Low credit scores, usually below 620, can have serious consequences, yet often people don’t realize what state their credit is in until it is too late. Facing higher car insurance costs or being rejected for a loan, a mortgage, or even a job because of bad credit is becoming a more common experience for Americans. While bad credit might feel like an insurmountable obstacle, there are steps you can take to improve your score. Here are the most important tips for repairing bad credit.
- Get a copy of your credit report and review it for errors. Credit bureaus make mistakes, and it happens more often than you might think. Simply reviewing your credit report and disputing the mistakes that you find is a crucial first step to repairing bad credit. Dispute carefully though, if it seems like you are just disputing everything then the credit bureau may see your disputes as frivolous and dismiss your claims without fixing real errors.
- Prioritize and pay off your debts. Triaging your debts and paying them according to their impact on your credit score will slowly but surely improve your credit. Continue to keep any accounts that are current as such. Begin to pay as many accounts that are past due or approaching past due as you can, prioritizing the accounts with the highest interest rates. Lastly, address any accounts that have been handed to a collections agency or charged off because paying off these accounts will not remove them from your credit report.
- Do not close any credit cards. Your credit score is affected by your debt to credit ratio. Closing an account and lowering your credit level can seriously damage your debt to credit ratio. Even if you are deeply in debt, the credit that your cards give you keeps your debt to credit ratio more favorable.
- Use your oldest cards, but lightly. The length of time that an account has been open positively affects your credit score. Use your oldest cards but in small amounts that you can pay off in full. Keeping these accounts active shows that you can maintain credit for a long period of time, and shows that you can pay off debts, even small ones. Every bit counts.
It will take time, patience, and discipline but repairing bad credit is possible. Once you have achieved your goal, careful planning, attentive payment of debts, and close monitoring of your accounts will help you maintain the credit that you have worked hard to achieve. The security and the benefits of having a good credit score are worth the investment.