If you have bad credit, you’re probably desperate to fix it. After all, the late payments, charge-offs, and other dings on your credit report keep you from getting new loans or make you pay higher interest rates. It’s embarrassing to shop in a store and get turned down for a credit account or to have a car dealer’s financial manager act like he’s doing you a favor by getting you a loan with a double digit interest rate.
I cringe when I see ads for credit repair, both because of the cost and the false promises. No one can instantly fix your bad credit, no matter how much you pay. The Federal Trade Commission warns against credit repair scams that take your money and do nothing or use illegal methods that cause you even worse problems.
There’s no need to pay for credit repair because you can easily boost your credit rating for free by doing it the right way, as I’ve discovered in years of writing about financial topics. Your credit score won’t shoot up overnight, but here’s how to build it up steadily:
Make sure your credit reports don’t look worse than they need to. Sure, you might have lots of legitimate negative information on your reports, but maybe there are mistakes, too. I love the fact that you can get free credit report copies every year from Equifax, Experian, and TransUnion, as long as you go through the www,annualcreditreport.com website. I check my reports regularly so I don’t get hurt by credit bureau errors. Your also entitled to a report at no cost if your credit application is denied, even if you already got your free reports for the year.
Check every entry on your credit report, but pay special attention to the negative items. Even if a bad item is legitimate, you have a right to challenge it if there’s something wrong with it, like an error in the balance or payment dates. I’ve disputed items in the past on my own reports and have gotten them successfully removed. The credit bureaus have to erase them if the creditor doesn’t verify the information. If it does get verified, you’re no worse off than you were before.
Never, ever, ever make a late payment. This sounds like common sense, but too many people think, “Well, I’ll just be late this one time. How much can it hurt?” The answer is “a lot,” especially if you’re trying to rebuild your credit rating. Your payment history makes up 35 percent of your FICO credit score, so late payments make it plummet. Companies see you had problems in the past, and if you start making paying late again, they take it as a neon sign that you can’t be trusted to manage your finances responsibly.
Keep using credit. This one always makes me chuckle because I know it sounds counterproductive. After all, using credit cards and taking out loans is what got you in trouble in the first place, right? But you’ll never rebuild your credit score if you cut up all your credit cards because companies won’t have any way of knowing whether you’ve mended your ways. FICO looks at the timeliness of your payments and also the length of your credit history. You need to pay your bills on time and show that you can maintain that great payment record for months and years. Otherwise, a bank won’t take a chance on you because it has no idea how likely you are to actually pay back the money.
You won’t make credit problems go away instantly, so don’t give any money to anyone who tells you that’s possible. Instead, fix the damage yourself, slowly but surely, and keep that money in your pocket.