Understanding the basic five steps to better credit is important in 2021. The following article tackles some of the essentials, but also, a couple dark horse tactics to improving your credit fast. Understand that any credit repair journey starts with a few basic steps and acknowledgements. While you may quickly rebuild your credit, any promise to this is misguided and not based in the fundamentals of credit repair.
The Five Steps to Better Credit Primer
There are a couple things you must know about credit rebuilding before you dive headlong in. First, credit repair isn’t as easy as many of the articles you read state it is. It can be, but not always. Second, and most importantly, you need to have multiple approaches to the items you need to repair.
Obtain Your Full Credit Report from All Three Major Players
One of the biggest mistakes you can make as a credit rebuilder is to use free services like Credit Karma to pull your credit report. Credit Karma may have some use in the journey, but when starting you need to have your full credit report. This can be done for free once a year at AnnualCreditReport.com and provides ALL the information you need to make the most of your credit rebuild. No five steps to better credit article would be complete if obtaining you full credit report wasn’t on the list.
Ignore the Free Credit Scores
I cannot stress this enough. Do not pay any attention to credit scores you can obtain from Credit Karma, Credit Sesame, NerdWallet and the like. These scores are not used by any lenders. In the past 5 years, most major bank card companies are allowing you to see at least one of your FICO scores for free monthly. Start there! If you are looking to be a bit more involved in your credit journey, spend the money and sign up for a membership with MyFico. MyFico provides you with over 40 variations of their FICO algorithm score, and this is extremely helpful when you know EXACTLY what you are rebuilding for (Examples would be home purchase or car purchase)
Pay Off Credit Card Debt As Fast As Possible
This is the single greatest feat you can do to raise your score quickly. Credit Card usage counts for nearly 30% of your credit score, and it can be even more nuanced than that. The most import decision from a financial perspective is to pay off higher interest debt first, but when dealing with credit scoring, there can be variance in how you should pay this debt down. I recommend “low hanging fruit” first, because the more cards showing a zero dollar balance, the more incremental gains you will see. For example, if you have 5000 dollars of credit card debt and only 1000 dollars to spend on repayment; check to see where the debt resides. If the debt is spread on 4 cards, pay down the lowest first. This will give you more credit score improvement based on debt ratio on those cards. Credit scoring is so complicated after you learn the basics, I wrote an entire book on it. There are far more than five steps to better credit scoring, and we will tackle that in our December series on Credit Scoring.
Raise Those Limits!
Not everyone rebuilding their credit HAS credit, but if you do, work to raise those limits! This will give you a better debt to credit ratio and will in turn raise your score. It is a simple approach but one that can be stunningly effective. Couple words of caution, however. First, make sure any action you take does not require a hard credit pull. This will actually drop your score slightly. Second, I would avoid online tools and actually make a phone call to the lender. I know, who uses the phone these days? Your odds of getting that credit limit increase will improve over the phone.
Repair, Repair, Repair in Five Steps to Better Credit
Credit repair can be easy or it may be difficult. There really is no rhyme or reason to this and it does vary between consumers. Understanding how to tackle individual items is a language in and of itself, but here is a basic rundown of how to handle those pesky negative items.
- Triage the credit report. Print out your credit report and physically mark up the items that need attention, so you can properly research. Identify issues and debt you can immediately pay down, and ones that will take more creativity.
- Start with the easiest items first. This is a no brainer. Oldest debt, smallest debt, all of them will likely work with you for pennies on the dollar.
- Consider outside approaches for public records. Most of this data is obtained using the LexisNexis report.
This article is designed to get point you in the right direction. I strongly encourage going through our credit repair guide for actual steps to handle the negative items correctly.
This article was last updated on May 10, 2022