Bad credit history is a recipe for a tough life. If you have bad credit, you can easily get denied loans, credit cards, jobs, and rental apartments. But that’s just the beginning. Bad credit can make it challenging to buy, lease, or rent a car. It can also cause you to pay higher insurance premiums and higher interest rates.
But don’t worry, we can help you. With this step-by-step guide, we will put you on the path to repairing your credit and building healthy credit habits.
How To Repair Your Credit – The Step-by-Step Guide
1. Get Your Free Credit Report
The first step to repairing your credit is knowing what’s on your credit report. You can do this by requesting a free copy of the report from the three credit bureaus: TransUnion, Experian, and Equifax.
According to the Federal Trade Commission, you are entitled to one free copy of your credit report every 12 months from these credit bureaus.
To request your free copies of your credit report, go to annualcreditreport.com. Provide your name, date of birth, social security number, and other identifying information.
By the way, the three credit bureaus are required by federal law to provide you a free copy of your credit report every 12 months. You can get your credit report from their respective websites.
However, the credit bureaus got together and developed annualcreditreport.com as a one-stop-shop for getting all your credit reports.
Once you get a copy of your credit report, go to the next step below.
2. Review Your Credit Reports Thoroughly
Reviewing your credit report is a crucial part of the credit repair process. Many people, especially those whose identities have been stolen, are usually unaware of what’s on their credit report.
If you review your credit report, you will recognize what should be in it, and what shouldn’t. Sometimes, there may be an item on your TransUnion credit report that may not be on your Experian or Equifax credit report and Versa Versa.
If, for instance, you don’t have an active credit or identity monitoring, and someone opens a credit card or takes a loan in your name, you’re not going to know about it. But with your free credit history report, you can finally see everything that’s on your credit file and how it is affecting your credit score.
After you’ve thoroughly examined your report and determined what’s accurate and what’s not, you can then move on to the next step.
3. Open A Free Account With Credit Karma
Credit Karma provides free daily credit monitoring; that great because you need credit monitoring to stay on top of your credit. But that’s not why I want you to open an account with Credit Karma.
Here’s why you should open an account with Credit Karma: Credit Karma makes it easy to dispute and remove negative, inaccurate, and fraudulent items from your credit report. Removing these items is crucial to repairing your credit.
There are credit repair companies, like Lexington Law, that based their entire business model on removing negative and inaccurate information from customers’ credit reports. And for this service, they charge a monthly subscription fee of $89.85.
But as you will see, you can do all this on your own without spending a dime, and for added measure, you’ll become a credit repair expert while doing it.
What To Do With Your New Credit Karma Account
Now that you’ve opened your Credit Karma account, let the fun begin.
Your Credit Karma account pulls information from your TransUnion and Equifax credit reports. So here are the things you need to do:
- Compare the information on your Credit Karma Account with what’s on your TransUnion and Equifax credit reports.
- Highlight the inaccurate items.
After you highlight and note all the inaccuracies in your credit report, move to the next step: disputing the inaccuracies.
4. Dispute The Inaccurate Information On Your Credit Report
To remove inaccurate information from your credit report, you don’t have to write lengthy letters, hire expensive credit repair agencies, or hire a lawyer.
With Credit Karma, disputing items on your credit report is as easy as a few taps on your phone, or a few clicks of the mouse on your computer. Moreover, it never hurts your credit score.
All you have to do is follow the simple procedure below:
- Go to Account on the menu bar and click it. You will see a listing of all the amounts you owe.
- Go to the specific amount you wish to dispute, and just below it, you will see the “dispute button.”
Once you click the dispute button, you will be prompted to provide the reason why you’re disputing the debt. Don’t worry; you only need to click a box. See below:
Benefits Of Disputing A Wrong Charge On Your Credit Report
There are several benefits to successfully disputing a wrong charge on your credit report. Below are a few of the significant benefits.
- You can increase your credit score by as much as 25 points.
- Eliminate annoying phone calls.
Tips For Disputing Items On Your Credit Report
Creditors and debt collectors are required by law to provide accurate information about what they claim you owe them.
So here are some tips: Always dispute when you’ve already paid a bill or when the details of the bill aren’t 100% correct.
