If your credit rating is not where you’d like it to be, you may wonder if there are credit restoration strategies you can employ to turn the situation around. But even if there are, will it be too much effort or take many years to accomplish?
Don’t let these questions dissuade you from taking control of your circumstances. You can restore your credit with less trouble than you may think. Here are seven great ways to get it done.
1. Remove Errors from Your Credit Reports
According to the Fair Credit Reporting Act, your credit file should only contain timely and accurate information. That means anything that’s not correct shouldn’t be listed.
Pull your credit reports from AnnualCreditReport.com and review them for evidence of fraudulent activity, such as accounts you never applied for or opened and credit card balances that don’t belong to you. You can then dispute errors immediately using the online form available on the websites of the individual credit reporting agencies.
Investigations take about 30 days. When the items are removed from your credit report you will not be penalized for any negative history associated with them.
2. Make On-Time Payments
FICO® Scores and VantageScores are the two most common credit scoring models, and they both range from 300 to 850. Higher numbers indicate a lower credit risk.
The most important factor in your credit score is your payment history. Nothing will drive your numbers down faster than missing a payment, especially when done repeatedly.
You can’t change the past, but you can change the future, so from this moment forward, pay all the accounts that appear on your credit report on or before the due date. As the months go by, your scores will go up.
3. Lower Your Credit Utilization
The second most important factor in determining your credit score is the amount you owe compared to the amount you can borrow. It’s called your credit utilization ratio, and you’ll want it to be low.
If it isn’t, it can hurt your credit score. The best-case scenario is to carry no credit card debt. The second-best is to keep your balance below 30% of your total credit limit.
Your task will then be to reduce high balances by paying down your debts so you have at least 70% of your credit line open. If cash is too tight to make a dent in your maxed-out credit card accounts, you may still be able to lower your credit utilization ratio using a couple of creative methods.
If you qualify for one, you can get a new credit card. Because it comes with a fresh credit line, it will help your overall credit utilization. Just make sure that when you use it, you always pay the entire balance.
Another way to improve your credit utilization ratio is to ask your current credit card companies to increase your credit limits. This can make an instant difference.
For example, if one of your credit cards has a credit limit of $1,000 but you’ve used $600 of it, your credit scores will be lower because you’ve used 60% of the line. But if the issuer agrees to hike your credit limit to $3,000, that same balance would represent just 20% of your credit utilization ratio.
4. Become an Authorized User
If you have a good friend or family member who has excellent credit — and happens to be generous and trusting — you may be able to convince that person to add you as an authorized user on a well-managed credit account (frequent use, perfect payment history, and no carried over debt).
When added as an authorized user, that account will show up on your credit report as well as his or hers. You don’t even have to use the credit card you may be issued to reap the credit rating benefit.
The potential downside is that if the primary cardholder (your friend or family member) misses a payment or maxes out the credit limit, this will hurt both of your credit scores. Your card privileges will also be limited in that you can’t make changes to the account, such as requesting a credit limit increase, but you will have all the spending power the card carries, under the terms you’ve arranged with the primary cardholder, of course.
5. Sign Up for Experian Boost
One of the three major credit reporting agencies — Experian — allows you to enroll in a program where you add bills, such as your mobile phone and utilities, to your credit report. It’s called Experian Boost, and, if you sign up, all the payments you make on those regular expenses will be calculated into your FICO Score.
Experian reports that 75% of consumers with a score below 680 saw an improvement in their credit score using Experian Boost. Boost is free to use but does require a linked bank account to verify your positive bill payment history.
If your credit report is filled with errors or you simply do not feel comfortable disputing the line items by yourself, do not hesitate to obtain professional assistance. A reputable credit repair company can be your best bet because it will do nearly all the work to contest incorrect information on your credit report for you.
All you need to do is provide them with some information about yourself and the accounts in question, then they take over. You will have to pay a fee for the service, but if you’re too busy or don’t have the inclination to DIY, a credit repair company can be a worthwhile alternative.
7. Fill Your File with Positive Information
If your credit reports show damaging yet accurate information that is still within the statute of limitations (such as bankruptcies, defaults, and collection accounts), you can’t purge them. What you can do is add positive data to your file that overshadows those past problems.
Use your credit cards when you know you have the money to pay for things, then handle them the right way: pay on time and in full. Also consider taking out a credit builder loan, which is usually offered by credit unions.
A credit builder loan allows you to deposit money in fixed payments into a special account, and, after a few months, the lender returns the total balance of the loan to you. The lender sends your payment history on the loan to the credit reporting agencies. Your behavior of making regular on-time payments is added to your credit reports, and that payment activity helps improve your credit score.
And, eventually, the past negative items will drop off your report and all that remains will be positive. Plus, you’ll have a nice savings balance accrued once the loan is paid off.
