Congratulations on making the life-changing decision to repair your damaged credit. The faster you get started, the quicker you’ll see results highlighting just how well you’re doing. Your credit score is so important, and it’s so easy to forget that you have to handle it every day to keep it where it needs to be. Every little thing you do with your finances can have a devastating or a positive effect on your credit report and score, and you must know the difference. Consumers mistake a few simple rules all the time, and it’s nothing to be ashamed of. What you should do is educate yourself on what helps your credit and what hurts it, learn the difference, and begin applying that to your everyday financial life. Here’s just a few examples of the biggest mistakes to avoid when you work on your credit.
Your credit report might be filled with accounts you’d like to dispute. One good example of an account worth disputing is an old credit account you stopped making payments on eight years ago. You decided not to pay it, and you haven’t sent money to that creditor in eight years. According to federal law, that account must be removed from your credit report in 7 years. Dispute it by sending a letter and explaining the account is past due by more than 8 years, and the credit bureau will remove it.
When you begin disputing everything, credit reporting agencies begin to see this as a trend, and they can ignore your requests. It looks as though you’re trying to improve your credit the easy ways, and they write you off as being a pain and they don’t help you.
Cancelling Old Accounts
Whether you pay off all your credit card debt or not, don’t cancel your oldest accounts. This has two negative effects on your credit, which is precisely what you’re working to avoid. The first effect this has is lowering your credit utilization ratio. If you have a half dozen credit cards with $50,000 in credit, you’re using $15,000 of that credit, and you cancel an old card with a credit limit of $20,000, you make your credit look worse.
This changes the amount of your credit utilization. Leaving this account open means you’re utilizing only 30% of your available credit. Canceling this card lowers your available credit to $30,000 and changes your credit utilization to 50%. It’s not a good idea.
The second negative effect this has is shortening your credit history. Your history might be good, and it’s favorable to your score. The last thing you want to do is cancel your oldest account and shorten your credit history on file. Keep it open and your credit history is longer, which is viewed as more favorable by creditors.
Using Standard Mail
The last thing you want do when corresponding with debt collectors, credit bureaus, and creditors is use standard mail. You need return receipt mail or certified mail services. These both provide you with proof the company to whom you wrote received your information, and it bodes well for your personal records. Always send your correspondence via certified mail or at least with a return receipt or tracking number. It’s going to pay off more than you imagine.
Cutting Up Cards
As you pay off your cards, don’t cut them up. You might imagine it’s the best way to avoid going back into debt, but you need these cards. These cards can be used while you’re going through the credit repair process, and they can be helpful. Paying off your old debts and making credit card payments on time isn’t the only thing you can do to help you stay on top of your credit repair. You can use your cards to make purchases throughout the month and pay the card off in full. This helps you make a more favorable impression to creditors and credit bureaus.
Not Going Through Credit Counseling
If you have trouble with credit, taking a credit counseling course is a wonderful idea. It helps you learn how to manage your debts and your credit correctly, and it helps you learn how to avoid going back into debt. This is something you want to do to help with your credit history. Take the courses, learn from them, and apply these lessons to your everyday life to improve the financial aspect of your life.
Hiring Credit Repair Companies
Don’t do this. It’s a terrible idea, and it’s more harmful than helpful. Most of these companies do little more than take your money and dispute old transactions on your credit report. You want to keep the healthy accounts on your credit report, and these companies can have them removed. They take your money, and credit bureaus are less likely to work with them to help you repair your credit. It’s better to dispute your own credit report items one or two at a time with a good length of time between each dispute.
Your credit is important, which is why learning how to avoid making costly mistakes during the repair process is beneficial. You want to raise your score, which is difficult when you can’t seem to stop making mistakes. These mistakes are easily made when you assume they’re helpful, so get to know what’s good and what’s not. It’s helpful to your financial future.