Fiscal Finance: How to Repair Your Credit
Welcome to “Fiscal Fitness,” a four-week crash course covering financial planning, money management, credit repair and loan management. Once a week, we’ll be posting a blog entry on a new topic. This week, we’re discussing credit repair.
Credit scores are a mystery for millions of Americans. Thankfully, there are just a few basic things you need to know to start repairing your credit!
First, let’s look at how your FICO® credit score is calculated:1
- 35% payment history – Do you always pay on time?
- 30% amounts owed – Do you use too much of your available credit?
- 15% length of credit history – How long have you been using credit?
- 10% types of credit in use – Have you used multiple types of credit responsibly?
- 10% new credit – Have you applied for too many new credit accounts recently?
In almost all cases, negative information in your credit history will eventually disappear from record. In fact, most negative information remains on your credit report for only seven years (while bankruptcy information can remain for up to ten years).2
Since there’s nothing you can do to erase that negative information, your best course of action is to establish positive financial habits that will begin to show up on your credit report. Over time, this positive information will begin to outweigh any negative information from your financial past.
Now that we have the basics out of the way, here’s what you can do to start repairing your credit today:
Pay on time
Since your payment history is the single biggest factor in determining your credit score, commit to making all your payments on time from now on — whether they’re for credit cards, rent, insurance or anything else.
Build positive credit
Avoiding future credit mistakes isn’t enough to build good credit — you’ll also need to add positive items to your credit history. Having both installment loans and credit cards will help, as long as you pay on time. Just be sure not to take on any debt that doesn’t make sense for your finances.3
Reduce your debts
If you have lots of debt, paying some of that down should help boost your credit score. Paying down revolving debt, such as credit cards, is usually more beneficial than paying down installment debt, such as a car loan or home mortgage.4
Limit credit applications
This one is simple: Keep your applications for new credit to a minimum. If your credit report shows you have applied for credit with many different lenders, this can be seen as an indicator of financial instability.5 Don’t worry, though — checking your own credit report or score will not harm your credit.6
Check your credit report for errors
If your credit report has any errors, you could be penalized for financial mistakes you didn’t make. So make it a habit to review your credit report from time to time. For instructions on ordering your free report and correcting any errors you may find, visit the Federal Trade Commission’s Web page on disputing credit reporting errors here.
As you can see, there are no quick fixes for credit. But with patience and positive habits, you can build a financial foundation that will support good credit for years to come. Remember — the future starts today!
1What’s in my FICO Scores? Fair Isaac Corporation. Retrieved 21 Sept. 2015, from http://www.myfico.com/crediteducation/whatsinyourscore.aspx
2Building a Better Credit Report, p. 9. (2011, Aug.). Federal Trade Commission. Retrieved 30 Nov. 2012, from http://www.consumer.ftc.gov/articles/pdf-0032-building-a-better-credit-report.pdf
3How to repair my credit and improve my FICO credit score. (2012). myFICO. Retrieved 29 Nov. 2012, from http://www.myfico.com/crediteducation/improveyourscore.aspx
46 steps to improve your credit score. (2010, Aug. 26). CNNMoney. Retrieved 30 Nov. 2012, from http://money.cnn.com/2010/08/24/pf/improve_credit_score.moneymag/index.htm
5What’s in my FICO Score. (2012). myFICO. Retrieved 29 Nov. 2012, from http://www.myfico.com/crediteducation/WhatsInYourScore.aspx
65 TIPS: Improving your credit score. (2010, June 17). Board of Governors of the Federal Reserve System. Retrieved 29 Nov. 2012, from http://www.federalreserve.gov/consumerinfo/fivetips_creditscore.htm