I Need a Credit Fix

May 7th 2016

Image Courtesy of Flickr, via seishin17

It's easy to tank your credit because you might not have even known all the rules to begin with. Many people realize that not paying their credit card bill on time lowers their credit score, but that isn't the only factor regarding what goes into it. How much available credit you use is almost as important. That's right. You might have a credit limit of $5,000, but if you use all or most of that limit (what you are allowed to use), your credit score will go down. That might sound crazy or even unfair, but that's the way it is. If you have tanked your credit score, don't panic. It won't last forever, but you need to take the proper steps to fix your credit.

5 Factors You Need to Know for a Credit Fix 

As soon as you start using credit, you will develop a FICO score, which is the most common vehicle lenders use to gauge your creditworthiness. Your FICO score is calculated using five factors: your payment history, how much you owe, how long you've had a credit history, how much new credit you have and the types of credit you use.

Category Weight 

Not all five factors are equal. Your payment history is the most important factor; it accounts for 35 percent of your score. This category refers to whether you pay your bills back and if you do so on time. How much you owe accounts for 30 percent of your score, so it's almost as important. If you max out your card, it signals that you might be having money problems. Many experts, such as Dana Dratch of CreditCards.com, say to use no more than 30 percent of your available credit to get the highest score. How long you've had credit makes up 15 percent of your score, so don't close an old account. Use it every once in awhile by making a small purchase and paying it off at month's end. Both new credit and types of credit make up 10 percent of your score. You don't want to open a bunch of new credit accounts at once, which could lower your score. Also, it's good to have a mix of the types of credit you have: credit cards, retail cards, bank loans and a mortgage.

Steps to Take for a Credit Fix 

1. Start paying off your credit cards that have balances. Have a plan to pay off the cards with the highest interest rate first or the cards with the smallest balance first — whichever is the bigger motivator for you. Also, don't use your cards during this time.

2. Once you pay off your cards, use one or two credit cards each month — but do it the right way. Charge only what you can afford to pay off at the end of the month. That way, you build credit and you don't pay interest. If you have shot your credit to the point that you can't get a credit card, apply for a secured card. You need to deposit money in an account to get one. If you use it responsibly, usually for a year, you should qualify for a regular credit card.

3. Take out a loan from your bank or credit union. Having a mix of credit helps your score.

Look at your Credit Report 

Get a free copy of your credit report from AnnualCreditReport.com. Look it over to determine whether there are mistakes on it that would make your credit score appear worse than what it should be. If you find a mistake, write a letter to the credit bureau, include proof of the error and ask that the bureau fix it immediately. Your credit score should go up soon after the mistake is fixed.

Don't Be Fooled by Credit Fix Shortcuts 

Many shady credit repair companies make promises they cannot keep just to take money from you. You won't be fooled if you understand that no organization can remove accurate information from your credit report. Most information stays on your report for seven years, but legitimate credit repair companies can help you get inaccurate information removed.

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