Having a good credit score is essential to your financial well-being.
With so much information on how to repair credit, how to raise credit scores and how to get new credit, it gets difficult to know what advice is good and what advice is not so good.
Credit repair is not always a one size fits all approach. On the surface some credit repair actions may seem logical but in the end, may actually result in a lower credit score.
5 Harmful Credit Repair Actions
1. Disputing all negative items at once
The credit dispute process is vital to credit repair. Errors and inaccurate information should be disputed, but not all at once. Many consumers do a blanket dispute of all negative items and in some instances are successful in their efforts.
The problem arises when those disputes are later verified and re-appear on your credit reports. A creditor may not respond to a dispute within the allotted 30 days but instead respond some time later.
The negative item can be reinserted if the creditor can prove the accuracy of the item.
- The best way to go about credit repair is to base your dispute on factual errors and back the dispute up with proof, when available.
- Dispute a few errors at a time instead of bombarding the credit bureaus all at once.
- Disputing a few items every 30 to 60 days decreases the likelihood the credit bureaus will flag your disputes as frivolous.
Filing numerous disputes across your report, even for different items, could raise flags suggesting “patterned” behavior and raise the possibility of frivolous attempts.
Here are the best tips to fix your credit on your own.
2. Use of Generic Dispute Letters
Sending generic dispute letters without tailoring them to the specific details of the individual’s case may result in disputes being deemed frivolous. Personalized and well-documented disputes are more likely to be taken seriously.
Watch out for duplicate disputes also. Filing the same dispute multiple times without any new information or evidence can also be marked as frivolous, especially if the previous investigation upheld the accuracy of the information.
When credit bureaus mark disputes as “frivolous”, as defined by the Fair Credit Reporting Act (FCRA); they don’t have to investigate the dispute further and it won’t be removed from your report.
3. Not using your active credit cards
If you have credit cards you should use them. Yes, I said it! Use your credit cards if you want to build your credit history and raise your credit score.
Credit cards reflect your ability to handle your finances and manage debt responsibly. Putting your cards away for emergencies and rarely using them could negatively affect your credit score and here is why.
Card issuers may lower credit limits and even close accounts that are not used. These actions can hurt your credit score.
You shouldn’t go overboard in using your credit cards but they should be used occasionally allowing you to make monthly payments or pay-in-full each month.
Plus, make sure something positive is reporting each month, even if you currently have negative credit. That may mean you have to pad your credit report with positive accounts.
Last, don’t cancel old credit accounts. Your credit history length accounts for 15% of your credit score and that’s just a small portion of how credit scores work. Closing an inactive or outdated account causes your credit length to appear shorter.
Canceling an old account will not only lower your credit score, but also reduce the total amount of the credit you have available. It will cause your credit report to appear as though you’re utilizing a higher percentage of your available credit which can lower your scores.
Read more about retaining old credit accounts.
4. Late payments while working with Credit Counseling
Once upon a time credit counseling weighted negatively in the FICO credit scoring system. Now, FICO no longer calculates credit counseling into your credit score although a notation of the credit counseling service may appear on your report. As long as you are making timely payments and reducing your overall debt, your credit score will not suffer.
But if you miss a payment while in credit counseling your FICO scores will suffer. Any credit counseling organization that suggests you miss payments in order to settle debts for less, stay away from.
Working with the right credit counseling agency can help get your debt under control. Make sure the credit counseling organization is accredited by the National Foundation for Credit Counseling to get a workable debt management plan.
5. Too many recent credit inquiries
When attempting to repair your credit avoid too many credit inquiries. You may be tempted to apply for credit accounts to build credit but doing so my harm your scores.
While it’s true that adding positive accounts can help credit scores, multiple credit inquiries not only takes points from your scores but may alarm potential creditors.
An inquiry alone has minor effects on your credit scores by only decreasing your score by a few points. But applying for many credit cards at once can negatively affect your ability to obtain new credit.
Banks may view your applying for multiple credit accounts as an indication of financial trouble.
The only time lots of credit inquiries won’t hurt your credit score is when you are rate shopping, for example:
- If you’re looking for a mortgage loan, car loan or student loan the FICO scoring system ignores inquiries made in the 30 days prior to scoring.
- If you find a loan within 30 days, the inquiries won’t affect your score while you’re rate shopping.
- The FICO scoring system even looks for mortgage, auto, and student loan inquiries older than 30 days. If it finds some, it counts those inquiries that fall in a typical shopping period as just one inquiry when determining your score.
You may have an issue with some lenders using older versions of the FICO scoring formula. In this case the shopping period is any 14 day span.
On the other hand, lenders using the latest versions of FICO offer a 45-day shopping rate span.
