If you dream of buying a home but have less-than-perfect credit, don’t despair. Credit repair’s not rocket science, all you have to do is follow these 10 simple steps.
- Get your credit score.
- Find negative items on your credit report.
- Check your credit report for errors.
- Dispute inaccurate items on your credit report.
- Request a goodwill adjustment from your creditors.
- Offer to sign up for automatic payments to have a late payment removed.
- Try a “pay for delete.
- Pay off or pay down your credit card balance.
- Get a secure credit card.
- Become an authorized user.
No, you can’t fix it in a day. But no matter how bad your credit card score is, you can raise it. This article gives you all the details.
Better Yet, You Can Do Your Own Credit Repair for Free
Fixing bad credit’s a huge industry and lots of companies promise they’ll raise your credit score for a fee. But guess what? You don’t need them because you can do it yourself for free.
Credit repair starts with getting your credit reports. While free credit reports don’t show your score, they do provide enough information for you to address issues that affect it But what is a credit report exactly?
Investopedia explains lenders rely on credit bureaus to collect information about you and provide credit reports so they can see whether you’re a good risk. If your bank see you as risky, they’ll either charge you higher interest rates or deny you a loan. Credit reports contain the following:
- A list of loans and credit cards issued to you.
- The total amounts you owe and your credit limits
- Whether you pay your bills on time, and how much you’ve paid.
- Bad debts, missed payments, and late payments.
- Credit reports requested
- Former and current names, addresses, and employers.
- Bankruptcies within the past 10 years.
However, credit reports often contain negative information about you that’s outdated or flat-out wrong. That’s where credit repair comes in. No matter how low your score is, there’s likely something you can do to raise it.
Credit score is a three-digit number that sort of grades your credit report. High credit scores show that you have positive information on your credit report while low credit scores indicate the presence of negative information. pic.twitter.com/fbSJ2ctC2w
— CreditCRB (@CreditCRB) November 25, 2017
1. Get a copy of your credit score from the big credit reporting agencies
Getting your credit reports is the first and most important step for credit repair. Many websites offer to do this for a fee, but that’s nonsense. Under the Fair Credit Reporting Act (FRCA), the credit reporting agencies (CRAs) are required to give you one free credit report per year. You can also request a free credit report if you get turned down for a line of credit.
The big credit bureaus that most banks use to evaluate your creditworthiness are Experian, Transunion, Equifax, and Fair Isaac Corporation (FICO). Since the information they collect varies, you should order your credit reports from all four of them.
To get your free credit reports from Equifax, Experian, and Transunion, go to AnnualCreditReport.Com. When you’re done filling out their easy online forms, head on over the MyFico.Com to get your free credit report from Fico.
To keep an eye on your credit score during the homebuying process, you can also download Credit Sesame for iPhone and Android. This handy app is free and gives you tips, updates, and recommendations for financial products.
— David Scott (@repdavidscott) October 25, 2017
2. Look for negative items on your credit report.
As soon as you have your credit report in hand, look it over to see if there are any accounts that have a negative status. Highlight those and be sure to also highlight all late payments and credit inquiries. Being aware of those is a crucial step for credit repair.
Potentially negative items that may be ruining your credit include the following:
- High credit card balances: If you owe too much money relative to the amount of credit you have available, lenders may worry about your ability to pay your mortgage.
- Late payments, non-payments, and defaults: If you’ve paid bills late or were unable to pay certain bills at all, this will reflect badly on your credit.
- Matters of public record: Bankruptcies, tax liens, and civil court judgments against you may also give banks pause.
- Excessive inquiries: Every time you apply for a loan or line of credit, the lender requests a credit report. If you’re constantly applying for more lines of credit, that makes lenders nervous because it looks like you can’t handle your finances.
Don’t worry getting dinged for excessive inquiries while shopping for the best mortgage. Banks know you’re looking for a good deal, not trying to buy several houses at once. The credit bureaus count multiple applications for home and car loans as just one inquiry as long as they’re all done within a 14-day window.
3. Check your credit report for errors.
When you get your credit reports, The Balance advises you go through them thoroughly. Each report contains your personal identifying information, a detailed history for all of your accounts, bankruptcies, loan balances, and any inquiries made regarding your credit report.