Take Control of Your Situation
Finally, remember that the wonderful aspect of credit scores is that they constantly change with your actions. You have full control over the situation, even when you feel stuck.
Just one of these credit restoration strategies can make a tremendous difference in your credit rating, so identify which makes the most sense for you and start today. It won’t take long before you have a credit report and score you can be proud of — and one that others will value.
Hard inquiries occur when someone other than yourself accesses your credit history from any of the three nationwide credit bureaus — Experian, TransUnion, and Equifax. You must give permission before anyone can make a hard inquiry on your credit report.
Typically, lenders, banks, credit card issuers, employers, and landlords perform hard pulls of your credit history, but they must have your approval first. As hard inquiries can lower your credit score, you can protect your credit by recognizing and removing invalid hard inquiries. There are four reasons to contest a hard inquiry:
You didn’t approve the inquiry.
You were not aware of the inquiry.
The number of inquiries made was greater than your expectations.
You were pressured into approving an inquiry.
You must correspond with the credit bureaus in writing if you want to remove a rogue hard inquiry. To cut through the red tape, it helps to use an approved template to request hard inquiry removals. You can do this yourself, or you can save time and effort by using a hard inquiry removal service.
The following three firms all provide hard inquiry removals as part of their overall credit repair services. These services include monitoring your credit report, analyzing items such as late payments, charge-offs, and bankruptcies, and corresponding with credit bureaus and creditors to challenge derogatory items.
The Lexington Law website greets you with offers for a free credit report consultation, negative item preview of your TransUnion credit report summary, and more. Lexington Law promises to review your credit report for mistaken negative items and to direct appropriate correspondence to the credit bureaus and your creditors.
Lexington Law offers three levels of credit repair service — aggressive, moderate, and basic — but only the first two include “Inquiry Assist”, which is presumably its service for helping to remove invalid hard pulls. Prices range from $89.95 to $129.95 per month.
When you engage CreditRepair.com to dispute errors on your credit report, you get access to a personal online dashboard, a score tracker, text and email alerts, and TransUnion credit monitoring.
For $99.95 a month plus a one-time charge of $14.99, CreditRepair.com will analyze your credit reports and communicate with your creditors and the three credit bureaus to remove incorrect information. The company claims to have filed an average of 28 challenges per client who signed up in 2018.
Sky Blue Credit Repair has provided its services since 1989. The company disputes questionable items on your credit report and recommends actions you can take to raise your credit score.
The cost of enrollment is $79 per month for individuals, $129 for couples. Sky Blue Credit Repair promises to dispute 15 items (5 per credit bureau) every 35 days. It also offers extra services, including debt validation, goodwill letters, cease communication letters, and debt settlement consultations, at no extra cost.
How Long Do Inquiries Stay on Your Credit Report?
Experian, Equifax, and TransUnion track hard inquiries on your credit reports for 24 months. Interestingly, FICO credit scores are only impacted once per year by the hard inquiries reported to the three bureaus. The impact of each pull wanes over time.
Typically, they lose all effect on credit scores after one year. Soft pulls also remain on your credit history for two years, but they don’t affect your credit score. You can dispute hard pulls, but not soft ones.
The reason that creditors look at the number and frequency of hard credit pulls is that the inquiries could indicate financial risk. For instance, multiple inquiries may be a warning sign that you have financial difficulties and/or your finances are overextended.
Before granting you a loan or line of credit, lenders will want to ascertain whether your finances are so poor that you may not be able to make full and timely payments.
You can shorten the time an inquiry remains on your credit report by winning a dispute with the credit bureau. To win the dispute, you must report that a company or individual pulled your credit without your permission or knowledge.
Alternatively, the credit pull may have been incorrectly assigned to you whereas another person received the inquiry. This underscores the importance of monitoring your credit reports for false or fraudulent activity. To remedy the problem, you must write a letter to the credit bureau asking it to remove the inquiry from your credit history.
What Happens When Hard Inquiries are Removed?
You would think removing hard inquiries from your credit report would be positive for your credit score. But keep a few facts in mind:
The negative impact of too many hard inquiries is minor, so removing them will have only a minor positive impact.
The effect will only be seen once a year. That’s how often the number of hard pulls updates your score.
The negative impact of hard pulls fades quickly and disappears after one year.
If you dispute inquiries on good accounts, credit bureaus may remove the account from your report.
Requesting multiple hard pulls could put your account on fraud alert. The theory is that someone may have stolen your account information and is using it to fraudulently request new credit. You may find it harder to acquire new credit if your account is on fraud alert.
The upshot is that you should not dispute hard inquiries that you know to be correct. The cost of disputing hard inquiries, in terms of fraud alerts and dropped account reporting, may well outweigh the small benefit of having the occasional hard pull removed.
