Credit problems can feel like the end of the world, but there are ways to fix them. As long as you are proactive in your efforts to fix your credit, it can be done. It’s not something that occurs overnight or even in a month or two. Sometimes it can take up to a year to truly fix your credit, but with diligent effort, it can be done.
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Problem: Late Payments
Millions of consumers make late payments time and again. While it does damage your credit score, it’s not forever. If you bring your payments current and continue making your payments on time, your credit score will recover.
The key is to bring your payments current as soon as possible. Typically, lenders look at your last 12 – 24 months of credit history. If you have any late payments within that time, it may make it harder to get new credit. If, however, your late payments are more than 12 – 24 months old, they shouldn’t have much effect on your ability to get a loan.
It helps to have an explanation regarding why you had the late payment or payments. If you apply for a mortgage, you can write a Letter of Explanation that details the reason that you had late payments and what you’ve done to overcome it. This can help give a lender reasons to approve you, assuming that the late payments were due to something outside of your control, such as a lost job or illness.
Problem: You Have too Much Outstanding Debt
Did you know that your credit utilization rate can affect your credit score in a big way? Your credit utilization rate is the comparison of your outstanding debt compared to your credit limits. Ideally, you should not have more than 30% of your credit limit outstanding at once. If you do, it will negatively affect your credit score.
If you have too much outstanding debt, it’s time to start paying it down. This means paying more than the minimum payment required on the credit card. A good method to use is to choose one credit card to pay off first. It can be the credit card with the highest balance or the one with the highest interest rate. Pay as much as you can towards that credit card each month while making the minimum credit card payments on your other credit cards. Once you pay the first credit card off in full, choose the next credit card in line, and continue to do the same thing.
As you pay your balances down, your credit score will start to improve. The more credit you pay off, the lower your credit utilization rate becomes, which is what your credit score needs in order to improve.
Problem: Not Enough Credit
If you don’t have enough credit, it could be hard to get a loan. It seems like a Catch 22, though. How are you supposed to build credit when no one will give you a loan? There are a few simple ways.
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We recommend that you start with a secured credit card. With this card, you have to give a security deposit on the card. The credit card company keeps this deposit in the event that you default on your credit card. You can then use the credit card as you would any other card. You charge things and then pay your bill as it’s due. If you pay your bills on time and pay the balance off in full or as close to in full as possible, you’ll start building credit.
Once you have an established secured credit card, you can start to apply for other types of credit. This includes an unsecured credit card and personal loans. As you continue to add loans to your credit history, your credit score will start to increase, assuming that you pay your bills on time and use your credit responsibly.
Problem: Your Identity was Stolen
It happens all of the time – consumers get their ID stolen. If you don’t keep track of your credit history, you may not even know you were a victim of identity theft until the damage is done. The best way to know whether someone stole your identity is to check your credit report at least once a year.
If you head to www.annualcreditreport.com, you’ll have access to your free credit report from each of the three credit bureaus. You can pull all three reports at once, or you can pull one every four months. This way you check your credit three times per year. This will give you a better chance of catching any misinformation that is reported throughout the year.
If you do notice that someone used your ID, you must report the activity to the credit bureau immediately. You’ll have to do this in writing in order to make it official. The credit bureau then has 30 days to investigate the claims and determine if fraudulent activity took place.
If someone did steal your identity, you can then request that the credit bureau freezes your credit. You can also sign up for credit monitoring. This will give you a head’s up if someone does anything fraudulent with your credit in the future.
Credit issues can be frustrating, but there are ways to overcome them. If you find that your credit score is lower than you anticipated, use the above tips to help improve your credit score and/or your credit history. Even if you think you’ve damaged your credit score beyond repair, take the time to be consistent with your efforts in repairing it and you’ll be rewarded with a higher credit score moving forward.
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