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How To Fix Your Credit Card Debt

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Pay Down Revolving Account Balances

Key Credit Repair: Paying Off Debt To Fix Your Credit

Even if you’re not behind on your bills, having a high balance on revolving credit accounts can lead to a high and hurt your scores. Revolving accounts include credit cards and lines of credit, and maintaining a low balance on them relative to their credit limits can help you improve your scores. Those with the highest credit scores tend to keep their credit utilization ratio in the low single digits.

What Is A Credit Score

A credit score is a numeric summary of your credit history, a commonly used method for lenders to predict the likelihood that you will repay any loans they make to you.

There are no exact cutoffs for good scores or bad scores, but there are guidelines for each. Most lenders view scores above 720 as ideal and scores below 630 as problematic.

Consumers are becoming more aware of how raising their credit score improves their financial outlook and Homonoffs study has evidence of it. She found consumer behavior improved dramatically when people were aware of their credit score.

Many people thought they had a great score, but then found out they overestimated it, she said. They realized they had to start changing credit behaviors, so they stopped making late payments, they paid off cards with a balance and their scores improved.

The FICO credit score is used by 90% of the businesses in the U.S. to determine how much credit to offer a consumer and what interest rate to charge them for that credit.

FICO uses five major components in the equation that produces your credit score. Those five include:

Keep Track Of Your Credit After You’ve Reached Your Goal

Once you’ve done the work to rebuild your credit history, you may be tempted to move on and focus on something else. While you likely won’t need to focus as much on your credit score as you used to, it’s still a good idea to keep an eye on it.

Monitoring your credit will help you spot any potential issues that could cause your credit score to drop again. It’ll also give you a heads up if someone commits identity theft, so you can address it before it gets out of hand.

With Experian’s free credit monitoring tool, you’ll get access to your FICO® Score powered by Experian data and also an updated copy of your Experian credit report. You’ll also get real-time alerts about new inquiries and accounts, suspicious activity and changes to your personal information.

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Always Pay Your Bills On Time

Your payment history makes up 35% of your credit score. So if you want to fix your credit, you should focus on ironing out your monthly payments. While it may feel like a challenge to pay all of your bills on time, theres a simple hack to getting this right: autopay.

If you have bills that dont permit autopaylike one-off medical billspay them as soon as you get them. If you cant, contact the office and work out a payment plan.If youre worried about overdrawing your account, we recommend setting up a budget and/or scheduling your autopay for the same time you get paid.

Keep Old Accounts Open And Deal With Delinquencies

How to Increase Your Credit Score Quickly

The age of credit portion of your credit score looks at how long you’ve had your credit accounts. The older your average credit age, the more favorably you appear to lenders.

If you have old credit accounts youre not using, dont close them down. Though the credit history for those accounts would remain on your credit report, closing credit cards while you have a balance on other cards would lower your available credit and increase your credit utilization ratio. That could knock a few points off your score.

And if you have delinquent accounts, charge-offs, or collection accounts, take action to resolve them. If you have an account with multiple late or missed payments, for instance, get caught up on the past due amount, then work out a plan for making future payments on time. That wont erase the late payments, but it can improve your payment history going forward.

If you have charge-offs or collection accounts, decide whether it makes sense to pay off those accounts in full or to offer the creditor a settlement. Newer FICO and VantageScore credit-scoring models assign less negative impact to paid collection accounts. Paying off collections or charge-offs might offer a modest score boost. Remember, negative account information can remain on your credit history for up to seven yearsbankruptcies for 10.

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Lower Your Utilization Rate With Strategic Payments Or A Credit Limit Increase

It may not be the most cost-effective way to pay off debt, but it could help you increase your credit score sooner.

The percentage of your credit limit that you use, known as your utilization rate, is an important factor that credit-scoring agencies use to determine your score. Having a lower utilization rate, meaning you only use a small percentage of your available credit, can help improve your credit score.

Heather McRae, a senior loan officer with Chicago Financial Services in Chicago, Illinois, recommends clients that want to build their credit try to decrease the utilization rate on all their revolving accounts rather than focusing on paying down the debt with the highest interest rate. It may not be the most cost-effective way to pay off debt, but it could help you increase your credit score sooner.

Thats because credit-scoring models look at utilization rates in two ways, and both are important. They consider your utilization rate on each individual account and they consider it in the aggregate looking at the total across all your accounts. There isnt a magic utilization rate, generally the lower the better, but some people like to aim for keeping their utilization below 30 percent. You could try to achieve something similar across your revolving accounts, then pivot back to repaying the account with highest interest rate.