On the other hand, you may be receiving hard inquiries not attached to any account, such as ones from landlords or employers. But if you are not looking for an apartment or a new job, you have reason to investigate these hard inquiries, as they may indicate identity theft.
If excessive hard pulls point to identity theft, you should take heed and begin steps to protect your good name. Rebounding from identity theft can be daunting, but there are several organizations that offer support for identity theft. You can start by checking with government websites that address identity theft.
How Many Hard Inquiries is Considered Bad?
FICO reports that consumers with six or more hard inquiries on their credit reports can be up to eight times more likely to undergo bankruptcy than would a person with no hard pulls. The impact is greater when there are multiple hard pulls of your credit history within a short period.
But sometimes, multiple inquiries within a short time can count as a single inquiry. For example, if you are shopping around for a car loan or a home mortgage, all hard inquiries within an approximate two-week period are aggregated into a single inquiry.
Credit inquiries are classified as requests for new credit. Asking for additional credit is one of the five activities that help determine your credit score:
Payment history – 35%
Amounts owed – 30%
Length of credit history – 15%
New credit – 10%
Credit mix – 10%
New credit counts for 10% of your FICO credit score. Hard pulls are treated as requests for new credit, and so belong in this category. As such, they are not nearly as determinative of your credit score as is having limited overall debt and making payments on time.
It’s important to remember that you can check your own credit report as often as you want without impacting your credit score. Such inquiries are soft pulls as long as you make the request from a credit bureau or an organization authorized to deliver you your credit report.
According to FICO, the impact of hard pulls depends on the context of how many accounts you already have by type of account, as well as the number of new accounts. When you add new accounts, you reduce your average account age and that can have a larger effect on your score.
Will Disputing an Inquiry Hurt My Credit Score?
Filing a dispute should have no effect on your credit, according to Experian. The effect of challenging an inquiry can have several results, including deleting the inquiry, upholding it, or triggering a fraud alert on your account.
If your challenge is denied, the hard pull will remain on your credit history, with no further damage to your credit account beyond that experienced when the inquiry first appeared. However, if you are denied several disputed pulls on the same account, the credit bureau may decide to no longer list the account. That can hurt your credit score in a few ways:
Having an account delisted means that it will not support your credit score. This can be problematic if you had the account for a long time. Under these circumstances, the average age of your accounts will decrease. The length of credit history is 15% of your credit score, so delisting the account can have a moderate impact on your credit score.
Multiple hard pull disputes could indicate identity theft. The credit bureau may initiate a fraud alert on your credit history, but it is more likely that you will request one. A fraud alert is a red flag that you may have suffered identity theft. This encourages third parties to take extra steps to verify your identity before granting you a loan or new credit. You can keep a fraud alert in place for up to seven years.
If you have suffered a number of unauthorized hard inquiries and strongly suspect identity theft, you can request a credit freeze. A credit freeze lets you restrict access to your credit report, thereby preventing the opening of new credit accounts. While this won’t hurt your credit score, it could cause a certain amount of inconvenience. For example, you may forget that you set a credit freeze and will be turned down when you request new credit.
Nonetheless, you should feel free to dispute hard pulls that appear to be incorrect. After all, why should you experience a score drop unnecessarily?
You Have the Right to Fair and Accurate Credit Reports
Credit repair services can help you maintain the accuracy of your credit reports. You have the right to dispute mistakes, including invalid credit pulls. The three services we review here, Lexington Law, CreditRepair.com, and Sky Blue Credit Repair, all can help you dispute and correct credit history mistakes including invalid hard inquiries.
Each offers a plan for less than $100 per month, and you can cancel your subscription at any time. If you prefer the DIY lifestyle, you can dispute credit report mistakes on your own, but do your homework first!
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Most people, at some point in their lives, will need to take out a loan for a large purchase, be it for a home, a car, or another important expense. Whether you’re in good financial standing or working on credit repair, it’s helpful to have a set of guidelines to look to before submitting a loan application. Keep reading for five tips to improve your chances of loan approval.
The most important thing to do before applying for a loan is to make sure your finances and credit are both in good standing. Even with less-than-stellar credit, there are several things you can do to improve your chances of being approved for a loan, including paying down debt or shopping for a specific type of lender.
1. Know Your Credit Score
Even when not in the market for a loan, it’s always a good idea to keep an eye on your credit score — but it’s downright vital when you’re looking for a line of credit. Making sure the information is correct and accurate — and that your identity hasn’t been compromised — will give you peace of mind about your credit score and general financial standing. It will also help you determine what to look for in a loan offer.
The federal government has mandated that every American adult is entitled to one free credit report per bureau per year, so it’s a good idea to take advantage of this and check your credit once a year at the very least. A variety of free apps and websites will also help you track your credit, or you can use any number of paid services to constantly monitor your credit.
