credit score could use some improvement, you may want to begin your journey of credit repair. However, a lot of times people don’t even know where to start. Luckily, there are plenty of ways that you can repair your credit! You can:

  • Improve Your Credit Habits
  • Get Help from a Credit Counseling Counseling Agency
  • Dispute Errors on Your Credit Report
  • Use a Credit Repair Company

Improve Your Credit Habits

An important part of credit repair is improving your habits for the future. While improving your credit management skills now won’t be able to change the errors you made in the past, it can make sure you don’t do them again! There are a variety of ways that you can get into better credit habits. Some tips are:

  • Keep your credit utilization ratio below 30%
  • Make your payments on time when they are due
  • Regularly check your score
  • Keep old accounts open even if you don’t use them anymore like store credit cards
  • Only open new credit when you need it
  • Keep a low balance
  • Find a credit card that works for your lifestyle

Get Help from a Credit Counseling Agency

Another popular option is to get help from a credit counseling agency. Generally credit counseling is provided by non-profit organizations which means the credit counseling services they provide are usually free! There may be some fees involved but you can confirm those upfront before getting any assistance. These agencies have certified and trained credit counselors that can help consumers. These credit counselors are trained in a variety of personal finance topics like:

  • Budgeting
  • Consumer Credit
  • Debt Management
  • Money Management

You may be able to benefit more than you realize from these agencies. They can provide you with an easy to understand way to handle your current financial situation. Some of the ways that they can help consumers includes:

  • Giving you advice on how to manage your finances
  • Developing a budget with you for your lifestyle
  • Helping you get a copy of your credit report and a better understanding of your score
  • Providing free educational workshops
  • Helping you get together a “debt management plan” (DMP)

Dispute Errors Found on Your Credit Report

We told you earlier how you can get a free copy of your credit report. However, besides using your credit report as a way to check your score, you can also analyze it for errors. If you find any errors on your report, you can submit a dispute to one of the major credit bureaus (if not all of them!). Thanks to the Fair Credit Reporting Act (FCRA), credit bureaus are required to only report accurate information.

Once you submit a dispute, the credit bureaus have 30 days to investigate and respond. However, they may have more time under special circumstances. If the item you disputed is found to be inaccurate, it will be removed from your credit report. Any negative impact that the item had would be removed as well.

Use a Credit Repair Company

Instead of handling disputes on your own, you can choose to get help from a credit repair company. Credit repair companies can help people handle the credit repair process. These companies would be the ones to get a copy of your credit report, review it for any inaccurate or unverifiable information, and submit a dispute to the credit bureaus. However, these credit repair companies are not free. That means that even though they do not provide a service that a person cannot do on their own, they will still charge money.

Frequently Asked Questions

Credit repair can come with a lot of questions. If you have questions too, you aren’t alone! There are a lot of questions that people have had when they began learning about ways to improve their credit.

How to Know When to Repair Credit?

There is no best time to begin repairing your credit score. The sooner you do it, the better. Even if you just begin by improving your credit habits, that good behavior can lead to serious changes down the line. You should start working on your credit as soon as you can.

What are Common Credit Repair Mistakes?

When you are working on repairing your credit, you will likely deal with the most mistakes when handling the dispute process. However, even though it’s hard to go wrong when you get help from a credit counseling agency and improve your credit management habits, mistakes can still happen. There are plenty of common mistakes like:

  • Not having relevant debt documentation
  • Procrastinating after spotting an error
  • Disputing accurate and verifiable items on your credit report
  • Avoiding a written dispute
  • Falsifying documents
  • Hiring a scam credit repair company
  • Closing old accounts that you don’t use anymore
  • Applying for unnecessary credit
  • Filing for bankruptcy when you can avoid it

Can Repairing Your Credit Hurt Your Score?

The way that you choose to handle repairing your credit will impact how it affects your credit score. However, generally you shouldn’t see much negative impact when repairing your credit. For example, if you start paying bills on time when they are due, you will see no negative impact to your score even though you are improving your payment history. On the other hand, if you pay off an installment loan and that loan account closes, you may see a negative impact on your score.

What are the Three Main Credit Bureaus?

We said it earlier, but we will say it again! The three main credit bureaus are Transunion, Experian, and Equifax. There are other credit bureaus (also known as credit reporting agencies) but these are the three most popular ones.

How Much Does it Cost to Repair Your Credit?

