You’ve aced the interview for your dream job, and now the head of HR is calling. Confident and excited, you’re ready to accept the offer, but she has crushing news: You’re being turned down because of your low credit score.
Being denied a car loan, mortgage or even a job because of a low credit score can be distressing. Here’s how to repair credit, reverse a low rating, and get back on track.
- Know your rights. As a consumer, you’re responsible for knowing and cleaning up your credit history. And by law, you have the right to accurate information from credit bureaus and creditors or financial institutions that provide account reporting information to the credit bureaus. As you tackle your credit rating, arm yourself with knowledge about how debts and other financial obligations get reported.
- Get the full picture. Creditors provide information voluntarily and to whichever credit bureau they subscribe, so no single report tells the full story. To get an accurate credit profile, you need a report from all three major bureaus: Experian, TransUnion and Equifax. You can order one free credit report per year from each bureau online or by mail at AnnualCreditReport.com.
- Watch out for inaccuracies. Read and understand your report carefully. Credit bureaus report exactly what creditors submit, so be thorough. Notice a typo in your name or address? See an open credit card account that you thought you closed five years ago? Report all inaccuracies and submit all supportive documents. Keep copies of everything and follow up for changes and free updates to your file.
- Use good payment habits. Most creditors focus on payment consistency, so the key to rebuilding your score is to change your habits and pay bills regularly and on time. The sooner you begin doing this, the faster your credit score will improve. Make sure to pay at least the minimum payment due (if not more), since that information is also reported.
- Manage your debt and build a better credit profile. Here are some tips to get you started:
- Negotiate any unpaid debts in collection, and get a written agreement before paying them off. That way, you’ll have documentation to send to credit reporting agencies if necessary.
- Call your financial institution to negotiate lower credit card interest rates so you can pay off debts faster.
- Ask for payment due dates that coincide with your paydays. Do whatever it takes to stay on time with payments, since being late can have a significant negative impact on your rating.
- Work with your financial institution to accelerate a repayment schedule, and be aggressive about paying off your debt.
- Avoid credit limit raises and revolving balances.
- Gradually close some unused accounts that you don’t need, so you’re not tempted to use them again.
- Once one debt is paid off, allocate extra payments to the next debt, and so on.
Repairing your credit score doesn’t have to be overwhelming – but it does take time. By taking action, you’ll demonstrate a new pattern of behavior. In time, creditors will notice and your score will have nowhere to go but up.
For an in-depth look at credit, download our free e-book: The Build Blocks of Credit.