Credit restoration involves taking steps to boost a low score. Improving credit helps you qualify for financing, and credit is necessary if you plan on acquiring a mortgage or auto loan. Different factors play a role in credit restoration, and successfully fixing credit entails knowing the factors that influence scoring.
Automated Payment
Reduce the likelihood of late payments with automated payments to your credit card companies and loan providers. With automated payments, you establish a date for creditors to withdraw payments from your personal bank account. This method works if you constantly forget to send payments by the due date, which can result in late fees and a damaged credit rating. Because payment history accounts for 35 percent of credit scoring, on-time payments are key to restoring a bad credit history.
Increase Payments
Increasing payments little by little helps pay down credit card balances and other outstanding debt. This not only reduces the amount of debt you carry, but paying down debt will boost your credit rating. Credit scores take into account the amount you owe creditors, and this single factor impacts credit scoring by 30 percent. Develop a routine of keeping balances on credit cards below 30 percent of the limit or paying off balances in full each month.
Work with Creditors
Past mistakes that trigger negative information on your credit report can also harm your credit report. For example, you may stop payment on an account, which results in a creditor sending your account to collections or placing a judgment on your record. Getting these items deleted from your report is key to helping restore your credit. Contact creditors to see if you can work out a deal to improve your file. Arrange to pay off the balance in full, and then ask creditors to remove negative information from your credit report.
Credit Report Mistakes
Credit reports may also include negative information that's not legitimate. For example, someone can take your name and Social Security number and open numerous accounts in your name; or a credit card company can send the wrong account information to the credit bureaus. No one's immune to credit report mistakes and identity theft, and restoring credit often calls for a proactive approach. Order your credit report at least once a year from Annual Credit Report (see Resources) and look for signs of identity theft such as familiar accounts. If denied credit, get an explanation from creditors and review your report to understand the reason(s) for the rejection.