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5. Negotiate To Pay Pennies On The Dollar For Your Legimitate Debts
Now that you’ve removed some of the inaccurate items from your credit report, and hopefully you’ve gotten 25 to 50 points added to your credit score, let’s move to the next step: Negotiating with your creditors.
Most creditors want to get rid of your debt much more than you do. Approach them and let them make an offer. It isn’t uncommon for them to offer a 50% discount. Whatever they offer, make of counteroffer of 20 percentage points lower.
For simplicity, let’s say your debt is $1,000, and your creditor or debt collection agent offer to accept $500 to clear your account. Make a counteroffer of $300, and let the negotiation begin.
Whatever the amount you agree on, when you make your payment, make sure the debt gets reported as paid on your credit report. That’s the only way you’re going to get a credit score boost.
5. Get A Secured Credit Card
Now that you’ve disputed all the inaccurate and negative items on your credit report, and you’ve negotiated to pay your debts at a discounted rate, hopefully, you’ve seen some improvement in your credit score. Now, let’s move to the next phase: Getting a secured credit card.
Why Is It Important To Get A Secured Credit Card
A secured credit card is an excellent way to build or rebuild your credit score.
It is essential to start with a secured credit card because secured credit cards are easier to get–they are less risky to the credit card company.
For a secure credit card, you’ll have to deposit an amount with the credit card company corresponding to the credit limit you are seeking — usually $200 to $3000.
Open Sky Credit Card is an excellent place from which to get a secured credit. A $200 balance is all you need to start, and once you start, make sure to pay your monthly bill on time.
Paying your bills on time and maintaining a zero monthly balance is vital to growing your credit score quickly.
6. Get A Credit Builder (Self-Lender) Loan
Just like a secured credit card, a credit-builder loan is a loan designed to help you build your credit profile. The difference between the credit-builder loan and a regular loan is a loan from you to yourself.
When you apply for a credit-builder loan, which is also called a self-lender loan, the lender does not give you the money. The lender places the money in a bank account and holds on to it until you pay it off. Once the loan is paid off, the lender will then release the money to you.
How Does A Credit-builder Help You Build Your Credit?
A credit-builder loan, as the name implies, helps you build your credit score when you make your monthly payment. But this is only true if your lender reports your monthly payment to the three credit bureaus.
Self, Inc is a company that gives credit-builder loans to help individuals build their credit. As described above, the loan is designed exclusively for building credit. Visit Self to learn more about this credit-builder loan.
7. Get Experian Boost
Experian Boost is a service offered by Experian, one of the three credit bureaus. The service allows you to build your credit score when you allow Experian to report your monthly mobile and utility bill payment to the three major credit bureaus.
Just like you get credit for paying your loans and credit card bills on time, with Experian Boost, you will get credit for paying your phone and utility bills on time.
The only downside to using this service is that you will have to give Experian access to your bank account.
With the constant hacking of major companies, most notably, Equifax, I can understand you feeling apprehensive about giving your banking details to Experian.
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8. Get Credit For Your Rent And Bills Payment
If you pay rent every month, you can opt to have your rent payment reported to the three major credit bureaus. And just like your credit cards, your rent payment, if reported to the credit bureaus, will help improve your credit profile. Here’s how it works:
Renttrack, one of the companies that offer this service, will work with the property management company that manages your apartment complex.
When you pay your rent, using the Renttrack portal, Renttrack reports your payment to the three major credit bureaus. Doing this over time will help build your credit profile and increase your credit score.
However, for this to work, your property management company has to use Renttrack for receiving online rent payments.
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Conclusion
No matter where you are in your credit repair journey, following the simple steps outlined above can dramatically improve your credit score.
Once again, the steps are:
- Get your credit report and review it.
- Use Credit Karma to dispute inaccurate items on your credit report.
- Negotiate to pay pennies on the dollar to settle your legitimate debts.
- Get a secure credit card and a credit-builder loan to boost your credit profile and credit score.
- Use Experian boost to get positive ratings with the credit bureaus when you pay your phone and utility bills.
- Get positive ratings with the credit bureau for your rent. It works if your property management company uses Renttrack. There may be other companies out there that do a similar thing. Ask your property manager about the company they use.
As you can see, with determination and focus, you can do an effective credit repair of your credit score.
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