Having bad credit is scary and disheartening, especially if you are trying to buy a home, but it doesn’t have to be a life sentence. Many credit problems can be fixed with time and diligence. When trying to repair your credit it can be tempting to want to opt for a quick fix but the best approach is often a reasonable and methodical one. The good news is that in many cases you can repair your credit on your own.
Assess the Situation
You don’t know what you need to fix until you assess the situation. Visit http://www.annualcreditreport.com/ and obtain your credit score. This will alert you to any potential problems you may not be aware of. You can request your credit report once every 12 months from each of the nationwide consumer credit reporting companies: Equifax, Experian and TransUnion. This will keep you apprised of any situations you may need to resolve and verify that no one else has used your identity to obtain credit.
If you find inaccuracies, the Federal Trade Commission advises that you tell the credit reporting company in writing about the inaccuracies. The FTC recommends sending a letter with copies of documents that support your position and requesting that items be removed or corrected. The credit reporting companies must investigate the claim and give you the results in writing as well as a free copy of your report if there has been a change. If you request it the reporting company can also send an updated report to anyone who received it during the past six months (or the past two years for employment purposes). You can also follow up with the creditor in the same manner, providing copies of documents that prove your position. If the investigation doesn’t resolve the dispute you can request that the credit reporting agency include a statement of the dispute in your file and in future reports.
Pay Your Debts And Renegotiate As Needed
Nothing delights banks and finance companies more than regular, incremental payments. If you owe more than you can reasonably pay off over time or your monthly obligation is unaffordable then it may be time to negotiate with your creditors. Creditors would rather have some payment than none at all. You may be able to negotiate partial payment of your debt. Lenders do not have a negative view of partial payment settlements because that shows that a debtor took responsibility for bad credit repair. Once your bills have been straightened out, close all unused credit accounts and keep only a couple of cards to re-establish yourself in lenders’ eyes as a responsible credit user.
Use Your Credit Cards but Keep Balances Low
Having a lot of credit cards with outstanding balances can work against you and having inactive cards is also not advised. The best policy is to consolidate and have a couple of cards that you use and pay off regularly. Carrying a small amount of debt on a credit card with a large limit can work to your advantage because it shows that you can handle credit responsibilities appropriately. It’s a good way to build up your credit score. If you cannot get credit cards you could use secured credit cards to help repair your credit. You pay the credit card company up front and each time you use the card, you’ll tap into the available funds and further your credit repair.
The most important thing is to make sure you pay your bills on time each month. Consistency is key. When it comes to credit repair the most important thing you can do is just keep working at it especially if you are looking for a home. “Interview mortgage brokers and obtain recommendations on them to find the one that works best with you, advises Lee Dworshak of Keller William LA Harbor Realty. “Work with them on improving your credit. You’d be surprised on how much progress you can make in a short period of time. Once your credit is established, your new mortgage broker will be able to show you an entire suite of loan options.”
John Adams contributed to this article.