7 Steps to Cleanup your Credit Report
This post may contain affiliate links. Please read my disclosure for more info.
Anyone who wants to purchase a home or take out a loan for a car knows that your credit report is going to get pulled by your potential lender. Credit reports allow lenders to evaluate your history and relationship with debt to determine if you can manage the payments each month and repay the balance in full. Although you may have errors on your credit report or a low score, there are a few important steps to take.
Building a good credit score takes time, probably at least six months with on-time payments. Access your TransUnion Credit Report.
Review your credit report for signs of error, theft or fraud. If looks wrong, contact your bureau immediately for review. Under federal law you are entitled to a copy of your credit report annually from all three credit reporting agencies – Experian, Equifax and TransUnion – once every 12 months.
Step 1. Obtain a Credit Report
First, its important to evaluate your credit report and begin cleaning it up. Your personal credit report contains details about your financial behavior and identification information. This user-friendly report is sometimes called a credit file or a credit history.
Equally, it’s crucial that you request a credit report to obtain and all-in-one credit report with all three bureau reports from TransUnion, Equifax and Experian.
Additionally, the Fair Credit Reporting Act allows you to obtain a free credit report every 12 months. Each bureau may list different errors or details, making it important to request different copies. This one should go without saying, but it’s worth reminding everyone reading that credit and debt are huge factors in financial success.
Its important to understand that the free credit report doesn’t include the Credit Score. It can be tricky. If your reviewing each line to remove wrong data, you might fine without the score. However, if your trying to boost your credit, or identify what interest rates might be available to you. You will need your Credit Score.
Try TransUnion with No Hidden Fees. Takes Only 90 Secs. For a low monthly fee, this provides extensive details on your credit score including credit trends and quarterly reports. Most importantly, this gives you your scores from all three credit bureaus, so you won’t be in the dark about anything.
Step 2. Review Each Line
Second, you will need to carefully read each line of the report to avoid missing any details that can easily be overlooked. Evaluate your account balances and compare them with your records, along with checking the loan status, your payment history, and unfamiliar line items.
You should check your credit reports with TransUnion Credit Report at least once a year to make sure there are no errors that could keep you from getting credit or best available terms on a loan.
Be sure the information in the report is accurate and up-to-date.
You should also check your report:
- Before making a major purchase that may involve a loan.
- Before applying for a new job. Many companies look at your credit history when hiring new employees.
- To guard against identity theft. Identity theft occurs when someone uses your personal or financial information to commit fraud.
One helpful tool to learn more about the snowball method is Dave Ramsey’s book The Total Money Makeover Its an easy read, 5 Stars and very inexpensive.
Step 3. Challenge Errors on Your Credit Report
It’s important to request a copy of your credit report to identify any errors that may be present. Approximately 20 percent of credit reports contain errors, making it important to carefully evaluate the information.
Again, your personal data should be accurate and all of the accounts should be yours instead of another individual’s. Examine the account details to determine if they’re correct and check to see if any information is missing. Having someone else’s account going against your Debt to Income ratio could have a very large impact.
In most cases, debt is the opposite of an investment. The only time it’s a successful investment is when it’s for either an emergency or to swing yourself into a better financial situation. Building credit is another story and doesn’t require debt, but that’s a different topic for another day.
If the weight of your Credit History is too much. You can try a Free Debt Consultation, I highly recommend working with National Debt Relief for a Free Debt Relief Quote. Also, as part of the enrollment process, one of there trained Credit Specialists will review your credit reports and provide a consultation.
National Debt Relief works with your individual circumstances, so if you have a smaller amount of debt, it might be worth a consideration. They negotiate with your creditors to get a reduction of your outstanding credit card balances. We get your creditors to agree to a lump sum payoff amount and they will forgive the rest of your balance.
Step 4. Hire a Credit Repair Company
A credit repair company will work to protect you and improve your credit report with different tools that are used. Also, most credit repair companies offer free consultations and will improve your credit score within months of obtaining your information.
Also, National Debt Relief can also monitor your credit score over the year for fraudulent activity to ensure that it’s immediately reported to the credit bureaus.
Step 5. Pay Off Outstanding Balances
Your credit score will quickly improve by paying off your outstanding balances that are present on your credit cards or auto loans. Equally, make sure you calculate your household income and create a budget that allows you to pay down your debt as quickly as possible.
The most important factor in your credit score is your payment history. Do you make all your scheduled credit and loan payments and are the payments on time?
Every monthly payment helps your score but just one missed payment can drop your score by 100 points, wrecking all your progress. If you miss a deadline, make the payment as soon as possible because lenders typically wait until a payment is 30 days late before reporting it.
Pay the most recent collections first:
- Recent collection accounts have a much more detrimental effect on your credit than old collection accounts.
- The damage to your score diminishes over time.
Pay off collections if you need to improve your score before the account is due to age off your report:
- Paid collections still cause lingering damage to your credit score if the score is calculated with the scoring method or any earlier method, so you might not see much improvement in your score after you pay off a debt. However, the newest version, ignores paid collections.
- That means you’ll likely get a boost to your score when you pay off those old debts
A Few Tips to Make Some Extra Cash
I also recommend trying to sneak in a little extra free money by using Ebates. If you have to do any shopping online, you earn cash back on every purchase. I have made over $250 in the past six months for just doing my normal shopping but checking Ebates every time before I purchase. This is free money that is put into your PayPal account.
Ibotta is another free cell phone app. You use it after you go grocery shopping and use your receipt. It’s basically a rebate app, so you can earn anywhere from 50 cents to $5 off everything you buy.
My favorite part about this app is that it’s not always brand specific, like a lot of coupons are. So you’ll be able to scan “any brand of bread” for 50 cents off, etc. If you do coupon – you can STILL use Ibotta and get a rebate. For the die-hard coupon-ers out there, this will often result in getting an item for FREE. Crazy, right?
If you want to grab the Ibotta app and start making money off your grocery receipts, click here to get started. Here’s a $10 cash bonus when you scan your first item that you can deposit into your PayPal account!
TIP: Starting a blog is one of the best ways to make some extra money. If you want to start a blog, Bluehost has the cheapest options to get started.
Step 6. Avoid Overspending
A common mistake that many people make with managing their debt is maintaining high balances. Thus, keep your credit card usage below 20 percent of the available credit to ensure that you don’t rely too much on borrowing money.
Signs your budget might need attention:
- Your Budget Doesn’t add up. If you establish your budget for the month. Something has to give if you overspend in an area.
- Your credit cards are maxed out.
- You can only pay the minimum amount on your Credit Card payment.
- Your Credit Card Debt exceeds your Monthly Income.
Step 7. Make the Payments on Time
Also, your credit score can begin to drop at a fast rate if you fail to make your payments on time. Also, you can consider setting an automated payment schedule that deducts the money from your bank account each week to ensure that you don’t forget when it’s due while also setting reminders on your phone each month.
Finally, although you may suffer from a low credit score or errors on your credit report, you can work to improve the report with specific steps that are taken to ensure that past mistakes are forgiven.
Moreover, by correcting the information, you can increase your credibility as a borrower and save money by obtaining lower interest rates in the future.
If you are interested in learning how how to get out of debt, I created a FREE 10 Days to Financial Freedom eCourse tutorial that will help you get out of debt.