Occasionally, consumers do find errors on their credit reports. If you check your credit and notice an error, this is your chance to contest the item on your credit report and restore accuracy. If you do a lot of online shopping, like many Americans today, it can make you more vulnerable to hackers and scammers. Regularly monitoring your credit report can help ensure your credit information stays out of the wrong hands.
2. Research Lenders to Find the Best Fit
Even if you don’t have the greatest credit score, if you’ve chosen the right lender, you may still be able to qualify for a loan. Some lenders are more likely to loan smaller amounts of money to those who are in the process of rebuilding credit.
Some major banks will automatically turn down loan applicants with a credit score below 700, but many smaller financial institutions may still be willing to work with you, including community banks and local credit unions. You can also use online lending networks, like those below, to shop a wide range of lenders from across the country.
One of the best ways to find a lender with flexible credit requirements is to consult people who have been in a similar situation. Recommendations from friends or coworkers (or online reviews, taken with the proverbial pinch of salt) can help guide you in the right direction.
If you still have questions about whether a certain lender is right for you after doing what research you can online, you can simply call the lender in question and talk through your general financial situation.
Shopping for the right lender can be made a lot easier by pulling your credit reports. For example, if you have poor credit, you can save time (and hard credit inquiries) by skipping lenders that tend to only approve prime applicants. This is important, as hard credit inquiries can have an effect on your credit score.
3. Determine Your Debt-to-Income Ratio
Your debt-to-income ratio is exactly as it sounds: the ratio of how much debt you have over your total income. A high debt-to-income ratio means you have a large amount of debt relative to the income you have coming in, which can be a strong indicator of financial troubles and an inability to pay your debts.
Thus, if too large a portion of your income is being spent on monthly repayments of debt, such as a mortgage, auto loans, or revolving credit card debt, you may not be eligible for a loan, regardless of your credit score. Essentially, banks want to make sure you can afford to repay the money they loan you, and a high debt-to-income ratio is a red flag.
In general, if you are using more than roughly 40% of your monthly income to repay debt, your chances of being approved for a loan will likely decrease. Keep in mind that this typically only includes actual debts, rather than regular bills like utilities. Make sure you have the income you need to repay your loan to improve your approval chances.
4. Provide a Cosigner or Collateral
With a high debt-to-income ratio, make your application more appealing by considering the addition of collateral or a cosigner. Collateral should be something of significant value that is at least comparable to the size of the loan. For example, if applying for a small loan to replace a very expensive appliance, you may consider putting up a paid-off vehicle as collateral.
Additionally, if you’re just starting out on your credit journey, you may already know that many lenders can be cautious about granting loans to applicants with little or no credit history. Oftentimes, this can be offset by the addition of a cosigner who has a good deal of credit history, a good credit score, and a low debt-to-income ratio.
However, this person would be responsible for the repayment of the loan should you be unable to pay it back for any reason. Consider this before you ask a coworker, boss, or friend. Ideally, a cosigner should be someone with whom you share a mutually trusting relationship, especially when it comes to money, such as a spouse or family member.
5. Pay Down Existing Debt
In many cases, one of the fastest ways to improve your credit score (and, thus, improve your approval chances) is to pay down existing debt. This is particularly effective if you have large credit card balances and, thus, high utilization rates, as high credit card utilization can significantly drag down your score.
Though paying down debt can be a large and daunting task for some people, there are many methods to help you effectively and quickly pay down some of your debt without needing to squeeze every penny. However, when paying down debt, expect to have to make some sacrifices, such as giving homemade holiday gifts instead of store-bought ones, cooking at home more often, or finding more inexpensive hobbies.
Don’t be too concerned with paying off every penny, as having some revolving debt can show financial responsibility as long as your utilization remains low and you make at least your minimum payments on time every month. Focus on any delinquent debts first, as these do the most credit damage. Then move on to the highest-interest debts, especially any high-interest credit card debt.
Improve Your Creditworthiness for Best Results
In the modern credit world, loans are a necessity for many people. By following this set of guidelines, you may be able to increase your chances of loan approval by raising your credit score and increasing your overall creditworthiness. This can also help set you up for a lifetime of financial stability.
Indeed, with a little careful planning and budgeting, hard work, and frugality, it’s not too difficult to improve your credit score and put yourself in an excellent position to obtain a variety of future credit products. A credit repair company may also assist with this process by helping to clean up your credit report and remove errors, outdated information, and unsubstantiated accounts. Ultimately, these tips are a good set of guidelines to follow in general, not just when you’re thinking of applying for a loan. Unfortunately, unexpected expenses tend to pop up from time to time and you never know when you may need some extra cash. Maintaining a healthy credit report will help you be prepared when one of those times arise.
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