Start Making Payments On Time

Payment history comprises around 35% of your credit score. However, even if you have late payments on your credit report, time is on your side. Thats because negative information drops off your credit report after seven years, except when you file bankruptcy, which remains on your report for up to ten years from the filing date.

Raising your credit score may take a few years, or even sooner with older accounts that drop off. However, if you keep paying on time, along with staying on top of other factors affecting your credit, your payment history along with your credit score should improve eventually.

fizkes / shutterstock.com

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Pay Down Your Credit Card Debt Strategically

If you can’t pay the balance in full, pay down your credit card debts strategically. Because credit scoring companies look at your debt ratio when calculating your score, you can raise your score by paying down cards with a higher utilization ratio.

Example. Say you have one card with a $6,000 credit limit and a $3,000 balance. Another card has an $11,000 limit, and you have a $1,100 balance on it. The first card has a 50% ratio, which is high and bad. The second has a 10% ratio, which is good. You can raise your score by paying down the card with the higher ratio.

Transfer Your Balance To A Zero

How Credit Card Over Usage Will Impact Your Credit Score. How To Fix Your Credit By Paying Down Debt

Have you received offers for credit cards which impose low rates of interest on balance transfer transactions? If you have then, you should take advantage of them, by signing up for a suitable line of credit. After all, by transferring your credit card charges to zero- or low interest credit cards, it will be a lot easier for you to gradually pay off your financial obligation. Thats because, with a low interest credit card account, you can minimize, if not completely eliminate, the payments you will make on interest.

Just remember that not all card programs come with this beneficial feature. Hence, you should take the time to consider the fine pint of the programs being offered to you so that you can make a sound decision, later on.

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How To Get Your Fico Score For Free

Understand the reasons that help or hurt your FICO® Score, including your payment history, how much credit you are using, as well as other factors that influence your overall credit.

Think About Your Credit History

Credit scoring models, like those created by FICO®, often factor in the age of your oldest account and the average age of all of your accounts, rewarding individuals with longer credit histories. Before you close a credit card account, think about your credit history. It can be beneficial to leave a credit card open even if you’ve paid it off and don’t plan on using it anymore.

Of course, if keeping accounts open and having credit available could trigger additional spending and debt, you may choose to close the accounts after all. Like fingerprints, every person has a unique financial situation, and only you know all the ins and outs of yours. Make sure you carefully evaluate your situation to figure out the approach that works best for you.

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Don’t Close Old Accounts

It’s usually a bad idea to close older credit card accounts. You might think of this step as cleaning up your credit. But in the case of credit cards, it usually helps to hold on to older accounts for a long time, which gives you a more established credit history. If your older card charges an annual fee, ask the issuer to switch to one that doesn’t have a fee, while keeping your history.

Open Another Credit Card Account

Infographic: Dig Out Of Credit Card Debt

Another way to increase your credit card utilization ratio is to open a new account. As long as you don’t carry a balance on that card, your available credit immediately increases by that card’s limit.

Try to get a card that doesn’t charge an annual fee, though. Your best bet is through a bank where you already have an account. Granted, cards with no annual fee tend to charge higher interest rates, but if you never carry a balance, the interest rate is irrelevant.

But again, be smart: The goal isn’t to get access to more cash, the goal is to improve your credit score. If you think you’ll be tempted to run up a balance on a new account, don’t open one.

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How We Chose The Best Credit Repair Companies Of 2021

Trustworthiness

The companies in our list are reputable credit repair services that have been around for over ten years and garner mostly positive customer reviews across different platforms. We looked for any history of Federal Trade Commission violations and searched the Consumer Financial Protection Bureau Database to verify any history of customer complaints or enforcement actions.

Product offering

A credit repair service assumes responsibility for writing dispute letters, communicating with lenders and credit bureaus and ensuring removal of each item. It helps if the standard service is complemented with other features. Multiple pricing options, additional financial tools, expert advice, and service guarantees helped companies stand out from the competition.

Pricing options and service guarantees

As we researched companies, we made sure that their pricing options were as varied as possible, and that their service guarantees were transparent with little to no fine print exceptions.

Dont Take On Additional Debt

Your total debt, including your , makes up 30% of your credit score. So if youre already struggling with debt, one of the worst things you can do is dig yourself into a deeper hole. Avoid opening new lines of credit until your situation improves. One exception to this rule is a debt-consolidation loan, which involves opening a new account to pay off and close several existing lines of credit.

