Rebuilding Your Credit: A Comprehensive Guide

Rebuilding a spotty credit history and improving tarnished credit scores can be a daunting task. Many for-profit companies offer “credit repair” services, but they often leave customers in worse shape than before. The truth is, these companies can’t do anything for you that you can’t do yourself for free. Here are some do-it-yourself credit repair tips that can help you rebuild your credit without spending money that could be better used to pay off your debts.

Consider Credit Counseling

If you feel you need outside help to improve your credit, your best option might be to seek out a nonprofit certified credit counseling agency instead of a credit repair firm. A certified credit counselor can evaluate your financial situation and help you create a budget and a plan for getting out of debt. If necessary, they can even help you negotiate with creditors to seek lower payments or repayment plans that fit your budget.

Credit counselors are typically much more affordable over the long haul than for-profit companies that promote credit repair. Some even offer services for free or on a sliding scale for clients with tight budgets. You can search for a credit counselor through the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA) to find certified agencies by state.

Communicate With Creditors

If you anticipate difficulties keeping up with your bills, it’s best to reach out to your creditors as soon as possible, ideally before you miss any payments, to see if you can negotiate some relief. If you expect your financial troubles to be temporary, consider asking for forbearance on your loans, which can temporarily reduce or suspend payments. Once your forbearance period is over, you’ll be expected to resume your original payment schedule.

Check Your Credit Score

To rebuild your credit, it’s important to know where it stands at the start of the process. Credit scores are important yardsticks that lenders use to help gauge creditworthiness, and you can check yours quickly and easily to get a “before” picture for your credit makeover. You can check your FICO® Score from Experian for free.

Review Your Credit Reports

Your credit reports are records of your history of borrowing money and repaying debts, and they are the basis for your credit scores. Many lenders also review them in detail when considering loan or credit card applications. It’s important to ensure your credit reports at all three national credit bureaus (Experian, TransUnion, and Equifax) provide a true picture of your borrowing and payment history.

You’re entitled to a free copy of your credit report from each bureau at AnnualCreditReport.com. Check all three reports carefully. If you discover any inaccuracies, you have the right to file a dispute with the relevant credit bureau to get the record corrected. If any report contains an inaccurate entry that hurts your credit score, its removal may bring score improvement.

Prioritize On-Time Payments

Your payment history is a crucial factor affecting both FICO® Score and VantageScore® credit scores, so setting up a system that helps you avoid missing payments is a key piece of the credit repair puzzle. If your credit reports reflect payments you missed or paid late by 30 days or more, those delinquencies are hurting your credit score. Missed and late payments remain on your credit reports for up to seven years. Their negative impact on your credit scores will diminish over time, but for long-term improvement, avoiding missed payments is crucial.

Pay Down Credit Balances

High credit utilization—using more than roughly 30% of the borrowing limit on one or all of your credit cards or other credit lines—can lower your credit scores. If your credit utilization is elevated, paying down those balances could be one of the quickest ways to bring about credit score improvement.

When working to reduce utilization, note that the account with the highest balance in dollar terms may not necessarily be the one with the highest utilization. Refer to the credit utilization for each card you have and prioritize payments accordingly. Also, note that lowering utilization by any amount will tend to improve your credit scores, and that individuals with outstanding credit scores tend to keep utilization on all accounts at 10% or less.

Pay Off Collection Accounts

If a missed bill payment is turned over to a collection department or agency, a collection account will be noted on your credit reports. Accounts in collections will remain on your credit reports for up to seven years and adversely affect your credit scores as long as they appear.

One way to end the hassle and potentially advance your credit repair efforts is to pay off the debts that are in collections. Doing so won’t remove negative entries on your credit reports, but it will lead to notations that the debts have been paid. Newer versions of the FICO® Score and VantageScore credit scoring systems ignore paid collections, so if a lender uses a score based on one of them, paying the collections account could improve your credit picture.

Keep Track of Your Credit

As your credit repair efforts progress, routinely check your credit scores to monitor improvement, and check your credit reports at least once a year to watch for inaccuracies that might hurt your scores and signs of unrecognized behavior that could indicate credit fraud. You can check your Experian credit report for free anytime.

Be Patient and Persistent

Unfortunately, there are no quick fixes to a spotty credit history. Repairing major damage may take several years, especially if your history includes major negative events such as bankruptcy or foreclosure. Nevertheless, if you begin applying these tips today, you can see meaningful credit score improvement within a few months. If you make them habits, you can see steady credit improvement.

The Bottom Line

Do-it-yourself credit repair won’t bring instant results, but neither can paid credit repair companies. Improving your credit takes time and discipline. If you follow these tips, you could start to see credit score improvement within just a few months. As you track your progress, consider using Experian’s free credit monitoring service to provide regular updates on your FICO® Score based on Experian data and notification whenever there’s new activity on your Experian credit report.

For any mortgage service needs, O1ne Mortgage is here to help. Call us at 213-732-3074 to speak with one of our expert loan officers. We are committed to providing you with the best service and helping you achieve your financial goals.