Here are some examples of errors you may find on your credit report that you can have removed:
- Accounts that aren’t yours.
- Payments they’ve incorrectly reported as late.
- Past due accounts that are late or have been charged off, or sent to collections.
- Credit limits reported as maxed out when they’re not (for example if you briefly exceeded your credit limit while dealing with an emergency but paid it off quickly).
- Derogatory items that are old and should have dropped off. Credit reporting agencies are supposed to remove items after 7 years (or 10 years for a bankruptcy).
While you’re doing this, it’s a good idea to grab a highlighter pen and mark any areas in question. This is a time-saver that will help you locate the information you need more quickly.
4. Dispute items on your credit report.
You can easily notify the credit bureaus of inaccurate information online, but it’s better to do it by certified mail with a “return receipt requested.” In your letter, explain what you think is inaccurate and attach copies of any bills or other documents that prove your points.
Your letter should contain your full name and address, a list of disputed items, a copy of the credit report with the disputed items circled, and an explanation of why you want each item removed or corrected.
Credit bureaus have 30-45 days to investigate and respond to your letter, which is why it’s important to send it by certified mail and to request a return receipt. If they don’t respond within that amount of time, they have to note that you’ve disputed the items.
Click below for a sample dispute letter courtesy of the Using the Federal Trade Commission (FTC).
[su_spoiler title=”Click here to display a sample dispute letter for credit repair.”][Your Name]
[Your City, State, Zip Code]
[City, State, Zip Code]
Dear Sir or Madam:
I am writing to dispute the following information in my file. I have circled the items I dispute on the attached copy of the report I received.
This item [identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.] is [inaccurate or incomplete] because [describe what is inaccurate or incomplete and why]. I am requesting that the item be removed [or request another specific change] to correct the information.
Enclosed are copies of [use this sentence if applicable and describe any enclosed documentation, such as payment records and court documents] supporting my position. Please reinvestigate this [these] matter[s] and [delete or correct] the disputed item[s] as soon as possible.
Enclosures: [List what you are enclosing.][/su_spoiler]
If your account has gone into collection, you can also send a debt validation letter to the collection agency. The Balance explains that this credit repair technique can work. If the company can’t send you proof that you actually owe the debt they’re trying to collect within 30 days, they have to take it off your credit report.
5. Request a goodwill adjustment from your creditors.
If you’ve got late payments on your credit report, the Better Credit Blog suggests this credit repair tactic: Write a letter to your creditor and ask for a goodwill adjustment.
Yes, you can really do this and it often works. If you otherwise have a good payment history or there were extenuating circumstances, the folks in Billing are often willing to help. Here are some common causes of late payments: You lost your job but recently found a new one, you had major health issues or were in the hospital, there was a death in the family, or you recently moved and didn’t receive the bill.
If you don’t hear back, follow up and be persistent. If you now have a good track record for paying on time, that’ll help. For NerdWallet‘s sample letter for requesting a goodwill adjustment, click here.
6. Offer to sign up for automatic payments to have a late payment removed.
The Better Credit Blog also recommends this little-known tactic. Some creditors will remove late payment entries if you sign up for autopay. This is a win-win. The automatic withdrawals prove you’re committed to not being late anymore.
7. Try a “pay for delete?”
Some experts also recommend making a “pay for delete” arrangement with creditors. As The Balance explains, you can write a letter offering to pay all or part of your balance in exchange for their removing the item from your credit report.
Yet CreditCards.Com says this credit repair tactic is shady and often doesn’t work. For starters, collection agencies are required to submit accurate information to the credit bureaus. Second, it won’t remove the item first reported by the company you owe. And thirdly, credit reporting agencies are cracking down on this practice.
Still, it’s worth a try. CreditCards.Com admits, “roughly 10 percent or so of collection agencies will agree to pay-for-delete because they want to collect.” Experts told them smaller collection agencies are more likely to agree because they need the cash.
