In the market for a new home, but your credit score could use some serious TLC? You’re not alone! And we’re here to tell you that credit repair is very possible – it just takes a little strategy, effort, and some discipline, too.
There’s even better news: you can perform the credit repair yourself. Don’t be taken in by offers from anyone promising easy credit repair overnight. You’ll likely end up paying a sizable sum of money (likely the last thing you need right now) when you could have handled it all on your own.
A solid credit score doesn’t happen instantly, but it will happen if you follow the five credit repair steps below.
1. Get Copies Of Your Full Credit Reports
Before you even start the DIY credit repair process, it’s time to grab copies of your full credit reports from all three credit bureaus (Experian, Equifax, or TransUnion).
You can get annual free copies of your reports when you visit annualcreditreport.com or by calling 1-877-322-8228. You’ll come across other websites offering “free reports”, but the Federal Trade Commission (FTC) has warned consumers time and again that these offers are often just scams. Avoid signing up for any free trials or fee-based credit reports.
2. Dispute Incorrect Information On Your Credit Report
Now that you’ve assembled the information you’ll need, it’s time to take the first step in the credit repair process: disputing incorrect information. It’s much more common than people realize! Make sure you check and double-check:
- The spelling of your name
- Your address
- Social security number
- Credit history information
- List of credit cards
- Major purchases
- Outstanding debts
Did you spot any mistakes – or were there any items you found questionable? (Keep in mind that your reports from the three different credit bureaus may not have the exact same information.) First, make a copy of the report and make note of the mistake. Then, compile and make copies of any information that supports your position, including bank account statements.
Send a letter by certified mail to the specific credit reporting agency that had the error on its report, with a clear explanation of the errors and copies of your supporting documentation. Be sure to keep the original documents for yourself!
The reporting agency must investigate the item – usually within 30 days – and they must also forward all the relevant data you provide about the inaccuracy to the organization that provided the information. Here is the contact information for the three credit bureaus:
- Experian: 1-888-397-3742 – www.experian.com
- TransUnion: 1-800-916-8800 – www.transunion.com
- Equifax: 800-685-1111 – www.equifax.com
If you’re looking for more specifics on this process, the Federal Trade Commission provides great advice on contacting the credit bureaus about errors.
3. Pay All Your Bills On Time
No exceptions! The single most important factor to your credit score is your ability to make on-time payments. Your credit can’t improve in any meaningful way until you show lenders you can consistently pay all your bills on time. Make every effort to get caught up as soon as possible.
4. Pay Down Credit Card Balances
Have outstanding balances? You’ll need to create a budget that allows you to pay down your credit cards bit by bit, month after month.
Refresh your knowledge of your credit limits – you’ll want to stay well under the maximum amount when you’re charging items. In fact having a credit card utilization rate under 30%, per card is preferable. To illustrate, look at the following example of how your debt gets analyzed by ratios:
Let’s say you charge $500 on a card with a $1,500 limit – this means you have a credit card utilization rate of 33%. That’s far better for your credit score than charging $500 on a card with a $1,000 limit (50%). And of course, both of these scenarios are better than making out your credit cards (a ratio of 100%).
Even if you owe nothing, the total amount of available credit still affects your score. You should pay these credit cards down, but avoid canceling them!
5. Resist Temptation: Do Not Apply For New Credit!
This is where things get tough. It can feel difficult to avoid opening a new credit card, especially when, for example, your favorite store is offering a tempting discount and other benefits.
Remember: every time you apply for credit, it’s listed on your credit report as what’s called a hard inquiry. If you have too many of these hard inquiries within two years, your credit score will take a hit.
DIY Credit Repair is A Journey – But It’s Worth It
It can feel like you’re taking a lot of steps and making sizable sacrifices without seeing much immediate payoff. It may take months or even a couple of years, but your credit score will improve. And when you and your family are settling into your new dream home? All the discipline and hard work will feel completely worth it.