7 Ways to Save Money When You are Young and Naive
A lack of experience or knowledge shouldn’t stand in the way of smart money moves.
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Here’s a simple, all-important fact about credit in the U.S.: Nothing in credit lasts forever, so you can always recover to achieve a better score.
People often think that bad credit is a curse that will follow them forever. But the truth is that you can solve most consumer credit problems within six months to a year. Even better? You don’t need professional credit help to do it. You can complete the repair process and rebuild your score without incurring any additional costs to make it happen.
Here’s a quick overview of how do-it-yourself free credit help works:
Use the free instructions below to get started. If you still have questions about your report, score or how to build, visit Debt.com’s EDU Credit Section for additional information.
The first step to fix your credit is to get a copy of your credit report. Every consumer actually has three reports in total – one from each of the three main credit bureaus in the U.S.
By law, you can download your reports for free once every twelve months through annualcreditreport.com. That’s the government-run website where you can get your reports with really no strings attached. Just answer a few security questions and you can access your reports from all three bureaus.
If you want to fix your credit score following a period of financial distress, you should download all your reports. In other cases, such as an annual checkup after you achieve the score you want, one report may be fine. For now, though, make sure to grab them all.
Fact: 1 in 20 credit reports contains an error that would decrease a consumer’s credit score by 25 points or more.
Credit report errors often contribute to a lower score, particularly following a period of financial hardship. There may be issues like mistakes in your payment history or outdated account statuses that could impact your score.
So, you want to read through each copy of your credit report carefully to identify mistakes or errors. Look for:
Any of these types of errors can contribute to a lower score. Simply asking the credit bureaus to correct these mistakes can help you achieve the score you want.
As much of a bad rap as the credit repair gets for scamming, the process is 100% legit and legal. Per the Fair Credit Reporting Act, you are legally permitted to ask the bureaus to correct mistakes in your report. That’s all credit repair is.
To complete the repair process on your own, follow these steps:
That’s all the credit repair does. So, you can do all of that on your own and avoid paying a company fees to do it for you.
Even after you remove all the mistakes, there may still be some negative items that remain in your report. Negative information that’s correct generally can’t be removed; you have to wait for the penalties to expire. In most cases, negative items drop off naturally after seven years.
However, you probably don’t wait to wait that long for your credit to recover. The good news is that the “weight” of negative items on your credit score decreases over time. In addition, you can offset past negative information with positive actions now.
There are two main factors that make up your credit score:
Payment history accounts for 35% of your score and utilization accounts for 30%. Together, those factors make up almost two-thirds of the scoring calculation. So, if you diligently make payments on time and fix your credit utilization, you can achieve a better score.
Credit utilization refers to the amount of debt you currently carry relative to your total available credit. For example, if you have three credit cards each with a $3,000 limit, then your total available credit is $9,000. If you currently hold $3,000 in debt on those accounts, then your utilization ratio is 30%.
Lower utilization always equals a higher score. That means the more debt you pay off and credit lines you keep open in good standing, the higher your score. So, by making monthly payments that are larger than the minimum requirement each month, you can fix your credit quickly.
The key to building credit is that you don’t want to take any action that incurs a negative item now. It’s easy to offset negative items in the past with positive actions now. If you incur a negative item now, it will be bad for your score.
That means you should be extremely vigilant to avoid actions which would result in more negative items in your report:
Although the two factors mentioned above account for 65% of your score calculation, there’s still another 35% left over. The remaining factors include the number of new accounts opened, length of credit history and types of credit. That’s why you want to avoid opening too many new accounts at once. Closing old accounts can also decrease your score since you shorten the length of your history. And lenders also consider types of credit that you use, so you want to avoid “bad debt,” such as payday loans.
If you take these steps and avoid new negative items, your score should improve in six months to one year. How fast your score improves depends on where you started and how many negative items still linger in your report. But in most cases, this process allows you to at least recover to a fair credit score within a year.
And it’s important to note that using a paid service will generally result in the same timeline. If you hire a professional credit repair service, the process still takes over 30 days for each dispute. And there’s nothing a professional credit help service can do to increase your score faster. They’ll tell you to do exactly the steps we listed above.
Any attempt to game the system to get a better score faster is usually illegal or at least inadvisable. For instance, opening a new credit file with a different Social Security Number is fraud. Obtaining an Employer Identification Number (EIN) to get a new profile as a business is also illegal. If a company tells you to do this, it’s a scam! Report them immediately to the FTC.
Article last modified on October 30, 2019. Published by Debt.com, LLC