How to Repair Your Credit

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Your credit score affects your ability to get everything from a job to a mortgage. If your credit is less-than-perfect, you’ve come to the right place. From how long it takes to improve your credit to what is dragging down your score, we’ve rounded up everything you need to know about credit repair.

What Is Good and Bad Credit?

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In the United States, credit scores range from 280 to 850. Equifax, Experian, and TransUnion are the three major credit reporting agencies. According to Equifax, a score below 559 is considered poor. A score of 560–659 is considered fair. A score of 660–724 is good. A very good score ranges from 725–759, and an excellent score ranges from 760–850.

There are a lot of factors that go into why your score is good or bad. To start, the length of your credit history plays a role. Let’s say you’re 21 and you’re looking to rent your first apartment. Your credit score may be lower because you don’t have any credit history.

In other cases, missing payments, making late payments, and having a high amount of debt could be causing your credit score to be lower. The amount of debt you have compared to how much available credit you have is known as your credit utilization ratio. This ratio refers to how much credit you’re using. One of the biggest factors affecting your credit score is this number. Let’s say you have a credit card with a $10,000 credit limit. If your credit card bill is $9,800, you’re using almost all your available credit. This reflects poorly on your credit score.

Why Improve Your Credit?

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Your credit score is what lenders use to determine your creditworthiness. If you have too much debt or you’ve missed a lot of payments, your score is likely to be lower. This shows lenders that you can’t be fully trusted with credit. You may have a long history of missed payments or high credit card balances. These indicate that you could be spreading yourself too thin financially. When your credit score is lower, it affects everything from your loan terms to your interest rate. The lower your score, the higher the interest rate you’ll have.

Interest costs you a lot of money each month. The higher your interest rate, the longer it takes you to pay off your principal balance on anything from your credit cards to your student loan and mortgage payments. Every month that your balance creeps up, you’ll end up paying more in interest, which costs you a lot of money over time. It also leads to a vicious cycle of not being able to pay off your debt.

Having a poor credit score may also affect your ability to get a job. Employers often pull your credit report to see how responsible you are with your money. Don’t let your poor credit score affect your ability to land your dream job.

Steps to Improve Credit

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The great thing about a credit score is that it doesn’t stay the same forever. There are a few easy steps you can follow to raise your score over time. To start, make sure to make your payments on time. If you feel as though you will miss a payment, speak with your account holder. Your creditor is more likely to work with you if they know you’re having trouble making payments. They may be able to suspend your services, give you a deferment, or forgive fees.

Next, download a copy of your credit report. Every year, Americans are eligible to receive one free copy of their credit report courtesy of the Federal Trade Commission. After looking over your report, you may see errors that you can have removed. You may also find accounts in collections or accounts with balances you didn’t realize you had.

How Long Does It Take to Improve Credit?

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Although improving your credit takes time, there are certain negative marks that will fall off your credit on their own. A bankruptcy, for example, will only stay on your credit for up to 11 years. A late or missed payment will fall off after seven years. A credit inquiry falls off after two years. If you don’t miss any payments or open any new lines of credit, time itself will help boost your credit score.

The longer you make payments on time, the better. The same goes for the longer you have low balances on your credit cards–you want to go as long as possible with a high limit of available credit that you aren’t using. These changes will improve your credit each year and even each month.

Additional Credit Repair Tips

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In addition to allowing time to do its work, there are some more active ways you can repair your credit. Make a plan for paying off your debt. If you have credit cards with high-interest rates and high balances, you can look into rolling these over onto a zero-interest card. This may give you a short window in which to pay your balance off interest-free.

Once your balances are paid off, don’t close any credit cards. Keeping them open with a zero balance will show a low credit utilization ratio. Try and limit your new credit as well. This means not opening any new credit cards or taking out new loans while you’re trying to repair your credit. No new inquiries on your credit report will help boost your score.

Fixing Credit Yourself

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To help increase your credit score by yourself, there are a few easy things you can do right away. Start off by making a budget. See how much income you have coming in and how much you’re spending each month. If you’re overspending, you’re likely accumulating credit card debt. Make some cuts to ensure you have a surplus each month. You can then put a plan together for paying down your debt. Freeze your credit cards temporarily so you can only use a debit card or cash to pay for things. This will help to curb your credit card usage.

In addition to lowering your debt, you can also make sure your payments are always made on time. The easiest way to do this is through automatic payments made from your checking account. Making your payments on time and keeping your credit card balances low are some of the easiest ways to repair your credit. Remember that your credit score isn’t forever, and it’s never too late to start improving your credit score.