The Run Down On Credit Repair

As you may have heard, your credit score is pretty important when it comes to shopping for a home loan – it influences the loan amount and the interest rate your mortgage lender is able to offer you. Unfortunately, your credit score is also pretty sensitive, and if you’ve had some mishaps in that past that hurt it, it could take a while to recover. All is revealed in this blog: the things that can hurt your credit score, how you can fix those things, and how to avoid them in the first place. Read on to find out more!

If you need a refresher, check out our blog, What’s In a Credit Score?

What causes credit to drop?

There are several negative events that can lower your credit score, and not all of them are weighed the same on your credit report. Some minor events that will negatively impact your credit include obtaining or closing credit or maxing out a line of credit. The effects of these minor events generally fade after about 3 months.

  • Obtaining new credit or closing an existing credit account will drop the average age of your credit history. New credit will increase your total credit limit, whereas closing an account will decrease it, but both may lead lenders to question whether you can handle more credit.
  • If you max out a line of credit, it may indicate that you rely on credit for day to day living, and, once again, may cause lenders to question if you can responsibly handle more credit.

It’s worth noting that these minor events may have long term benefits that overcome the short term setbacks.

  • You may want to close an account with high interest rates or fees.
  • Opening a new account may increase your credit score in the long run if managed responsibly.
  • Maxing out a credit line may be viewed as a onetime necessity if you pay it off right away and don’t do it again moving forward.

There are some things that you really want to avoid if you can – they can really kill your credit score for a while.

Late or missed payments can damage your score quite a bit, and it’s a sign that you could be risky to creditors or lenders. It commonly takes more than a year for your score to recover, and the record of the late or missed payment stay on your credit report for 7 years. The longer you are able to consistently and responsibly make your payments moving forward, the more your credit score will recover.

Bankruptcy is a big deal when it comes to your credit score and can make a big negative impact. It can take 7 to 10 years to recover from bankruptcy, which is also the amount of time it stays on your credit report.

Where to go from here?

The first step towards getting your credit back on track is getting your credit report – you have to know what’s broken if you’re going to fix it. You’re entitled to a free copy of your credit report from each of the nationwide credit reporting companies (Equifax, Experian, and TransUnion) every 12 months if you ask for it.

If your credit report has any errors, any incomplete or inaccurate information, you should dispute it with both the credit reporting company you received the report from, and the information provider from which the reporting company got the information. Both organizations are responsible for correcting any information in your report that isn’t accurate. It doesn’t cost anything to dispute mistakes in your credit report, and if there are mistakes that you are able to correct, it may be a solid step towards repairing your credit. Check out a more detailed explanation of disputing errors on your credit report.

The next step is to pay off your debts to reduce the amount you owe to a manageable range. Stop drawing on your credit accounts in order to keep your debt from increasing. Set up a payment plan to knock out your biggest debts first, while keeping up the minimum payments on your other accounts.

After that, you must maintain your credit responsibly – make your payments on time, don’t max out any credit cards, and don’t open or close any accounts if you don’t have to. The only things that will help repair your credit score are hard work and time. If you’re able to consistently and responsibly manage your credit, your credit score will eventually improve.

If you aren’t dedicated enough to stick to a course of credit repair on your own, you may want to consider contacting a credit counselor. A reputable credit counseling agency can advise you on debt and money management, help you develop a budget, and aid you in forming a personalized plan to help solve your credit issues. You can find a list of government approved credit counseling agencies in your state on the Department of Justice’s website.

Looking for more info on the home buying process? Check out more of our blog!

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