Experiencing a dent in your credit score is hardly the best news. This is often due to a missed bill or debt payment, leading the lender to report the non-payment to collection agencies. However, there are several strategies available to fix your credit after such occurrences.
Just one collection account on your credit could potentially decrease your score by up to 100 points, making it harder to get a lower interest rate on mortgages or loans, and preventing you from obtaining rewards cards if you have travel hacking in mind. To get you back on track, here are some key steps to take to repair your credit after a slip-up.
VERIFY THE DEBT
Having a negative mark on your credit typically signifies that a debt collecting agency has bought your debt and reported it to the three major credit bureaus. That said, creditors and collection agencies are known to make mistakes. As such, your first call to action should be to authenticate the debt to ensure the reported information is accurate. You have a right to request validation within 30 days of a collection agency reaching out. Even if you’ve passed this deadline, you can still make this request.
Try to handle all communication mail and ensure everything is documented in writing. Remember, many debt collectors have incorrectly reported collections for the wrong person or amount, allowing you to dispute with the three major credit bureaus.
NEGOTIATE WITH THE LENDER OR DEBT COLLECTOR
If the debt is legitimate and belongs to you, the next course of action entails reaching out to the creditor or collection agency to discuss possible negotiations. Note that a negative marking can stay on your credit for up to seven years, even if you’ve repaid the balance. To have the collection account removed from your credit report, consider negotiating a pay-for-delete agreement, where you agree to pay off part of the balance, and in return, they eliminate the negative marking from your credit report.
While such agreements aren’t always successful, they’re worth exploring. You could also employ a credit repair agency to aid the negotiation process. As Credit Glory suggests, successfully removing a collection account from your credit history may result in boosting your credit score by up to 150 points, making it an option worth considering.
Be sure to have everything in writing and periodically follow up if you secure an agreement.
Related: 5 Reasons Why Your Credit Score Can Decrease
BUILD POSITIVE CREDIT HISTORY
Moving forward, focus on creating a positive credit history. Companies like Discover or Capital One offer secured credit cards so that you can begin this rebuilding process. You’ll need to provide a deposit of $200 to $300 to act as your initial credit limit. Over time, this limit can be increased. Always verify that the company you choose reports payment history to all three major credit bureaus.
Related: No Credit History? Here are 3 Ways To Build One
MONITOR OTHER CREDIT FACTORS
Supplement the process of restoring your credit by paying close attention to major factors affecting your score, such as on-time payments, total credit usage, and credit history length.
Secured credit cards are a brilliant starting point to foster positive credit history, especially considering you can maintain overall usage below 30%. Consider a long-term secured card option convertible to an unsecured credit card, thus preserving all your credit history while the card is open.
While recklessly purchasing a new car or taking out loans isn’t advisable, diverse types of credit accounts can positively influence your score. No matter the type of debt, it’s vital to make sure you can meet payments promptly and/or provide a sizable down payment.
PAY YOUR BILLS PROMPTLY
Another excellent way to mend your credit following a negative marking is a renewed commitment to punctual bill payments. Create a budget, plan your expenses and payment dates, and consider setting up bill reminders or automatic bill payments.
If you’re unable to make a payment, reach out to the creditor to discuss potential payment plans. It’s always better to communicate proactively rather than allowing overdue bills accumulate and potentially leading to collection.
The good news is that negative marks on your credit are not the end of the road. There’s always a chance to amend your credit situation and make sure it never happens again. Keep these tips handy as you strive to elevate your credit score.
Have you ever had to rectify your credit after experiencing a negative mark?
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