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Although the average credit score in the United States is 710, that doesn’t mean everyone has good credit. If you have a poor or damaged credit score (usually less than 670), it can prevent you from doing whatever you want, whether it’s getting a new car, renting a nice apartment, or buying. the house of your dreams.
However, there are some steps you can take to correct your credit which we describe below.
1. Check your credit score and report
Your credit report contains information about how you’ve used credit over the past 10 years. You have a credit report from each of the three bureaus: Equifax, Experian, and TransUnion. Most creditors report all three, but not all, so it is worth checking the information on all three reports. You can get weekly credit reports free of charge until April 20, 2022 at AnnualCreditReport.com.
Your credit report is used to calculate your credit score, and it is also important to check it. You can check your credit score for free on credit reporting websites or on some credit card providers. Checking your own score only requires a flexible credit check, which doesn’t damage your score. We recommend that you check your score once a month.
Related: How to check your credit score
2. Correct or dispute errors
Unfortunately, sometimes the credit bureaus make mistakes. According to a study by Federal Trade Commission, a quarter of people had errors on their credit report and 5% of people had errors that could have made obtaining a loan more costly for them.
So while knowing your credit report and credit score is a good first step, it is also essential to find errors. If you spot any, it’s a relatively straightforward process to dispute these errors and get them removed.
3. Always pay your bills on time
Your payment history represents 35% of your credit score. So, if you want to fix your credit, you need to focus on adjusting your monthly payments. While it may seem difficult to pay all of your bills on time, there is one simple trick to make it happen: automatic payment.
If you have bills that don’t allow automatic payment, like one-off medical bills, pay them as soon as you receive them. If you can’t, contact the office and work out a payment plan.
If you are worried about overdoing your account, we recommend that you set a budget and / or schedule your automatic payment at the same time you get paid.
4. Keep your credit utilization ratio below 30%
Your credit utilization rate is measured by comparing your credit card balances to your overall credit card limit. Lenders use this ratio to assess how well you are managing your finances. A ratio of less than 30% and greater than 0% is generally considered good.
For example, let’s say you have two cards with individual credit limits of $ 2,000 and $ 500 of outstanding balances on one card. Your credit utilization rate would be 12.5%. In this case, add up your debt ($ 500), then divide it by your total credit limit ($ 4,000).
5. Pay off other debts
If you have unpaid debts, paying them off can help improve your payment history and lower your credit utilization rate.
When planning to pay off your credit card debt, consider the debt avalanche or snowball method. The Debt Avalanche method focuses on paying off your high interest cards first, while the Snowball method focuses on paying off your smaller balances first. Evaluate both to determine which method is best for your situation.
If you are planning to pay off loan debt, it is important to note that you may experience a temporary drop in your credit score. But rest assured, it will improve your credit score in the long run, according to Experian.
6. Keep old credit cards open
You might be tempted to close old credit cards after paying them off. However, don’t be so quick to do it. By keeping them open, you can build a long credit history, which is 15% of your credit score.
There are a few caveats here, however. Your issuer may close your card after a certain period of inactivity and if it charges an annual fee it may be worthwhile to close it.
7. Do not withdraw credit unless you need to.
Whenever you apply for credit, your creditor will perform a rigorous credit check. This can lower your score from one to five points. It will also lower the average age of your account, which can lower your credit score as well. So, as a general rule of thumb, try to avoid applying for credit unless you really need it.
Can You Pay A Business To Fix Your Credit?
Credit repair companies work primarily by removing negative information from your credit report, usually errors. But that’s only a tiny part of fixing your credit score. And you may be able to dispute the errors yourself faster.
So not only are credit repair companies expensive (often between $ 50 and $ 100 per month, according to Experian), but you can do it yourself. And if you really need help with credit, you can always seek affordable assistance from a nonprofit credit counselor through the National Foundation for Credit Counseling.
How Long Does It Take To Fix Your Credit?
While there are steps you can take to improve your credit, such as paying off your credit card balance, it may take longer than expected to see results. Sometimes creditors can take at least a few weeks to report your payment information and companies can update your score because of it. In general, fixing your credit score is a long-term game.
Next Steps: Regularly Check Your Credit Score
Once you’ve started taking the necessary steps to correct your credit, it’s a good idea to keep a regular eye on your score by checking it once a month. This way you will be able to spot errors and see how your actions play a role in improving your score.