When it comes to managing our finances, one of the last things you want to do is ruin your credit score. Having poor credit means that you won’t be eligible for lower interest rates for loans, it’ll affect your ability to borrow money for important reasons and it can also affect your ability to start or grow a business.
One of the most common reasons that someone’s credit score decreases is when an unexpected event occurs. A person may find that they don’t have the money to pay for the expense, and instead, put it on their credit card. Well, after a while of not being able to pay it off, your credit score will start to be affected. For this reason, it is so important to have an emergency fund built up as part of your financial plan.
If the inevitable happens, repairing your credit rating is incredibly important, but how exactly do we do it?
What Causes Your Credit Rating to Plummet?
One of the first things to understand is why and how your credit rating worsens. The following factors usually cause bad credit ratings:
- Being unable to stick to credit agreements, such as failing to pay back installments on a loan or mortgage
- Failing to do your research on a credit card before using it and failing to pay back due to high-interest rates and fees
- Declaring that you’re bankrupt will make your credit rating plummet
- Paying the minimum each month on a credit card bill or similar repayment
- Having someone steal your identity and abuse your credit card or savings
Having no credit rating can also negatively affect your chances of taking out any additional lines of credit. In this case, it’s a good idea to start small with credit that you can afford to pay back. It’s also one of the reasons why many people take out loans even if they’re fully capable of affording something.
How to Fix My Credit
So without further ado, let’s take a look at a couple of proven ways to fix your credit rating if you do end up in a challenging situation with your finances. It’s worth it to try these methods so that you can take advantage of the benefits of a good credit score.
1. Avoid Hurting Your Credit Rating Further
One of the first things to consider doing is stopping any adverse credit that is happening to your record. For instance, start paying your bills on time, start sticking to credit agreements, stop paying the minimum repayment amount each month, and get any identity fraud issues sorted as soon as possible.
This may sound like common sense, but it’s one of the best ways to immediately stop your credit rating from worsening. The idea is to stop anything that could hurt your credit rating so you can stabilize and begin to work on your financial situation, improving it so that you can get your issues sorted out.
Once you’ve managed to stabilize your financial condition, it’s time to start working on repairing your credit rating.
2. Seek A Credit Report
Credit bureaus can give you a free copy of your credit report once each year. All you need to do is contact those credit bureaus and ask to see your credit rating. You can also view your credit report through other external services, but some of these may be paid or require a subscription. You don’t necessarily need any of those services (a single credit report is enough to help you understand your situation). Still, it can be helpful if you find yourself struggling with your finances.
Once you’ve received your report, review them to ensure that everything is correct. All the details should be accurate, such as things like your personal information, and you should also be truthful about any kind of credit agreements you’ve taken out or possibly forgotten. There are lots of ways that your credit rating can be affected, hence why a credit report is critical when it comes to identifying what’s causing your negative credit rating so you can begin fixing it as soon as possible.
3. If You Notice Any Negative Remarks, Consider Disputing Them
Negative remarks on your credit report should be disputed, especially if you believe there’s an error or unfair judgment against you.
Certain credit reporting services will allow you to dispute specific claims, but you can also file a dispute through a credit bureau. Some disputes will take a long time to resolve, and you may end up having to go through a drawn-out and convoluted process to remove derogatory marks, but it’s well worth the effort in the end.
In short, make sure you look at any negative remarks on your account and dispute the ones that you genuinely believe are a mistake or unfair against you.
4. Immediately Contact Creditors If You’ve Made A Mistake
If you’ve made a slightly late payment or noticed that an error has occurred, it’s possible to contact creditors and ask nicely for the remark to be removed.
However, it usually comes with some kind of condition. For instance, if you’ve missed a deadline for a specific payment, then it’s possible to contact the creditor, apologize, and then have the mark removed from your credit rating, assuming you can make the repayment in the agreed time. Different creditors will have different reactions to mistakes that you’ve made, and you generally don’t want to make too many late payment errors, even if they’re honest mistakes.
Creditors can tell credit bureaus to remove negative marks from your credit report, so make sure you speak to creditors if you’ve made a genuine mistake and ask them to remove the negative remark. Again, you might need to agree to some kind of condition, but it’s a great way to ensure the removal of the negative mark. Make sure you’re polite, contact them as soon as possible, and you’ll be surprised at how easy it can be to solve these types of issues.
5. Starting Paying Off Your Debts
One of the most straightforward ways of improving your credit rating is to start paying off your debts. This sounds obvious, and it’s clearly not easy considering your financial situation. But, it’s worth trying to make extra money so that you can start paying off your high-interest credit accounts first to stop them from worsening your credit rating
There are plenty of ways to make a bit of extra money to pay off your debts, so here are our suggestions:
- Consider selling something in your possession, such as unwanted clothes and electronic devices that are just taking up space
- Work extra hours whenever possible, such as overtime or extra shifts
- Start a side hustle, such as a freelance opportunity or working a shift or two in another workplace
- Save more money by spending less on food, focusing on entertainment you already own instead of buying more and being more mindful of your spending
- Start budgeting by analyzing your financial situation and recording anything that comes in or goes out of your accounts
These are just a couple of simple ways to keep more money at the end of each month so that you can pay off your debts faster. It will be the quickest way to get rid of your poor credit rating.
6. Consider A Credit-Building Card
Credit-building cards are designed for people with little or bad credit history. They often reflect the trust that creditors have in you, resulting in low credit limits and high-interest rates. While it can seem like a financial mistake to take on another credit card, this is a good option for those who have managed to stabilize their financial situation and are looking for a faster way to repair their credit.
By using a credit-building card to pay for purchases or bills that you know you can afford, you’ll speed up the credit repair process. Just make sure you’re able to pay off the full balance before the high-interest rates kick in. However, only do this if you are in a stable financial situation or else it could do more harm than good.
How To Fix My Credit: Get Started Today
Hopefully, by reading this article you were able to answer the question “how do I fix my credit?” By following these six proven methods, you will steadily be able to fix your credit. As your credit score improves, opportunities will present themselves as part of the benefits that come from increasing your credit score.
If you dig yourself out of the mess once, be sure to take preventable measures to ensure that this does not happen again! Continue paying off your debt, even after your credit score starts to improve. Also, make sure to stick to your budget so that you can dedicate some of your hard-earned money towards savings. Having an emergency fund will prepare you to tackle obstacles headfirst the next time they arise.
Sam is the co-owner of How To FIRE, a blog that discusses financial independence and early retirement. She uses her BS in Finance and MBA to help others get control of their finances through budgeting, saving, investing, side hustles and travel hacking. Due to following the FIRE Movement’s principles, she was able to quit her high-stress job in the financial services industry in July 2019 to pursue her side hustles full-time. When not working, she enjoys spending time with her dog “Simba” and traveling with her husband, John.