Imagine you and your spouse are applying for a loan in order to buy your first home. The paperwork has been filled out, and you have the perfect brick ranch in mind, but then you get the call: Your loan has been denied due to your low credit score.
Being denied a car loan, mortgage or even a job because of a low credit score can be distressing. Here’s how to reverse a low rating and get back on track.
1. Know your rights. As a consumer, you’re responsible for knowing and cleaning up your credit history. And by law, you have the right to accurate information from credit bureaus and information providers. As you tackle your credit rating, arm yourself with knowledge of what’s expected of you – and what you should expect of your creditors.
2. Get the full picture. Creditors provide information voluntarily and to whichever credit bureau they subscribe, so no single report tells the full story. To get an accurate credit profile, you need a report from all three major bureaus: Experian, TransUnion and Equifax. You can order one free credit report per year from each bureau online or by mail.
3. Watch out for inaccuracies. Read and understand your report carefully. Credit bureaus report exactly what creditors submit, so be thorough. Notice a typo in your name or address? See an open credit card account that you thought you closed five years ago? Report all inaccuracies and submit all supportive documents. Keep copies of everything and follow up for changes and free updates to your file.
4. Use good payment habits. Most creditors focus on payment consistency, so the key to rebuilding your score is to change your habits and pay bills regularly and on time. The sooner you begin doing this, the faster your credit score will improve.
5. Manage your debt and build a better credit profile. Here are some tips to get you started:
- Negotiate any unpaid debts in collection. Get a written agreement before paying them off.
- Call your financial institution to negotiate lower credit card interest rates.
- Ask for payment due dates that coincide with your paydays.
- Avoid paying only the minimum monthly payments. Work with your financial institution to accelerate your repayment schedule.
- Avoid credit limit raises and revolving balances.
- Gradually close unused accounts that you don’t need.
- Once one debt is paid off, allocate extra payments to the next debt, and so on.
Repairing your credit score doesn’t have to be overwhelming – but it does take time. By taking action, you’ll demonstrate a new pattern of behavior. In time, creditors will notice and your score will have nowhere to go but up.