Tips on Cleaning Up Your Credit
January 10, 2018
Why it’s important to clean up your creditBad credit can be a major hassle. If you’re thinking of buying a home, you’re probably going to need to take out a loan for at least part of the payment. Having a poor credit history or a low credit score can affect what type of loan you may qualify for. It could also make getting a mortgage more expensive for you– your fees may be higher, or you may have a higher interest rate. Below is the typical breakdown of credit score categories:
- 300 – 579: new or poor credit
- 580 – 620: OK credit
- 621 – 740: good credit
- 741+: excellent credit
First things first, get a copies of your credit reportYou are entitled to a free credit report from each of the three credit reporting companies each year. You can order your credit reports from a variety of sites online but the Federal Trade Commission recommends Annual Credit Report. It’s best to get all three of your credit reports at the same time, as the three reporting companies may not have the same or updated information.
Should you take your report at face value?The short answer is: no. Sometimes credit reporting agencies have outdated information or there may be inaccurate items on your credit report. In a recent study, only about 80% of participants’ credit reports were fully accurate. That means 1 in 5 were not.
What to check forFirst, make sure your personal data is accurate. That includes making sure your name, date of birth, social security number and current and previous addresses are all accurate. Check to make sure all of the accounts on your credit report are actually yours. You may have a similar name as someone and find your accounts mixed up. You should also look for incorrect accounts due to identity theft. And finally, look for things that may be dragging your credit down. The law states that most negative items have to be removed from your credit report after seven years. One notable caveat to the seven year rule, though, is bankruptcies. Past bankruptcies stay on your credit report for 10 years.
Make a list and gather evidenceIf you do find inaccuracies on your credit report, start making a list of what needs to be fixed. Also, begin to gather documentation that supports the needed changes. For example, if you find an account that is listed as open but the account is actually closed, get a letter showing the account is in fact closed. If you can’t seem to get certain documents proving the inaccuracies, don’t worry too much. At the end of the day, the credit bureaus and the creditors hold the burden of proof. They must be able to confirm that the information on your report is accurate. If they cannot verify the information on your report, the negative items must be removed.
Contact the credit bureau as well as the creditorOnce you have any inaccuracies identified and your documents together, check to see which credit bureau created the report. Write letters to both the credit bureau and the creditor. Tell them you dispute the items that are inaccurate and include copies of your supporting documents. A note though, this is not a get out of jail free pass, the credit bureau will not investigate if the disputes are deemed frivolous. Many providers specify an address for disputes, and can be found online. There’s no need to contact each credit reporting agency though, notifying one of a discrepancy should update all three. This process can take as long as month, so be patient. Once the investigation is complete, you’ll receive a report of the results. If your dispute is successful and your report changes due to the investigation, you’ll be able to see an updated copy of your report for free.
Clean up past mistakesLastly, to improve your credit fast you can clean up any past mistakes. You can begin by getting any accounts you owe out of delinquency or collections. Scores may improve, as some credit score models treat paid collections differently than unpaid collections. Another thing you could do to improve your score fast is to pay down high credit card balances. Doing this reduces your credit utilization rate, a rate that takes into account how much debt you’re carrying vs your total available credit limit. By paying down high credit card balances (to at least 30% of their credit limits), you may see an improvement in your score in as little as 30-60 days. After you’ve investigated your credit, give us a call. We’ll figure out what kind of loan you qualify for and we’ll help guide you in the right direction.