How To Repair Your Credit Score

By: Matthew G Young

Your credit rating is a numeric gauge that lenders use to see how likely you are to be able to repay any loan that you might be asking for. This provides banks and other lenders and creditors with a quick and relatively accurate way to assess the level of risk that they are taking on when they approve your loan. Scores range from 300 to 850; the higher your score is, the more likely you are in lenders' eyes to repay the loan. A low score will oftentimes disqualify you from getting a loan.

Credit scores are comprised of several different factors. Your payment history, use of available credit, the length of time that you have had good credit, the type of credit you have at your disposal, and the history of your credit checks all contribute to varying degrees to the credit score that is calculated. There are three main credit scoring bureaus: Equifax, Experian, and TransUnion. Each company will calculate a separate score for you as they work independently of each other. Lenders and creditors may report late payments to one or more of these agencies. Because of this, it is important that you are aware of what is on each of your three credit reports.

Many things can hurt your credit rating: being late on a credit card payment, having a high debt to credit ratio, and having a defaulted college loan all will contribute to bringing your score down. Even multiple credit checks by lenders can bring down your credit score since the frequency of credit checks accounts for a portion of your rating.

There are several things you can do to improve your credit score. Your first priority should be to look at the factor or factors that brought your score down in the first place. Were you late on a payment? Have you maxed out your credit cards? These obvious questions should be answered and addressed first.

Additionally, there are other things you can do to help with your credit rating. Just by checking your credit report, you might be able to improve your score. There are many resources available that allow consumers to check their credit reports for free, without penalizing them on their credit report. When giving your report a glance, make sure to be aware of any errors that might appear. It is not unheard of for credit bureaus to put bits of someone else's information on your own credit report. Write a letter to each of the credit bureaus and explain what the inaccuracy is. Credit agencies will then need to contact the creditor to see if this is indeed the case. If there is no response from the creditor within thirty days, by law, the disputed part of your credit report must be deleted. Giving your report a yearly examination will help reduce the threat that an error poses to your credit.

A secured credit card may also be helpful. Applications for these are unlikely to be denied because they only allow you to use money that you have already put into an account. For instance, you might deposit $500 at your bank. This would enable you to use your credit card for up to, but not over, the same $500 (minus whatever fees are added). All the while, you will be building and improving upon your credit history. A good history of debt repayment and responsible use of your credit can do nothing but help you repair your credit rating.

There are also more fundamental changes you can make to repair your credit scores. Lifestyle changes are the most obvious of these. Putting yourself on a budget can greatly help. Try making a list of everything that you spend money on. Which of these goods or services are necessary expenses? Which are not? By identifying where your money is going, you can then make changes and put your money to better uses, such as repaying other loans.

Another change would be contacting your creditors or lenders. Sometimes, just explaining your situation to a lender will buy you some time. Rather than ignoring collection calls, you should demonstrate that you have every intention of repaying your creditor. By showing that you are willing to cooperate, you greatly improve your standing with your creditors.

If you are intent on repairing your credit score, do not close all of your cards once they are paid off. If you find it necessary to close any cards, make sure that you keep your oldest cards open. Older accounts in good standing provide a better credit score. Additionally, cards with high limits, but low balances, will look positively upon you since this shows that you have a low debt to credit ratio. Furthermore, this is a reflection upon your level of responsibility.

With existing cards, there are methods of repayment that will improve your credit score. By paying more than the minimum scheduled payment, you are showing creditors that you are serious about repaying your debts. Paying weekly is another trick that will sometimes work in raising your credit score. Again, this shows the credit bureaus that you are seriously trying to reduce your debt and raise your credit score since you are paying more often than necessary.

Filing bankruptcy might seem like a quick and easy solution to your debt problems. This should only be used as a final resort, however. A bankruptcy stays on credit reports for up to ten years and is a stark warning to creditors that you are a high risk borrower. Rather than filing bankruptcy, try and pay off your debts the hard way. This will only help you in the future should you need to obtain credit.

Another solution to bankruptcy is settling your debts for less than their full value. Settling a debt will penalize your credit rating, but it will not affect you as much as a bankruptcy would. Not all lenders will allow you to settle your debts at less than the original value, but the ones that do can be an attractive alternative to bankruptcy.