5 Credit Repair Mistakes to Avoid
Credit scores are incredibly important in the modern age. Credit scores influence many aspects of life, from your monthly bills to your ability to get a job and pay for those bills. Therefore, it’s no surprise that so many people are interested in credit repair.
Everyone makes mistakes. However, when you make a mistake with credit or finances it can haunt you for years. A missed payment stays on your credit report for seven years, and other problems can stay on your credit report even longer. Credit repair is the process of taking steps to fix your credit and improve your credit score. You can use credit repair strategies by yourself or by hiring a credit repair company to do the work for you. Either way, you’ll want to avoid making these five common mistakes to get the best results from your credit repair efforts.
Not Checking Your Credit Report
The first, and biggest, mistake that people make when trying fix their credit is to not bother looking at their credit report. This may seem strange, but sometimes it can be hard to review your credit report, especially when you know that you have a lower score than you’d like. Looking a credit report when you have a low score will remind you of everything that happened to give you a lower score.
However, you can’t let the pain of the past prevent you from getting the information you need to make a better future. You should carefully read and understand your credit report so you can tailor your repair strategy to be as effective as possible. Without looking at your report, you won’t be able to use many of the most effective credit repair strategies.
Disputing Everything on Your Report
Another common mistake people make is to dispute everything on their credit report. For some reason when people are searching for “how to fix your credit” they get this erroneous advice. People think that if they challenge as many things as possible, then they’ll get the most negative entries removed from their credit report. However, this approach is likely to hurt your efforts rather than help them.
Credit reporting agencies are very good at what they do. That’s why they’ve been in business for so long. Disputing everything on your report sends a signal to the credit reporting company that your disputes are frivolous. As a result, they won’t be taken seriously. Additionally, if you dispute everything on your report you might wind up challenging something that is a net positive on your score. Therefore, this strategy can backfire and actually lower your score. Try disputing only those items that really matter either with a credit repair service or by doing it yourself. For example you can file a Transunion dispute online.
Canceling Credit Cards
Canceling credit cards is another frequent mistake that people make when trying to repair their credit. People think that by getting rid of their credit accounts they are demonstrating good fiscal and money management practices. However, this strategy can affect two important factors determining your score. The first is your length of credit history. Credit reporting agencies use the average age of your credit history to help assign your credit score. Canceling credit cards results in a shorter credit history, which lowers your score.
Canceling credit cards can also hurt your credit score because credit reporting agencies look at how much credit you have available against how much you’re using. For example, if you have two cards with a $10,000 limit, and each has a $5,000 balance, you might be tempted to transfer the balance to one card and cancel the other. However, this would cause a steep score decrease. Your two cards have a combined limit of $20,000, and you have a combined balance of $10,000, so you’re using 50% of your available credit. This is still more than is ideal, but not too bad. However, if you cancel your card and put your balance all on one card, then you are using 100% of your available credit. This tells credit agencies that you are hard pressed to pay your bills on time, and thus your credit score will be lowered.
Repeat Balance Transfers
One way that people try to avoid having late or missed payments on their credit report is by repeatedly transferring their credit card balance to a new card. While this can be effective when used once, each time you transfer a balance you incur new balance transfer fees. As a result, the amount of money you owe when using this strategy keeps going up. Additionally, it doesn’t alter your debt to income ratio, and applying for an accepting new balance transfer cards generates more inquiries on your credit report, which lowers your score.
Balance transfer cards can be a powerful tool for credit repair. They act as a way to consolidate your debt and secure a lower interest rate across your credit card bills, which reduces your monthly payment and the amount of time it will take you to pay off your balance. However, using this tool too frequently will get you into more trouble.
Using the Wrong Tool
Speaking of tools, there is a time and a place for the correct application of any tool. One of the worst mistakes to make when repairing your credit is to declare bankruptcy prematurely. Bankruptcy can help you discharge your debts, but the bankruptcy stays on your credit history for 7-10 years. Moreover, having a bankruptcy on your credit report makes it all but impossible to get new offers for credit or loans, which means it will be difficult to rebuild your credit history with good information.
This is not to say that bankruptcy is never an option. If you’ve exhausted every other way to resolve your debts and still don’t see a way out, then bankruptcy can be helpful. However, if there are other strategies that you simply haven’t tried yet, then you should avoid declaring bankruptcy.
There are several ways to increase your credit score and repair your credit. If you can manage to avoid making these five common credit repair mistakes, then you’ll go a long way toward giving yourself a brighter financial future. Remember, the goal of credit repair is to improve your credit, so make sure you’re not doing anything that will unintentionally lower your score or make your financial situation even more challenging.
Emma has been helping people improve their credit scores for the past ten years and has written a number of credit repair companies reviews for us. Prior to that, she worked as a credit repair specialist and consultant for several of the best credit repair firms. She got into the credit repair industry after graduating with a degree in Finance before getting her MBA.