Want to Repair Credit? Here’s What needs to be avoided!
Repairing credit is a lifelong process, that involves various steps and rules that you have to keep on following for the rest of your life.
A credit profile, once destroyed can really take years to reconstruct. And, if you are not careful enough, and fall occasionally into credit repair loopholes, then all your efforts will go in vain.
Eventually, this post can be summed up in one line itself. Which is, you need to pay off your debts in full, clear the last dime, but keep your old debt accounts (especially credit cards) open, if they are not charging any useless annual fees.
That’s probably the only best way to repair your credit, that suffered a huge blow due to your bad credit activities.
But, we are not much interested in teaching you the moves you need to make for repairing credit. Rather we will be making you wise enough by teaching you what to avoid while repairing your credit.
Let’s gear up then, and discuss what not to do one by one.
1.Opening new credit lines, while your credit profile gets repaired:
That’s the biggest mistake, we are talking about!
Most of the consumers, who are putting in all the hard work to repair their credit, often times get into new debt, to take the edge off!
But, you need to avoid this at any cost. You can’t afford to land into a new debt mess, while being in one already.
You have to have this much control in you, if you really want to clear your debts for good. More debts mean more burden, and you might never be able to repair your credit by accruing new debts over time.
To be precise, a damaged credit profile is a result of bad money habits. Instead of welcoming more debts, you should be focused in improving your savings, and making escalated debt payments, whenever possible.
Therefore kill the urge to take help of debts, till you have absolutely increased your credit score to a significant level, and have cleared all of your existing debt.
However, there are always anomalies when we are talking about money and finance. You can bring in a potential secured debt in your portfolio, while repairing credit. But, you have to be wise in that part, as you should do so only if you can manage the payments, and the debt works as an investment vehicle.
The best example of this is a mortgage, and student loans. But as I said, be sensible and calculative while choosing these debts.
2.Closing your past credit cards:
This point is highly mandatory for you to understand.
There is credit history, which makes up a big portion of your credit score calculation. And, credit card history speaks a lot.
The scenario for many consumers is somewhat like this. They seek help with credit card debt solutions, and end up pretty happy by saying goodbye to their debts. But, after this gigantic smart move, they make the most unsmart mistake.
They close their credit card accounts straightaway!
The moment you do that, the accounts get wiped away from your credit portfolio, and won’t be considered a part of your long credit history anymore. That means, your credit score will fall, as simple as that.
So, the hit point is, you have to keep the accounts open, even after you have cleared the debts.
Now, that doesn’t mean you will be holding onto those accounts, for no good reason, and on top of it you are paying hefty annual charges, whether or not you use them. In such a case, you are free to close them.
Hence, have a brief talk with your creditor regarding the charges and fees of the credit card you presently own.
3.Going for debt settlement:
This debt relief option is not for you if you are repairing credit.
Debt settlement hampers your credit score due to the rating it gives to the debt accounts on your credit report.
Your accounts will show the listings like, ‘Settled’, ‘Not paid in full’, and other negative statements.
The credit score calculation will not consider settled debts as rightfully paid. Your score will definitely decrease.
Also, your future debt related activities will be affected as lenders and creditors don’t rely on consumers who have settled debts in the past.
Therefore, strike out debt settlement, when all you are having in your mind, is credit repair. If you feel that you can’t pay off your debts as per the normal terms and conditions, then it’s better for you to go for debt consolidation.
In fact, consolidation can actually improve your credit score if done in the right way.
4.Using your savings for paying off debt faster:
Never exhaust your hard labored savings on debt payments. It is always advised to take your time while dealing with debts.
Your credit profile won’t increase over night. So, you may not need to rush!
Use your income proficiently to make the debt payments, and to save money. If required, you can stop contributing to your savings till the debts are cleared, or the payments become manageable, or your income increases.
But using your savings to get rid of debts faster, for improving your credit?? That’s a total NO!
5.Not reviewing your credit report from time to time
When you are repairing your credit, you need to take hold of your credit report occasionally.
Many consumers do find wrong listings and misinterpreted information on their credit reports. You need to pay attention to that.
More negative and wrong listings you have, worse will your credit score get.
Hence, you have to check your credit reports and dispute all wrong information with the respective credit bureaus and your creditors.
Also, checking your credit reports will help you evaluate your own credit repair progress. You need not to worry about hard enquiries as you do your own report check.
It is considered as a soft enquiry, and your credit profile won’t be harmed. Reviewing your credit report from time to time is definitely worth it!
Those are the 5 points that will help you to do credit repair in a better way. In the meantime, you should also be figuring out some ways to expand your savings.
Having a good credit portfolio may be a big deal, but having a strong savings portfolio is a lot bigger deal!
Stay happy always.