Bad credit can create major problems in your financial life. It makes you ineligible to get a loan, a new credit card, and even a cell phone plan.
The process of finding out about bad credit is quite unpleasant, as you find out about it in the most unexpected of instances. What is interesting is the fact that finding out about bad credit happens within seconds, but repairing the bad credit can take a few months.
You have to follow certain guidelines and be very patient throughout the repairing process. If you follow some of the helpful tips mentioned below, then you can easily repair your credit without going from pillar to post.
Credit Reports Are Important
It is observed that in many bad credit reports, there are a few items which impact the report the most. Hence, finding out those few items and understanding what they mean is the first step to repairing bad credit.
The first thing you need to do is order a free copy of your credit report. The nation’s three biggest credit bureaus, namely Equifax, Experian, and TransUnion, are required by law to give you one free credit report annually when you request for one.
60 Days To Request
According to the federal trade commission, if any company denies your application for credit, insurance or employment, then you are legally entitled to request for a credit report. You have to make this request within 60 days of receiving the notice of denial. So, the best thing to do is to order your credit report from all the three major bureaus besides getting one from the company that denied your application.
This is important because every bureau has its own way of compiling the report and all the items on a bureau’s report may not be the same as those on another bureau’s report.
Once you received your credit report copies, you need to go through each and every item. You also need to educate yourself about what each item means. Research the things which you do not understand. There is plenty of information available online.
Going Through Your Credit Report
As you go through your credit report, there are normally two things that could happen. Either you will discover that the information on the report is inaccurate, or you will notice that certain items are responsible for spoiling your credit score. The second situation could be true because you may have been through a personal challenge in your life.
Bad credit due to inaccuracies
Let us look at the first possibility of inaccurate information. Once you read through your credit report and identify all the disputed items, you may want to circle them or highlight them and send the marked report along with a letter to the credit bureau.
On the letter, make sure you write your name, contact details, and clearly state the reasons why you believe that an item is not accurate. You do not have to provide them with any evidence or supporting documents because it is their job to investigate.
The credit bureau
The credit bureau has to prove to you why a particular item is recorded as is on the report. This mail consisting of the letter and the report copy must be sent by registered or certified mail. You do this to get official notification that your mail has been delivered. Credit bureaus are required to respond to your request within 30 days and you do not want them saying that they never received your dispute letter.
Often times, the credit bureaus will forward the disputed info and data to the information provider who they work with to compile credit reports. That information provider has to then verify the data and come back to the credit bureau with the result of the investigation.
Inaccuracies Need Fixing
If there is an inaccuracy, then the credit bureau has to correct the error on your report. If the dispute raised by you is deemed to be frivolous or baseless, then the credit bureau will not proceed with any investigation. Hence, make sure you communicate clearly what you are disputing.
There is another interesting thing worth knowing. If any corrections are made to your credit report, the bureau has to send you a written notice notifying you about the same.
The written notice also includes the name and contact information of the credit bureau’s information provider. You can also make a special request to the credit bureau to provide you with notices of any corrections that were made on your reports which may have been received by any third person in the last six months.
That way, you know what any recent requestor of your credit report saw about the changes made on your report.
Lastly, you can also have the credit bureau send a corrected copy of your credit report to any person/entity who requested your credit report in the last two years for employment-related purposes. So, if you were denied employment because of bad credit, the companies who deemed this denial get notified about the error on your report.
If for some reason, your dispute does not get resolved, then you can ask the credit bureau company to include your dispute statement in your file, so all future credit report requestors see your dispute letter along with the credit report. Additionally, there is normally a paid option to have the credit bureaus send your dispute letter to requestors of your credit report from the recent past. You will have to explore this option more to know the details, but a service of this nature does exist.
Bad credit due to personal challenges
Now let us look at the case where you have faced certain personal situations which in turn have led to a bad credit report. It may be possible that you may be going through bankruptcy, or are facing a foreclosure on your home, or have made late payments on your credit card.
There are many such cases which can harm your credit. While you cannot go back in time and change the past, you can certainly take actions which will slowly heal your credit and get it back up where you want it to be. Bankruptcy, foreclosure, and repossession can severely dent your credit score. It can take 7 to 10 years to come out of such a massive hole. Other instances are not as bad, and you can stop the damage before it’s too late.
Repairing bad debt is a long-term action
You will have to commit to a long-term action plan and be patient. The first thing you will have to do to improve your credit is pay-off the debt. Any debt which is not necessary can go. When you pay off the debt, get written confirmation from the lender that you are all clear and do not owe anything.
If you are not able to pay off the debt, then you may have to either restructure the loan or settle the debt for an amount lower than the principal.
This is a tough time-consuming process. If you are going that route, then keep in mind the tax considerations. The difference between the original loan amount and the settled amount is viewed as income and you may be taxed on it. Consult a tax professional before you take any further steps to settle the debt.
Secondly, you can consolidate your debt. If you have multiple loans with multiple interest rates, then that just complicates your life. Consolidate those debts into a single loan which requires a single interest payment. At times, you may be able to get a lower interest rate on the consolidated loan that what you may be paying on each individual loan.
Thirdly, you need to re-work your spending habits. Make a thorough evaluation of your incomings and outgoings and cut out any expense which is not a necessity. Think of it as a limited time pain for long-term gain. Once you sort out your financial situation, you can always resume some of the discretionary spendings which you will be cutting out for a few months/years.
Spend Less On Credit
Spend significantly less than what your credit card limit allows you to. Being too close to the limit negatively affects your credit score. Another way to solve this problem is to request a rise in your credit card limit. This option is difficult many a time. But, if there is a possibility then take advantage of it. The idea is to stay away from the limit.
Lastly, try getting a credit builder loan
As the name suggests, a credit builder loan is a loan which sits in your account to build your credit. You will not be able to use the money from this loan. All you need to do is pay the EMI on it and once you are done (depending upon the term of the credit builder loan), you can use the loan amount down the line. It might sound unfair to pay years of EMI on money which you cannot use, but it may prove to be a small cost towards fixing a big problem of bad credit. The results can be very much worth the trouble. Normally small banks and credit unions offer such loans.
With the information mentioned above, you can do a lot of the credit repair work yourself. You might not need an expert to repair your credit for you. However, if you feel the need to get additional support or guidance, Green Touch has a diverse team of experts who specialize in credit repair. Feel free to call us or fill out the form below and we will be with you right away.