Maybe you were just denied for a credit card, or maybe you’ve missed a few loan payments this past year. Are you concerned about what’s staining your credit report? How do you clean up your credit report, if you don’t even know where to find it?
In this article, we will guide you through six steps that will help you clean up your credit report.
Accessing your credit report is simple, but might feel a bit terrifying if you’ve never pulled it before. Knowing what information is affecting your report (and your score), helps you to target those negative areas and make improvements. A pillar of good financial health is a healthy credit score.
How to Clean Up Your Credit Report in 6 Steps
Here are 6 steps to follow to clean up your credit report:
- Getting Copies of Your Credit Report and Score
- Reviewing Your Credit Reports
- Disputing Credit Report Errors
- Improving Negative Credit Report Information
- Evaluate Credit Card Balances
- Keeping It Clean and Building Great Credit
Step #1 – Getting Copies of Your Credit Report and Score
Before you can clean up your credit report, you’ll need to see it and understand how to read it. Each credit reporting agency (Transunion, Experian, Equifax) compiles and collects the data in a similar but often different way, and therefore you may see slightly different numbers from each. The good news is you can access your credit report for free, thanks to regulations by the Federal Trade Commission.
According to the FTC:
You’re entitled to one free copy of your credit report every 12 months from each of the three nationwide credit reporting companies. Order online from annualcreditreport.com, the only authorized website for free credit reports, or call 1-877-322-8228. You will need to provide your name, address, social security number, and date of birth to verify your identity.
You are eligible for one report a year, for free, from each credit reporting agency (CRA). If you are really serious about getting your report back on track, spread out your requests every four months, requesting from a different agency each time.
>> Read More: Best Free Credit Report Site
Credit Reports vs. Credit Scores
A credit report is a lengthy and detailed history, collected by a CRA, on your financial history. The report compiles data on what credit you’ve used, your past payments, defaults, collections, and more.
The CRA compiles this information into a numerical value – your credit score. It’s the credit score which is then pulled by banks, landlords, and credit cards before you enter into a new financial agreement. They’ll use this simple numerical value to assess your creditworthiness.
Before you improve your credit score, you’ll need to access the fine details of your credit report to sort out any issues. While the major CRAs will happily sell you copies of your credit score, it’s not always necessary. Speak with your financial institution or credit card company, who now often provide their customers with a free copy of their credit score. But remember, your report is more helpful for finding ways to improve your score, and not the other way around.
Step #2 – Reviewing Your Credit Reports
When you receive your credit report in the mail, it’s time to get out your orange highlighter and dig into the numbers. For many, there is a lot of information to sort through including details about utilities, loans, credit cards, and more. Sometimes, the data is incorrect, here are some things to watch out for:
- Are there any accounts that are not yours? Sometimes credit reporting agencies connect the wrong accounts to the wrong person, or you may be the subject of fraudulent activity under your name.
- Are there reports of late payments which are inaccurate?
- Are there accounts on the report which should be closed?
You should also check just how much credit you are currently using. How much of your total credit card or line of credit have you maxed out? Your credit utilization ultimately plays into your overall credit score.
Step #3 – Disputing Credit Report Errors
The three main CRAs are legally bound to report accurate information on credit reports, however as many find out, this is easier said than done. If you’ve reviewed your credit report, and you’ve noticed inaccurate information, you’ll need to file a dispute with the relevant CRA. They each have online forms through which to do this.
|Transunion Online Dispute||1-800-916-8800|
|Equifax Online Dispute||1-800-685-1111|
|Experian Online Dispute||1-800-397-3742|
Importantly, because each reporting agency is a separate agency, with different reporting mechanisms, if you do find false information on one report, you may wish to request a report from the others to follow up and clear your report of errors, if needed.
Step #4 – Improving Negative Credit Report Information
Once you’ve addressed any inaccurate information on your credit report, it’s time to discuss the negative accurate information. According to MyFico, derogatory marks may linger on your credit history for as long as seven years, so it’s beneficial to know how each affects the overall score.
- Late Payments: Late payments, starting at 30 days, may find their way on to your credit report. The frequency, severity, and period of lateness can influence the effect. Your credit score may drop over 100 points for a single late payment.
- Collections: If your late payments have been sent to collections, you will almost certainly see an effect on your credit score. Overdue payments in collections demonstrate you’ve gone into delinquency, and these should be the first payments you address if you have any on your credit report.
- Bankruptcy: If you’ve been swallowed by overdue payments, bills, and credit issues, the last step may be to file for bankruptcy. This is a long-term weight on your credit report, and cannot be cleaned for at least seven years (sometimes ten). As with other negative marks on your credit report, the effect of a bankruptcy will diminish over time, but it cannot be deleted until the period is over.
- Judgments: If you have defaulted on a bill or loan payment, and the issue was ultimately settled through court, it becomes a judgment. In the past, judgments were reported on your credit report, but this is no longer the case. Judgments and tax liens will no longer appear on your credit report or affect your score.
Step #5 – Evaluate Credit Card Balances
Why do credit card balances matter for your credit score? One component of your credit score is calculated based on the percentage of credit you are currently using. This calculation is commonly referred to as credit utilization. For example, are you maxed out, using all $5,000 of your $5,000 limit? Or are you only using $150? If credit reporting agencies see you are using over 30% of your credit limit they consider you a higher risk than others.
One easy target for improving credit score is to reduce your credit card balance. Work towards paying your credit cards off, and then practice paying it off in full every month. With a little good payment history, you’d be surprised the effect it can have on your credit score over time.
Step #6 – Keeping It Clean and Building Great Credit
If you do have a few negative marks on your credit report, the good news is that they will not last forever. Late payments and defaults tend to linger for seven years, and as they age, they lose importance on the overall report.
Most reporting agencies place the most importance on your financial history from the last 24 months. Which means, so long as you are now making payments on time and in full (even on delinquent accounts), within 24 months you’ll have a solid basis of good history feeding into your report.
Another way to improve credit is to increase your credit limits, which may seem a bit counter-intuitive. But applying for new credit, or raising your credit card spending limit, as a way to improve your credit utilization doesn’t always make smart financial sense. If you already have three credit cards, and struggle to make the payments, increasing your credit limit isn’t necessarily the answer. But if you don’t have any credit cards, and have good credit, applying for new credit may give your score a boost over time, provided you manage it accordingly.
There are many other methods of cleaning up your credit report, but these are the easiest and often the quickest. Target these six steps, pull another free report in four or eight months, and you’ll hopefully see a noticeable positive difference.