Every year, millions of Americans discover that their credit scores have slumped. Sometimes, this is caused by errors in the reporting systems. Sometimes, it is the borrowers’ own fault. Here is everything you need to know about bad credit and ways to improve it in 2021.
The global pandemic has affected the US economy, and many consumers are struggling to pay their debts. However, poor scores were an issue even before Covid-19. They gave rise to an entire industry — credit repair. Ricky Ingram from suggests 7 top providers that can boost your score. So, how do they work?
Repair or Rebuild?
There are two ways to approach the problem of bad credit. If the score is incorrect, you may raise it through formal disputes. If it is accurate, you should change your financial habits. Here is a look at both methods.
What Repair Is All About
Around 20% of US citizens have at least one error on their official reports. This concerns information provided by Experian, Equifax, and TransUnion. Reporting errors may include negative events that drag the score down. The allow you to delegate the disputes and achieve improvement as soon as possible.
It is important to understand that repair companies do not give specific guarantees. However, you may get your money back if they fail to deliver on their promises. On average, the procedure takes between , depending on the case. The more inaccuracies there are — the longer the following stages take.
Collection of Reports
The provider will start by gathering your reports. You may also do it by yourself — until April 20, 2022, free files can be downloaded weekly from . Looking at one bureau is not enough, as these organizations do not share information with one another. Your creditors may communicate with any of the agencies.
Analysis of the Reports
Next, the experts will scrutinize the documents line by line. They will identify any suspicious items, from slight inaccuracies to outright false information. Any inconsistencies may be disputed formally to raise the score.
Preparation of Evidence
Repair professionals do a lot of investigative work. They need to find evidence that will prove the information is mistaken. This includes bank statements and other official documents from your lenders. Professionals will communicate with them in writing.
The proof is then submitted to the bureaus along with dispute letters. It is crucial to ensure that the evidence is complete. Otherwise, you may need to open a redispute, which delays the result.
Formal Disputes
Finally, the experts send customized dispute letters to the bureaus involved. Every agency has 30 days to respond to each claim. Eventually, it may accept it, reject it or ask for more information. With a decent repair firm, your score may start changing in 1.5 months.
Rebuilding One’s Credit
These methods may be used on their own, or as an addition to repair. The idea is to engage different components of your history that matter for FICO and VantageScore. For example, the history of payments accounts for and 40% of the evaluations, respectively. The overall size of debt constitutes a third of both evaluations. Here are three common ways to improve a low credit indicator.
Reduce Credit Utilization
This is the proportion between your balances and limits. It only applies to credit cards. For example, if you have three cards with a total limit of $10,000, and you have spent $4,000 in total, utilization is 40%. Experts recommend reducing it to at least 10%. There are two ways to do this.
First, you can apply for a new credit card or ask the bank to increase your limits. If the balance remains the same, and the limit is doubled, your credit utilization will fall by 50% — in our example, from 40% to 20%.
The second approach involves paying most or all of the balances. Of course, not everyone can afford to do this. Still, it is something to bear in mind. Whenever you have some spare cash, use it to cover the outstanding balance.
Make Payments on Time
If you want to improve your status, you should fulfill your current obligations with diligence. Set reminders, so you never miss another payment. Delays of 30 days or more are reported to credit bureaus, so they cause your score to drop further.
Add More Information
Through Experian Boost, individuals gain 12 points on average. This free online service allows you to add utility bills, Netflix subscriptions, and other payments to your Experian report.
The Bottom Line
If you notice that your score has fallen, it is time to take drastic measures. Do your best to make all payments on time, and check your credit report for errors. Repairing a flawed report takes months, but rebuilding a bad history may take years. Remember that legit negative information will stay on your records for 7-10 years. Prevention is much easier than cure.