If you’ve had an overdue loan, missed payments, years of high credit card balances, collection accounts or even a foreclosure, chances are you have a below average credit score.
The good news is; you can repair your credit score all on your own by taking action on these few steps (and having a little patience):
1. Figure out where you stand
Before you begin, you’ll want to get copies of your full credit reports from all three bureaus (Experian, TransUnion, and Equifax).
You can get your reports free, once a year, at www.annualcreditreport.com. Other websites may claim to offer free reports, but the Federal Trade Commission (FTC) warns that these offers are often deceptive.
Credit scores range from 300 to 850. A score of between 700 and 740, depending on the scoring method used, is considered “good credit”.
2. If you find errors, dispute them
The next step in credit repair is to dispute incorrect information on your credit report.
Errors aren’t common, but they happen. Of course, sometimes bad credit is just your fault. You shouldn’t try to argue accurate information, but if you do see errors–even small ones—it’s worth cleaning them up.
- Experian: 1-888-397-3742 – www.experian.com
- TransUnion: 1-800-916-8800 – www.transunion.com
- Equifax: 800-685-1111 – www.equifax.com
3. Stop the cycle
Once you deal with any errors on your credit report, it’s time to ensure you’re not still spending more than you can afford each month.
Why is this so important? It’s because are only three simple things to do to repair bad credit:
- Pay all of your bills on time
- Pay down debt (especially credit card debt)
- Avoid applying for credit
But before you can do these things, you need to make sure you’re not spending more than you earn—you need a budget.
Subtract your regular monthly expenses (rent or mortgage, car payments, and home, car and health insurance) from your current income.
Next, estimate your monthly spending habits for other expenses such as gas, groceries and entertainment. Create a limit, based on your income, of what you can spend in each of the different categories of expenses. For example, if you tend to spend $400 a month on groceries, try to stick to $300 a month on groceries by making changes like buying generic brands, using coupons, and resisting impulse purchases.
4. Pay all bills on time going forward
If you want to fix bad credit, you need to start paying all of your monthly bills on time, period!
If you’re behind on any bill, get caught up as soon as you can. On-time payments are the single most important factor to your credit score. Simply put, your credit won’t improve until you can consistently pay every bill on time.
5. Pay down credit card balances
Take charge of your credit cards by paying down their balances.
If you have any outstanding balances, make room in your budget to pay down these debts little by little, every month until they are gone.
Know your credit limits and make every effort to stay well under the maximum when charging items.
6. Don’t apply for new credit
Finally, resist the temptation to open a new credit card, even when a store offers a discount on your purchase for doing so.
Each time you apply for credit is listed on your credit report as a “hard inquiry” and if you have too many within two years, your credit score will suffer. In general, a consumer with good credit can apply for credit a few times each year before it begins to affect their credit score. If you’re already starting with below-average credit, however, these inquiries may have more of an impact on your score and delay your ultimate goal of watching your credit score climb.
(Partial content provided by http://www.moneyunder30.com)