Here is how the credit reporting agencies determine your score: pic.twitter.com/Vvg5L30wyV
— David Rigney (@NNSCAG) October 30, 2017
8. Pay off or pay down your credit card balance.
When it comes to credit repair, your payment history impacts your credit score more than any other factor. According to MyFICO.Com, it accounts for 35 percent of your FICO score. That’s why it’s important to ensure that every possible account on your credit report is either listed as “current” or “paid.” Even a single missed payment can drop your credit score by 90-110 points.
Maxed out credit cards and other lines of credit can also hurt your credit score, so you should get your balances paid down as much as possible. The amount you owe on your credit card as a percent of your total credit line is called your “utilization ratio.” The lower it is, the better.
Should I pay off accounts that are in collection?
Any collection account affects your credit score whether the balance is $0 or $15,000. The Lenders Network says it isn’t a good idea to pay collection accounts unless you have a “pay for delete” arrangement as described above.
If a creditor says they will report the account as paid but can’t remove it, don’t pay it, because it won’t improve your credit score. Keep in mind that collection agencies use nefarious methods to trick you into paying. They may try to tell you the account will show as being paid, or that it will help your credit if you pay it. But the Lenders Network calls that this a falsehood.
“It doesn’t help your score AT ALL to have a bunch of collections that show a zero balance. If they will not remove the account from your report like it was never there in the first place, move on to the next step.”
Yet Credit Sesame argues that with FICO and Transunion’s VantageScore system do reward those who pay off old debts. Plus, you can also often negotiate and get those balances down to zero for pennies on the dollar. Also, when applying for an FHA loan or other US government-backed loans, this may tip the balance for a borderline borrower.
9. Get a secured credit card.
Whether you need to fix your credit score or have one to begin with, you’ll need to obtain at least one credit card. If your credit is bad, this can be a challenge, especially if you’re not sure where to look.
Fortunately, there are places like Creditcard.com, which offers you the chance to find and compare credit cards if your credit score is poor. Overall, secured credit cards work the same was as unsecured credit cards, with the main exception being that you must pay a deposit that’s the same amount as your credit limit. It works like this: If you get a secured credit card with a $500 limit, you’ll need to pay a $500 deposit (which is refundable, by the way), in order to obtain the loan. If payments are made on time over the next six to 12 months, the company issuing the credit card may convert your card to an unsecured one and refund your $500 deposit.
10. Build credit fast: Become an authorized user on someone else’s account.
if someone you know with good credit’s willing to add you as an authorized user to their account, you can piggyback on their higher score and raise yours faster. The main reason for doing this is to get something positive added to your file. As Credit Karma explains, they have a strong payment history and a low credit utilization, this will help.
As an authorized user, you’ll get a credit card and be allowed to use it. But you should be extremely careful about paying off your balance.
This credit repair tactic is especially helpful for those who lack a credit history.
In most cases, any creditor willing to add you as an authorized user will likely not want you to have a card, but this really shouldn’t be of any concern. After all, the main reason for doing this is to add something positive to your credit file. Make sure to keep this account in good standing. Payments should be on time and the balance shouldn’t be low. And the longer the account has been open, the better. The good news here is that once the creditor reports the new status, all of the information regarding this account will appear on your report.
It’s an efficient way to push your credit score up by several points, and it will really help build credit if you don’t have a FICO score. By asking financially responsible people that you know to add you on as an authorized user, can definitely build your credit rapidly.
More Credit Repair Tips
- It might be tempting to close your credit cards but it’s often not a good idea. In fact, it’s likely to harm your credit score, especially if that account shows a balance.
- If you don’t already know this, find out the things that have impacted your credit score so that you can avoid future problems.
- Consumer credit counseling can help. If you’re buried under a mountain of debts and creditors aren’t willing to work with you, or you’re having trouble coming up with a payment plan on your own, consumer credit counseling can help you get back on track.
- Don’t be discouraged by setbacks. Sometimes these things occur when you’re on the road to credit repair. It doesn’t mean you’ve done something wrong, and if you keep adding positive information to your credit report, your credit score will continue to improve over time.
- If bankruptcy looms, it’s better to file sooner instead of later. If this is the only way you can get things in order, don’t spend time on strategies that aren’t likely to work. Instead, you may want to consider whether you should file bankruptcy so you can rebuild a new life.
Following these steps will remove the stress (and the bad credit score) from your life and put you on the path to buy a home.