How to repair my credit and improve my FICO Scores
If you have poor credit from things like unexpected expenses, forgotten payments and medical bills, its important to know that you aren't alone and you can repair your credit. Being a Mortgage Broker means I see credit scores all over the board so there is no need to be embarrassed about yours. During your approval process we can evaluate your credit and take action accordingly.
Things You Can Do Right Now
Setup Payment Reminders – Making your credit payments on time is one of the biggest contributing factors to your credit scores. Some banks offer payment reminders through their online banking portals that can send you an email or text message reminding you when a payment is due. You could also consider enrolling in automatic payments through your credit card and loan providers to have payments automatically debited from your bank account, but this only makes the minimum payment on your credit cards and does not help instill a sense of money management.
Reduce the Amount of Debt You Owe – This is easier said than done, but reducing the amount that you owe is going to be a far more satisfying achievement than improving your credit score. The first thing you need to do is stop using your credit cards. Use your credit report to make a list of all of your accounts and then go online or check recent statements to determine how much you owe on each account and what interest rate they are charging you. Come up with a payment plan that puts most of your available budget for debt payments towards the highest interest cards first, while maintaining minimum payments on your other accounts.
More Tips on How to Fix a Credit Score & Maintain Good Credit
Payment History Tips
Contributing 35% to a FICO Score calculation, this category has the greatest effect on improving your scores, but past problems like missed or late payments are not easily fixed.
Pay your bills on time.
Delinquent payments, even if only a few days late, and collections can have a major negative impact on your FICO Scores. If you have missed payments, get current and stay current. If you're having trouble making payments, call the lender! Oftentimes the lender will have options to avoid collections but you have to communicate with them.
The longer you pay your bills on time after being late, the more your FICO Scores should increase. Older credit problems count for less, so poor credit performance won't haunt you forever. The impact of past credit problems on your FICO Scores fades as time passes and as recent good payment patterns show up on your credit report. And good FICO Scores weigh any credit problems against the positive information that says you're managing your credit well.
Amounts Owed Tips
This category contributes 30% to a FICO Score's calculation and can be easier to clean up than payment history, but that requires financial discipline and understanding the tips below.
Keep balances low on credit cards and other "revolving credit".
High outstanding debt can affect a credit score.
Pay off debt rather than moving it around.
The most effective way to improve your credit scores in this area is by paying down your revolving (credit cards) debt. In fact, owing the same amount but having fewer open accounts may lower your scores.
Don't close unused credit cards as a short-term strategy to raise your scores. Don't open a number of new credit cards that you don't need, just to increase your available credit. This approach could backfire and actually lower your credit scores.
Length of Credit History Tips
If you have been managing credit for a short time, don't open a lot of new accounts too rapidly. New accounts will lower your average account age, which will have a larger effect on your scores if you don't have a lot of other credit information. Also, rapid account buildup can look risky if you are a new credit user.
New Credit Tips
Do your rate shopping for a given loan within a focused period of time. FICO Scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.
Opening new accounts responsibly and paying them off on time will raise your credit score in the long term.
Types of Credit Use Tips
Apply for and open new credit accounts only as needed. Don't open accounts just to have a better credit mix – it probably won't raise your credit score.
Have credit cards – but manage them responsibly.
In general, having credit cards and installment loans (and paying timely payments) will rebuild your credit scores. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly.
Note that closing an account doesn't make it go away. A closed account will still show up on your credit report, and may be considered by a score.
To summarize, "fixing" a credit score is more about fixing errors in your credit history (if they exist) and then following the guidelines above to maintain consistent, good credit history. Raising your scores after a poor mark on your report or building credit for the first time will take patience and discipline.
If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor. I work with a number of credit repair specialists that can advise you on how to repair your credit and I'm happy to provide referral's. Seeking assistance from a credit counseling service will not hurt your FICO Scores.