Your credit score is a reflection of your financial discipline and your likelihood to repay a debt. That’s why credit card companies and other loan issuers use it to determine whether you will be given credit to not.
A high credit score means you will most likely be able to pay back your debt on time—so you will get approved for credit or loans and will be offered low interest rates. A low credit score, on the other hand, means you are less likely to be able to pay back on time. This will hinder your chances of getting approved for credit or loans. And if you are ever lucky to be approved, you will be paying significantly higher interest rates than someone with a high credit score. Why? The reason is because you will be placed in a high-risk category, which means any creditor will be taking a huge risk by giving your credit.
Throughout the period you are having any type of debt; be it a credit card debt, car loan, student loan, home equity loan, mortgage or any other type debt—on your neck, you can pay tens of thousands of dollars in interest fees depending on your interest rates and how long you battle with the debt before paying up.
How to Fix Errors in Your Credit Report
Just maybe the reason your credit scores keep getting lower is because there are so many errors therein which you are not aware of or don’t bother to correct. If you engage the services of a credit repairer to help you fix your bad credit score, the first thing he would do is to look for errors in your credit report as a way to improve your credit score. You should also try doing the same thing from time to time even if your credit score is currently at a good place; you would find it helpful eventually.
First, what is a credit report and why should it be important to you?
Your credit report reveals your level of credit worthiness. It shows how you have handled all your credit obligations like your loans, your credit cards, mortgage payments and sometimes your medical debts and utility bills. It shows your credit history over a length of time. Now, to why it is important; a lot of companies rely on your credit history as an indication of your ability to meet up with your commitments and whether or not to do business with you.
If you apply for a bank loan for instance; the bank would pull your credit report and use it as one of its basis for decision making. If you have a poor credit score, the bank may reject your loan application because it would simply mean that you are not credit worthy and giving you a loan might amount to throwing its funds away.
Banks are not the only ones that rely on credit reports; insurance companies, mortgage providers and some employers may rely on your credit score before you could be offered a job in their establishment. This is why it is very important to always keep your credit score at a very good place.
Who keeps these reports?
Well, there are some companies known as credit reporting agencies whose duties it is to compile and maintain consumer’s credit information. They all individually collect all credit information about consumers and with these records; they come up with a credit score for each consumer.
What brings about errors in your credit report then?
Now, this is how errors occur in your credit report; these credit reporting agencies get all the information they use to generate your credit score from your creditors. For instance, if you own a credit card, your credit card provider would provide information about your commitments to repayments to the credit reporting agency. The same goes for bank loans and every other credit obligations that you may have. Your creditors might make a mistake in the information supplied to the reporting agency and such mistakes would definitely end up in your credit report.
How can you fix errors in your credit report?
When you obtain your credit report and notice such errors, it now becomes your responsibility to ensure that these errors are corrected. In order to do this, you should take the following steps-:
a. Ask for a copy of your credit report-: The first step to take in order to correct your credit score is to request for a copy of your credit report. You have a right under the federal law to request for a copy of your credit report every 12 months. However, if you have exhausted your free copy for the year, you can still have access to one but this time, you would have to pay for it. To request for a free copy online, you should visit annualcreditreport.com to order for it.
b. Look out for Errors in your credit report-: The next thing you should do is to try to look for any entries that look strange to you. First, you should look at the part of the credit report that contains your personal information like your name, address, date of birth, employment history and social security number to be sure that it has been reported correctly. Next, you should look at the credit summary critically to also ascertain if the information is correct as well. This credit summary portion would provide details of your credit activities, closed accounts, good standing accounts and accounts past due. You should look through this section critically to see if there is any inaccurate information provided there.
The next section to check is your account information which provides details about your account like date of opening, highest balance, amount owed, type of account and the whole account history generally. You should really focus on this area and look out for errors and inaccuracies or entry you don’t recognize. There is also another section known as the inquiry section. This section provides a detail of companies that have requested for your credit report. Companies request to view your credit report when you make new loan/credit applications and these inquiries have an impact on your credit score.