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How To Pay Off Debt: 6 Strategies That Work

Debt can feel overwhelming, especially when you have debt on multiple credit cards. With these strategies you can take control, to know youre making progress in paying off your debt and save money on interest.

In more ways than one, debt can be a four-letter word.

When it gets out of control whether from medical bills, shopping sprees, or unexpected emergencies it becomes an albatross that affects your emotional and physical health.

Although it might feel overwhelming, you can tackle any debt the same way: one step at a time. Heres a guide on how to pay off debt and how to pay off credit card debt, in particular even when it seems impossible.

Start by learning what debt can do to your credit rating, and why credit card debt can be particularly damaging. Or jump to our favorite debt payoff method, the debt avalanche.

Keep Credit Accounts Open

How To Fix Your Credit For FREE

The total age of your credit history accounts for 15% of your overall credit score. Keeping accounts open will help improve your score over time as long as theyre used responsibly. Just remember to make small purchases periodically and pay off the balance immediately to keep your accounts active. Inactive accounts may eventually fall off your credit score, even if they still appear on your credit report.

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What Is The Credit Repair Organizations Act

dispute negative information found on your credit reports. But in the past, some of these companies would overstate what they could do for consumers to drum up business.

The Credit Repair Organizations Act is a federal law that became effective on April 1, 1997, in response to a number of consumers who had suffered from credit repair scams. In effect, the law ensures that credit repair service companies:

  • Are prohibited from taking any payment from a consumer until they fully complete the services they promise.
  • Are required to provide consumers with a written contract stating all the services to be provided as well as the terms and conditions of payment. Under the law, consumers have three days to withdraw from the contract.
  • Are forbidden to ask or suggest that you mislead credit reporting companies about your credit accounts or alter your identity to change your credit history.
  • Cannot knowingly make deceptive or false claims concerning the services they are capable of offering.
  • Cannot ask you to sign anything that states that you are forfeiting your rights under the CROA. Any waiver that you sign cannot be enforced.

The CROA adds transparency and due diligence to the credit repair process, making it less likely that consumers will be taken advantage of. However, regulators have still found wrongdoing among credit repair companies.

Fix Or Dispute Any Errors

Unfortunately, credit bureaus sometimes make errors. According to one study by the Federal Trade Commission, a quarter of people had errors on their credit report and 5% of people had errors that could have made getting a loan more costly for them.

So while knowing your credit report and credit score is a good first step, its also crucial to look for errors. If you spot any, its a relatively simple process to dispute those errors and have them removed.

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Get A Handle On Bill Payments

More than 90% of top lenders use FICO credit scores, and theyre determined by five distinct factors:

  • Payment history
  • Age of credit accounts
  • New credit inquiries

As you can see, payment history has the biggest impact on your credit score. That is why, for example, its better to have paid-off debts, such as your old student loans, remain on your record. If you paid your debts responsibly and on time, it works in your favor.

So a simple way to improve your credit score is to avoid late payments at all costs. Some tips for doing that include:

  • Creating a filing system, either paper or digital, for keeping track of monthly bills
  • Setting due-date alerts, so you know when a bill is coming up
  • Automating bill payments from your bank account

Another option is charging all of your monthly bill payments to a credit card. This strategy assumes that youll pay the balance in full each month to avoid interest charges. Going this route could simplify bill payments and improve your credit score if it results in a history of on-time payments.

Use Your Credit Card to Improve Your Credit Score

How Long Does It Take To Improve Your Credit Score After Debt Settlement

10 Surefire Ways to Eliminate Credit Card Debt Step By ...

The amount of time it takes for your credit to start improving will largely depend on your credit history. If those settled debts are somewhat of an anomaly for you youve successfully paid off several debts in the past that will help your credit rebound. That shows lenders you are capable of paying your debts on time. Having other debt youre still paying and are current on, such as a mortgage, car loan or other credit accounts will help, too. People with a fairly robust and positive credit history might be able to start improving their credit score in six months or possibly as little as half that time.

If your credit history is skimpier, it could take much longer. For example, if you dont have a history of paying off debt and you arent currently making timely payments on a mortgage, a loan or other credit cards. And if the accounts you settled were ones youve had for a long time, it could hurt your score because the length of your credit history makes up 15% of your credit score. If you have a poor and/or thin credit history, it could take 12 to 24 months from the time you settled your last debt for your credit score to recover.

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