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Everyone makes mistakes when it comes to finance sometimes. The problem is that when you have a bad credit score those mistakes can haunt you for a long time to come. Repairing your credit, in theory, is easy. However, there are a lot of hidden rules that can snag you.
These mistakes can greatly lengthen the time it takes to start repairing the damage done. We’ve listed the most common ones below. And many of them may be shocking.
These are the 16 mistakes you should do everything to avoid when trying to repair your credit.
See Also: Defaulting on Debt: How to Get Your Finances and Credit Score Back on Track
Taking Out New Credit
Taking out new credit is a problem because one of the reasons why your credit score is low is because a large proportion of your support mechanism is credit. You’re only digging a deeper hole because if you keep supporting yourself through credit the debt is going to increase.
Furthermore, if you apply for a card and get rejected this is something else that will lower your credit score.
Not Researching Credit Repair Companies
While credit repair companies can be a life saver for some, not looking up credit repair reviews of companies before starting with them can lead you to even more financial trouble. It is important to make sure that you are dealing with an ethical credit repair company that has the goal of helping you improve your credit and not a goal of profiting off your money.
A few red flags to avoid would be companies that require you to make large deposits to them before they even contact your creditors to see if they are open to a payment plan and companies that won’t disclose exactly how much of your monthly payment will be going towards their fee and going to your creditors.
Not Making a Budget
One poll revealed that just 32% of Americans have a household budget. This is a serious problem because poor credit scores normally result from too much debt and an inability to pay down that debt every month.
When you have a budget, you can see where you can make changes and where you’re making mistakes. It’s vital for rectifying the mistakes of the past.
Paying Your Lowest Balances First
The common theory is to pay off lots of small debts so you only have the bigger ones to focus on. Forbes wrote an article on the fastest way to pay off credit card debt and they found that by paying the lowest balances first, rather than the ones with the highest interest, you’re creating a debt snowball.
The more collective debt you have the harder it is to pay and the lower your credit score will be. Always pay the debts with the highest interest first.
Talking Directly to Collection Agencies
It’s a common myth that settling a collection impacts your score. It can, but there’s no guarantee. Once you’ve reached this point the damage is done. It might be hard, but you shouldn’t make any contact with a collection agency. They hold no debt and they’re merely messengers of the credit card company.
Speak to them not the collection agency.
Making Agreements Over the Phone
Whenever you speak to your credit card company about your debt don’t make an agreement over the phone. This goes for any representative who holds your debt. Your score can’t improve or change if you don’t have something in writing. There’s no evidence of any agreement that happened over the phone.
Get everything in writing, whether that’s through a physical letter or a formal email.
Closing Old Credit Card Accounts
This is a big one.
The Balance marked out a few reasons why you shouldn’t close an old credit card. One of the big reasons is that if you close a card with a balance remaining it suddenly looks like you’ve maxed the card out on your credit report. Another reason is that it shortens your credit history. The shorter your history the worse your score is going to be.
That doesn’t mean you can’t close some cards, but in general, it’s best to leave the cards available.
Not Cutting Out Non-Essential Items from Your Budget
Budgeting involves making some tough decisions. To improve your credit score your first priority is paying off the debt. Nothing else.
So many people attempt to maintain their lifestyle while paying down debt. There’s nothing wrong with leaving some room in your budget for fun, but so many people don’t make the hard cuts they need to. Decide whether you really need something in your budget.
Not Getting a Secured Card
You may be wondering what a secured credit card is and why you should get one.
A secured card means that your credit is secured by your personal assets, such as a car or a house. It’s also the only way to get a credit card if you have an extremely low score. You need credit to build your score. A secured card is the answer.
It will give you credit, teach you good credit habits, and gradually rebuild your score.
Not Removing Negative Items from Your Credit Report
A credit repair review will give you an insight into the negative items that can be removed from your credit report. Mistakes aren’t uncommon and allowing them to linger only makes the obstacle greater. By sitting on your hands and not disputing clear errors you’re making your task harder.
Improve your credit score instantly by getting rid of these items.
Not Being Patient
A good credit score takes years to build. It’s only natural that rebuilding a damaged score is going to take time. What you must keep in mind is that this is something that’s bound to take time.
For example, a collection isn’t removed from your credit record for seven years, according to some estimates.
Disputing Too Many Items on Your Credit Report
Disputing items on your credit report should only be done with care. If you make frivolous disputes your credit score will be impacted by that. Therefore, you should opt for a comprehensive review of your credit record before attempting to make disputes.
Don’t file disputes and hope for the best, otherwise, this could set your progress back by months.
Doing Balance Transfers
Occasionally, a balance transfer can be beneficial for your credit score. But in most circumstances, this will only harm your credit score. Applying for credit with a low score means that you’re already putting your score at risk, and the chances are you won’t get approved.
It’s much more prudent to simply leave your debt where it is and pay down that debt.
Missing Some Payments/Paying Late to Pay More on Other Accounts
This is common advice, but you should be wary of this sort of advice. By not paying you’re taking a hit on your credit card rating automatically. The only time this is advised is if you have a credit card with an extremely high rate of interest, or your score is about as low as it can go.
You should always aim to make the minimum payment every month so your score isn’t damaged further.
Not Checking Your Credit Report
How can you endeavor to improve your score if you don’t even know what it is?
More to the point, by not checking your credit report you’re potentially allowing mistakes to linger. You should always check your credit report to make sure everything is in order. It’s also useful for applying for a professional review so you can come up with a comprehensive strategy for later.
Doing a Debt Settlement When It’s Not in Your Best Interest
A lot of people are unaware of what debt settlement is and the true value of it. In short, it’s offering to settle a debt for less than what you owe. It’s mainly designed for people who can prove they’re unable to pay off the full amount. If you’re not in this position, you shouldn’t even make the offer.
If you’re in this position the chances are you have bigger considerations than trying to improve your credit score. In this case, it can be better to opt for Chapter 7 bankruptcy. Yes, it will destroy your credit history, but if you’re even considering it the chances are your credit score is already extremely low.
The advantage of this, however, is that it provides a clean break from collections, credit cards, and everything else. You can start rebuilding immediately.
Debt settlement has a habit of merely prolonging the problem. Plus, some people then file for Chapter 7 bankruptcy anyway.
Last Word – Handling Your Credit Score
This is a lot of information to take in. The fact is credit is difficult to understand. Things that don’t sound like they’d have any impact on your credit score do. But this guide provides you with all the information you need so you don’t inadvertently make mistakes.
It’s impossible to build up your credit score quickly, but with this information, you won’t make the process take even longer. I recommend you contact a professional for some personalized advice on what you can do to build up your score.
Do you have any additional tips for building up your credit score or things that you shouldn’t do?