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1.3. How to Repair Your Credit Score

Improving your credit score will take time.  One doesn’t get a bad credit score overnight, or over a couple of weeks or months.  It took time to earn the score you have and it will take time achieve the score that you want!  Start by setting realistic expectations and follow up by making changes that will make a positive impact on credit score.

Look for errors. There may be some accounts listed that are not yours or accounts that you can dispute. These need to be addressed and removed, if possible. Write a letter of dispute to each credit reporting agency (CRA).  Verify that all closed accounts reflect as a closed account. If accounts have been closed but do not reflect a closed status, it is often more advantageous to get the credit bureau to show the account as closed rather than trying to get it removed from the report entirely. Creditors like to see that you pay off loans or debt from previous transactions.   

Pay Down Balances When Possible. Your credit score is partially based on the availability of credit. If you are running balances on your credit cards near the maximum limit, then you need to try to pay them down to around 45%.  If you don’t have the available cash lying around to pay the balances down, you can do balance transfers and move money around to different cards to keep the balances of all your credit cards below the 45% range.  If you don’t have another credit card, try applying for a new one and move some of the current debt to the new card.  Whatever you do, don’t incur new debt.

You may also contact your current cards and see if they will extend you more credit on each card. By extending your current line of credit, lower your percentage of credit availability used on the card. A combination of paying down some debt and getting an increase on your line of credit will help get your debt to credit limit below the 45% mark.

Negotiate Rate with Creditors When Possible, Not Balance.  Most debt consolidation services take an approach of encouraging a borrower to stop making payments on multiple accounts and then after a couple of months with no payment, they work to negotiate down the balances of the debt.  This strategy typically does more harm than good and it takes longer to recover from since the creditor will report to the CRA’s a breach in the original agreement you entered into.

Rather than try to negotiate balance, try to negotiate a lower interest rate which will lower the payment. From there, you can slowly pay off the balance with the proceeds. You can even look to leverage another available asset such as home equity to pay off higher interest debt that will free up that monthly payment or discretionary income. Negotiating interest rates will take a bit more time but the creditor will report that you are fulfilling your agreement.

Be Cautious of Credit Repair Scams. If you are considering a credit repair or debt counseling service, make sure that you understand exactly what they will be doing for you and how they will be getting their results. Avoid “Email Credit Repair” services as these are often fraudulent.  Be sure to check with the Better Business Bureau and do your homework on the company that you decide to work with.

In most cases, it is difficult to find someone that will care for your credit or financial well-being as much as you do.  Most credit repair agencies don’t require any licensing.  In most situations, credit repair is simply negotiating debt and working with the credit bureaus and creditors to correct changes. You can save time and money by doing it yourself while getting the same results.

Be Aware of The Consequences Before Co-Signing.   When approached by anyone who wants you to co-sign with them, you need to realize how their credit performance will affect your credit score. Be sure you can you trust them to pay the debt.  Their performance will be a direct reflection of your performance.  You wouldn’t and shouldn’t agree to a loan you can’t afford, so make sure you will be able to make the payment if the primary borrower defaults on the agreement with the creditor.