Consumer Protection: How to Repair your Credit in 5 Simple Steps

Having no or bad credit can be crippling. Not only could it block you from getting financing, but your credit score can be used to find out if you’re trustworthy enough to get an apartment, get a lease on a vehicle, or even get a job. Thankfully, there are some concrete steps anyone can take to either start building or repair their credit. Here are five simple steps you can follow to start rebuilding your credit today.

Order a Copy of your Credit Report and Check for Errors

This is the first thing you should do. As an American citizen, you are entitled to a free copy of your credit report from the three major credit bureaus – Equifax, TransUnion, and Experian – each year. This will not only give you a clearer view of your debt and credit situation but will also allow you to see if you have errors. One error could be enough to ruin your credit; that’s why it’s very important that you check for errors and have them fixed immediately. 

This step is probably the simplest thing you can do to improve your credit. If you notice any fraudulent activity, you can also place a credit freeze on your account until everything is sorted out. This will prevent any further fraudulent accounts being created under your name. Make sure that you do this with all three bureaus as well.

Work on a Payment Plan 

Being late on payments is usually the biggest credit issue people have to face. That’s why it’s important that you work out a payment plan as soon as possible with your creditors. Contact them and be honest and upfront about your financial situation. In most cases, they will be willing to work on a plan that will work for both of you. But make sure you’ll actually be able to pay, or you’ll be right back to square one.

It’s also important that you keep good payment habits going forward as well. This means paying every bill on time, whether they’re credit related or not. Know that everything from late utility bills or even past due rent payments can be reported. Credit history plays a major role in establishing your credit score, so make sure that you aren’t habitually behind on your payments. If you often make late payments due to inattention, then consider having automatic payments set up on your bank account to avoid risks.

Do Not Cut Credit Cards

One of the biggest mistakes you can make when paying down debt is cutting your credit cards once you’re done paying them off. Having a long-standing history with a credit card can be beneficial to you. The only times when you should be closing accounts is if you feel like you just can’t keep your spending under control. Other than that, having history and paying on time can only work for you, not against you.

Get a Secured Card

If you don’t have a credit card, you could also apply for a secured credit card. Most credit cards will accept people with bad or no credit, and you can use it to either build or repair your credit. 

The way they work is simple, just give them a security deposit that will serve as collateral. This amount will usually be the limit on the card. From now on, you can use your card like any other credit card. Keep it active and pay on time each month. After a while, not only will these payments be reported and improve your credit score, but the issuer might allow you to raise your credit limit. Or they might allow you to upgrade the card to a regular one.

Get an Installment Loan

Diversifying the kind of debt you have can also be a great way to build your credit. With a secured credit card in your back pocket, you could start looking at other financing options. Your credit score will be determined in part by two forms of credit accounts, installment and rotating. 

A rotating account is when you have something like a line of credit on your home or a credit card. An installment account is anytime you have a set payment and term. Things like a mortgage or an auto loan are two forms of installment credit accounts.

If you have no credit but do have a steady source of income, installment loans could be a good option. Finding installment personal loans these days is pretty easy and there are plenty of online services that will allow you to find a multitude of lenders, even when you have poor credit. The approval and application process are also pretty simple and straightforward and can be done completely online. Many lenders will only check your employment history, so this could be the perfect option if you can’t get financing any other way.

But we warn you, you have to be careful when using installment loans to build your credit. First, make sure that you’re absolutely certain you’ll be able to pay and that your employment situation is secured. Second, make sure that you keep the number of applications you make to a minimum. If you want to make sure, start with a small installment loan first. Try to keep the term short too. By paying on time, you won’t only be able to show that you’re a good payer but it will also show diversity in your debt profile, which is always good.

Conclusion

Debt repair is not a myth, and when you understand how credit works, you can start making concrete moves to correct the situation. Once you’ve done that, it is up to you to keep responsible financial habits and stay on the right track.

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