The way that you choose to handle the process of repairing your credit will determine how much you need to pay. If you choose to improve your credit habits or dispute errors found on your credit report, then you can do this for free. If you choose to get help from a credit counseling agency, it will likely be free since these are generally non-profit organizations. However, there may be some minor fees that you have to deal with. Finally, if you choose to hire a credit repair company, you can on average expect to pay between $69 to $149 a month.

What are Popular Credit Repair Companies?

While this isn’t our top recommendation to handle repairing your credit, it may be something you are considering! It is important to find a credit repair company that is legit. Under the Credit Repair Organizations Act (CROA), credit repair companies have laws to abide by. Some illegal practices includes:

  • Exaggerating services that the company provides
  • Misrepresenting services that the company provides
  • Lying to credit bureaus about your information
  • Promising to change your identity
  • Giving you a new identity
  • Charging you upfront before they perform any services
  • Making you waive your rights

Some popular credit repair companies that should abide by the CROA includes:

  • Credit Saint
  • Credit Versio
  • Lexington Law
  • Ovation Credit Repair
  • Sky Blue Credit
  • The Credit People
  • The Credit Pros

How Long Does it Take to Improve Your Credit?

While it would be nice to transform your credit overnight, that’s not gonna happen. Repairing your credit is a marathon, not a race. That means patience is key when waiting for your credit score to improve. It can range from as little as 1 month to as long as 10 years!

What are Commonly Disputed Errors?

Regardless of whether you choose to handle the dispute process on your own or with a credit repair company, there are some common inaccurate items that people tend to find on their credit report. Some of these inaccurate errors includes:

  • Identity Errors
  • Account Status Errors

Identity Errors

There are a variety of identity errors that you may encounter. Issues like:

  • Inaccurate identity information like a wrong name, wrong address, etc.
  • Accounts on your report that belong to someone else
  • Errors that come from identity theft

Account Status Errors

While identity errors are common, so are account status errors! Some common account status errors includes:

  • Open accounts reported as closed
  • Closed accounts that get reported as open
  • You are listed as an account owner instead of an authorized user
  • Payments that are reported late even if they weren’t
  • Incorrect account dates like when the account opened, last payment, etc.
  • The same debt is listed multiple times

Overall

Your credit score is an important part of life. It can help you achieve goals like buying a home, getting a car, etc. A good credit score can mean that you pay less interest, and have more financial opportunities that you qualify for. However, if you don’t have the best credit score, you may benefit from focusing on repairing your credit. There are plenty of ways that you can handle credit repair! You can:

  • Improve Your Credit Habits
  • Get Help from a Credit Counseling Counseling Agency
  • Dispute Errors on Your Credit Report
  • Use a Credit Repair Company

When repairing your credit, it’s important to keep in mind that it takes time. However, with the proper steps and patience, you will be happy when your credit score begins to improve.

Article References

https://review42.com/resources/how-many-people-have-bad-credit/

https://www.creditkarma.com/advice/i/good-fico-score-range

https://www.investopedia.com/fico-credit-scores-explained-5072985

https://www.nerdwallet.com/article/finance/what-makes-up-credit-score

https://www.annualcreditreport.com/index.action

https://www.experian.com/blogs/ask-experian/credit-education/score-basics/what-is-a-good-credit-score/

https://www.kiplinger.com/slideshow/credit/t017-s003-how-to-raise-your-credit-score/index.html

https://www.consumerfinance.gov/ask-cfpb/what-is-credit-counseling-en-1451/

https://www.experian.com/blogs/ask-experian/how-long-does-it-take-to-complete-the-dispute-process/

https://www.experian.com/blogs/ask-experian/how-do-credit-repair-companies-work/

https://www.investopedia.com/avoid-these-credit-repair-mistakes-4769722

https://www.nerdwallet.com/article/finance/credit-repair

https://www.lexingtonlaw.com/education/credit-repair-organizations-act

https://money.com/best-credit-repair-companies/

https://www.forbes.com/advisor/credit-score/how-long-does-it-take-to-improve-your-credit-score/

https://www.consumerfinance.gov/ask-cfpb/what-are-common-credit-report-errors-that-i-should-look-for-on-my-credit-report-en-313/

 

Previous articleUnderstanding ABLE Accounts (529 A Savings Plans)
Next articleCredit Repair to Get a Mortgage