Deciding to take back control of your finances is a huge step in the right direction, but there is no quick fix for a poor credit history.
Negative marks for collection actions, repossessions, foreclosures and even late payments take seven years to drop from credit reports. Bankruptcies can haunt you for up to ten years.
Fortunately, positive changes also show up on your credit report. Here are five ways that you can start raising your credit score in just a few months:
- Make sure that all the information on your credit report is accurate.
The Fair Credit Reporting Act entitles you to a free copy of your credit report every 12 months, but you have to ask for it. Contact TransUnion, Experian and Equifax to request the information. Any differences in reporting by the three agencies should be insignificant.
Carefully examine the report for errors. It shouldn’t show unfamiliar accounts or balances that you’ve already paid. Make sure that negative entries aren’t duplicated.
Dispute errors in writing or online to all three agencies. From the time that you initiate a dispute, the agencies have 30 days to respond. According to a study conducted by the Federal Trade Commission, 20 percent of consumers who had incorrect information removed saw their credit scores improve quickly.
- Since payment history accounts for the bulk of your credit score, do all that you can to make payments on time. Your score will gradually improve.
Don’t allow bills to be handed over for collection. Being a month or two behind looks slightly better on your credit report than a collection action, so make payments on the most delinquent accounts first.
If your financial circumstances improve, it may be tempting to resume payments on accounts that collectors gave up on and charged off. Resist the temptation to do that until you can pay the delinquent balances in full. New payment activity on an account initiates the collection process all over again. The seven-year clock winds back to zero.
- Monitor credit utilization. That’s a fancy term for the amount you owe relative to the amount of your available credit. It’s another key factor in your credit score.
Credit card balances shouldn’t exceed 30 percent of your available credit. For example, if your card has a limit of $3,000, keep the balance under $900. Going over by just a few dollars not only incurs more interest, but it lowers your score. If you pay a little extra to get back to a good ratio, you’ll see a small increase in your score.
- Don’t rush to close accounts that are in good standing when you pay off the balances. Making timely payments on a five-year car loan impacts your credit history in a positive way. Remember that good information is reported as well as bad. Try to maintain long relationships with creditors.
If you’re eager to reduce the number of credit cards that you use, close the newest accounts first.
- Enlist the help of a reputable, nonprofit credit counseling service. Legitimate counselors don’t have quick fixes either. They can, however, help with debt consolidation. They can work with collection agencies on your behalf. They can sometimes persuade creditors to waive or lower interest. Enrolling in a payment program may even reflect positively on your credit report.
Be patient. Using credit wisely and working to correct past mistakes will pay off in the end. Seven years will seem like no time at all when you’re enjoying long-term financial health.