To understand this, you have to know that there are two types of inquiries; hard and soft inquiries. Soft inquiries are recorded when you personally request for your credit report or when one of your existing creditors does. Soft inquiries do not matter because it has little impact on your credit score. However, you should be mindful of hard inquiries you can’t recognize because hard inquiries mostly occur when you apply for new credits facilities.
c. Initiate a dispute-: At this stage, you can now initiate a dispute for all the items that you all the errors you have noticed. You can either do this in by writing a letter to the credit reporting agency, placing a phone call or online. But if you want a method that is very fast, you should opt for online disputes.
When you are filing a dispute, ensure that you include all relevant information such as your name, address, information about the item you are disputing and the account number, reason why you are disputing the entry, supporting documents and an instruction to investigate the item. The company would review your disputes and contact you as soon as it does. You can also hire a professional to help you out if you feel like you cannot handle it yourself.
10 Guaranteed Ways to Fix your Credit Score Fast for Free
As stated earlier, if you have a low credit score, you will have to pay a higher interest rate as a result. This difference will be significant if you have to repay the debt over a long period. For example, the total amount you will pay as interest on a 30-year mortgage will be tens of thousands of dollars more than what will be paid by someone with higher credit.
So, keeping your interest rates low can really help you save a lot of money. And since your interest rates depend on your credit score, you need to always find ways to keep a good to excellent credit score. If you already have a bad credit score, you can get it back into the impressive range. Here are 10 ways to fix your credit score fast:
1. Pay your bills on time-: Late payments are the commonest pieces of negative information that appear on people’s credit report and are often responsible for significant drops in their credit scores. When you take up a loan or line of credit, it’s important that you make the least minimum payment in timely manner every month. This is the most straightforward thing you can do to protect your credit score.
2. Maintain your unused accounts-: One of the factors that determine your credit score is the length of time you have established credit with each of your creditors. If you have a long-term positive history with each creditor, you will be rewarded for this with a boost in your credit score—even if the account is inactive or unused. So, avoid closing your older, unused accounts, especially when you have a positive history with them.
3. Go for the best rates on loans and credit cards-: You will come across more-than-countable credit card and loan offers. If you are to apply for any, always go for those with the best interest rates. Remember, little differences in rates can sum up to significant amounts in the long term. Also, don’t jump at any credit card or loan offer that seems too attractive. There might be tougher days ahead, so always read the fine print.
4. Keep your credit card balances low-: Your credit card balances also affect your credit score. If your balances represent 35 percent or more of your overall available credit limit, this will hurt your credit score—even if you make your monthly payments on time and consistently pay more than the minimum due.
5. Always correct errors in your credit reports-: Sometimes, your credit score could suddenly plummet due to errors in your credit report. The easiest way to detect this is to carefully review all three of your credit reports on a consistent basis. This will help you detect any such errors quickly and make necessary corrections.
6. Get a credit card if you don’t have one-: Having and using a credit card or two can really build your credit scores. In fact, some people apply for credit cards just for this reason. So, if you are having a low credit score, then apply for a credit card and make your monthly payments on time. If you can’t qualify for a regular credit card, apply for a secure credit card. Be sure to look for a card that reports to all the three credit bureaus.
7. Take an installment loan-: You will get the fastest improvement in your credit scores if you are responsible with both revolving loans (credit cards) and installment loans (auto, mortgage, student loans, etc). If you don’t have an installment loan on your credit reports, then consider taking a personal loan that you can pay back over time. Again, ensure that the loan is reported to all three bureaus.
8. Dispute old negatives-: Assume you had a fight with your phone company a few years back that resulted in a collections account. You can continue to protest that the charge was unjust, or you can try disrupting the account with the credit bureaus as “not mine“. The older a collection account, the more likely the collection agency won’t bother to verify it with the credit bureaus.
9. Get some goodwill-: If you have been a good customer over many years, a lender might agree to simply erase one or more late payments from your credit history. You will have to request for this privilege by writing a “goodwill adjustment” letter to the company. The better your record with the company is, the higher your chances of having your request granted. However, if you don’t ask, nothing will happen.
10. Negotiate your interest rates-: The lower your interest rate, the higher your likelihood of paying back your debts on time. Instead of skipping payments or piling up debt due to unpaid interest, contact your creditor if you are having some financial difficulty and negotiate your interest rate with them.