Best Ways to Repair Credit

There are several ways to build a positive credit history. Lenders request credit reports upon receiving a loan application. And, based on your three-digit personal score, they'll either approve you for a loan or deny your application. Improving your credit is one of the best ways to guarantee an approval and low interest rate. But before you can acquire a better rating, you'll need to recognize factors that result in a rating decrease.

Credit Report Mistakes

Credit bureaus and lenders are imperfect; thus, they're capable of making mistakes. Some mistakes are minor and may include misspelling your name or printing a wrong address. But in severe cases, lenders may accidentally report another person's information on your report. And if this information is negative, your credit rating may decrease. Fortunately, there's a simple fix. Because reporting errors are common, it's vital for everyone to order a copy of their credit report once or twice a year. Carefully look over the report and check for mistakes, such as unknown account information. Contact the creditor to dispute the remark. If this proves ineffective, draft and send a dispute letter to the credit bureaus.

Late and Missed Payments

Defaulting on a loan or credit card payment can quickly damage your credit rating. You'll lose points with every late or missed payment, and it can take months to reverse the damage. If looking to repair your credit, start by making on-time payments. In turn, you'll build a good relationship with your creditor, and you'll likely qualify for lower interest rates and better loan deals. Knowing your due dates is crucial to paying your bills on time. If necessary, use a calendar to mark your dates, submit online payments or make payments several days before the actual due date.

Control Your Spending

Using credit cards unwisely can also have a damaging effect on your credit. In this instance, repairing your credit involves altering your spending habits and paying for the bulk of your purchases with cash. Uncontrolled credit card use often results in excessive debt. This creates a high debt-to-income ratio, which can reduce your personal rating. Lenders may see you as a risky applicant; this label can impact your loan approval odds. Learn how to live within your means. Buy things with cash, pay off your credit card balances monthly and don't max out your credit cards.