You don’t need to wait for penalties to expire to get a better credit score.
Having bad credit can place a big financial burden on you. You may struggle to get approved for the best loans and credit cards. You’ll also face higher interest rates, meaning that you’ll pay more each time you borrow. So, it’s in your best interest to fix your credit anytime there’s been a drop.
After a period of financial hardship, you may think you must wait for penalties to expire before you see a better credit score. But that’s not the case. You don’t need to wait seven years to start improving your credit. The good news is that the “weight” of how much negative information affects your score decreases over time. And there are key actions that you can take now to offset any negative items you’ve incurred in the past. These seven tips can help you recover as quickly as possible.
#1: Ask for re-aging
Re-aging is where a creditor agrees to update the information they report to the credit bureaus to bring your account current. If you’ve fallen behind on your payments, then your credit history is getting hit with missed payments every month until you bring your account current. One thing you can try is to ask the creditor to help you set up a repayment plan, so you can catch up. In exchange they agree to re-age your account to remove all those delinquent payments from your credit history.
If you enroll in a debt management program through a credit counseling agency, many creditors will automatically re-age your accounts once you’ve made three payments on time in the program.
#2: Pay for delete
If you have a debt that’s with a collector, then another trick is to negotiate “pay for delete” in a debt settlement agreement. Basically, you agree to pay a certain percentage of your debt back. In return, the collector agrees to remove the collection account from your credit report. That way, you don’t need to wait seven years for the collection account penalty to expire.
If you want to negotiate pay for delete within a settlement offer, you may want to work with a professional debt settlement company. They have expert negotiators on staff that are more likely to get a satisfactory result.
#3: Repair your credit
One of the easiest ways to boost your credit score in about 30-60 days is to go through the credit repair process. This will remove mistakes and errors from your credit report that are dragging down your credit score. Simply making sure your credit report is accurate can give your score an automatic boost. This is especially true if you just finished getting out of debt. You need to make sure all your account information is up-to-date.
When you make a dispute to a credit bureau, they have 30 days to verify the information with the original creditor. Information that can’t be verified must be removed. These negative items could be causing significant damage to your score. So, call a credit repair company and start working with them to remove those errors.
#4: Make all your payments on time
This may sound silly, but it’s actually the best thing you can do for your credit score. Credit history is the biggest determining factor in calculating credit scores. It counts for more than one-third of your total score. And as we mentioned above, positive actions now can quickly offset negative actions from a few years ago.
So, if you have a few missed payments still lingering on your report, offset that damage by making sure you make all your payments on time moving forward.
#5: Keep credit card debt minimized
Carrying balances over every month is not good for your credit. In fact, big balances could be hurting your score. If you’re using more than 30% of your total available credit limit (or 30% of the limit on any one card), then it decreases your credit score. Paying off those balances will give your score a big boost. Then keeping your balances paid in-full every month will give you the best credit utilization ratio possible.
#6: Don’t close old accounts
Having old accounts that you maintain in good standing is good for your credit. It gives you a long “credit age,” When you close these accounts (or let them close due to inactivity), you can unintentionally damage your score. You want to keep your accounts open as long as possible and maintain them in good standing (i.e. make all your payments on time).
Find a good small use for old credit cards so that you keep the accounts active. It doesn’t need to be anything big. Even just one charge every few months will ensure your accounts stay open. Pay off those small charges in full, and you’ll avoid debt problems while ensuring you don’t accidentally decrease your credit age.
#7: Get new credit, but only if you can afford it
As we mention above, credit utilization is a big factor in credit scores – it’s the second biggest, in fact. Paying off balances improves your credit utilization ratio, but another way to improve it is by increasing your total available credit limit. In other words, a new credit card could give your score a bump. In addition, this will give you a more diverse mix of credit, which is also good for your score.
That being said, you should only open new credit cards or apply for loans when you have a clear need for them. Don’t just take on credit for the sake of having a higher total credit limit. It’s a recipe for disaster. If you have a few emergencies pop up, you can run up balances that you can’t afford to pay back. So, use this tip with discretion.
Also, keep in mind that too many new credit applications within a 6-month period can hurt your score. So, apply for new credit sparingly. Space out those applications to avoid unintentional damage.
A word of warning about “instant” credit fixes
If you find a credit repair company that offers to “instantly” fix your credit by helping you set up a new, clean credit profile, don’t do it! This is a scam and it will make you criminally prosecutable for credit fraud. Don’t sign up for anything and contact the Federal Trade Commission (FTC) immediately to report the scam.
The scam works like this – you pay a company a bunch of fees, then they advise you to set up a new credit report using a different Social Security number or Employer Identification Number (EIN). The idea is that you leave your old credit report with all those mistakes behind, and start a new, error-free report so you can move forward quickly. But starting a new credit profile with a false number is fraud. So, as much as you want a quick-fix solution, this is not the way to go.