How To Fix Your Credit Score

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You know credit scores are crucial for any major purchases. But do you know how your score’s made?
It’s from all the little spending moments in your life. For real, every single one, from the good things you do (like paying your bills on time), to the mistakes you made (whoops, you forgot one), to maybe even some errors that are bringing you down.
To find out what’s going on with your credit report, we’ll walk you through how to access it for free from each of the credit bureaus. From there you’ll learn what to do if you find any mistakes in your report, and how to fix things that are right but not so great for you.
All of this will help you when the day comes for you to purchase your dream home. Listen to learn how to fix yours now.
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GET THE INFOGRAPHIC HERE – use this to learn how to figure out what’s wrong, dispute anything you need to, reduce your debt to income ratio, and more.

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Contributors to this episode include:

Host – Jeremy Goodrich
Copy Editing – Talia Chakraborty

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Full Transcript:

McKenzie Goodrich: This is the New Home Buyer’s Guide Podcast brought to you by the New Home Buyer’s Guide, a comprehensive online course that lays out the nine steps to finding and buying your dream home. Get it now at NewHomeBuyersGuide.net.

Jeremy Goodrich: Hey, new home buyers, Jeremy here. This is episode seven of the New Home Buyer’s Guide Podcast. Where hopefully we are changing you from confused to excited, from wondering what the heck this whole home buying process is about to owning the process and owning the home of your dreams that’s the right investment for you, and the right home for you to spend some time in. Maybe it’s five years, maybe it’s 30 years, maybe your grandkids show up at this house and talk about all the stories over the course of the last 60 years. Who knows, but we’re going to make a smart investment right now.

Episode seven is the second episode in our credit series, understand your credit. So, episode six we really dug into how to find your credit, and I talked about a way, kind of a workaround, to go out and find your credit score for free, and get at least two of the three different credit scores that are out there, your Experian, Equifax, and TransUnion scores, which make up kind of the trifecta of your credit score scenario. And to go out and get at least two of those in a free way.

Now, you can go out and get your credit score in a way that costs money, but this was a free way so you could get a sense of your credit score. Then, I dug into exactly what that meant. And really, if you have 740 or higher, you’re going to get the best loans, with the best interest rates. If you have a below that, depending on where you’re at, you can have different types of scenarios, and I really broke that out.

So, this episode is about how to address your credit if it is problematic. If you have less than a 740 score, then we can really dig into your credit score, and figure out if there are ways to fix it. So, let’s do it, let’s dig in right now, and let’s make your credit score better. All right, here we go.

Okay, before we get too deep, I wanted to let you know that there is an infographic for this episode as well. On episode six we had an infographic to walk you through how to find your credit, and if you go to the show notes at newhomebuyersguide.net/episode7, you will find an infographic there as well, this time for how to fix your credit. So, everything we talk about in this episode is laid out in a step-by-step way. So I might go and get that right now and then listen to the rest of this episode, so it all makes sense.

So, what we need to do first is we need to get our credit report. Not our credit score, our credit report. Your credit score gives you a number that’s easy for you to understand, and know where you stand when it comes to credit. Your credit report breaks down all the details of why your credit score is the way it is. All your credit cards, all your loans, your auto loan, your mortgage, all that kind of stuff, the details of what you have when it comes to your financial situation is going to be a part of your credit report.

What we’re going to do right now is we’re going to go to a federal site called AnnualCreditReport.com and we’re going to get our credit report. Now, you can only do this once every 12 months for free. I’m going to go to AnnualCreditReport.com, and it is authorized by the federal government. It’s required by law that they let you once per year get an annual credit report. So again, this is a podcast, I’m not going to show you how to go on the site, but if you go to AnnualCreditReport.com, you’re going to walk through a process, you’re going to enter your information, you’re going to take the steps that they ask you to take.

Then, when you’re finished, you will get a file that is your credit report. That file will look crazy. It’ll have all the details, all the information, like I already said about your mortgages, your auto loans, your credit card loans, all those details. So go ahead and go through that process right now. Go ahead and pause this episode, and go through the process, do everything you need to do until you have that annual credit report up on the screen. When you’ve got it done, start this episode again and we’ll go from there.

All right, so you got your credit report, and you’re looking at it, and it’s like, “Oh my gosh, these people know so much about me.” It’s probably 20 years of mortgages, and auto loans, and credit cards, and even credit cards you closed are probably on there, and information, old names if you changed your name, all kinds of information on that credit report. Tons of things about you. It’s a little scary how much they know about you. But you have it there, and now you can go to analyzing your credit report and trying to figure out how we can increase your credit, how we can fix it. Let’s talk about that.

Step one, step two on this infographic, but really the first step in fixing your credit is disputing errors. This is the single quickest way to fix your credit. There are three credit reports that you should have in front of you. One is from Equifax, the other from Experian, and the third from TransUnion. Each of those are the three different reporting agency, and that information comes together to create really your ultimate credit score that will affect your mortgage or your pre-approval for a mortgage. If you go through either any of those, and you see issues, you see things that are on there that shouldn’t be in there, maybe someone else used your identity, that’s a common problem with people’s credit score, an issue that comes up on credit reports. Maybe there’s something that you never really had. Maybe there’s something on your report that was actually an old boyfriend, or girlfriend, or something like that.

If there’s anything wrong with your credit, then we’re going to fix that, we’re going to go through the process of fixing that right now. It’s not exactly easy, but it’s definitely worth it. So if you have the infographic right in front of you, you can just click on the click here to learn how in the second section. If you don’t have that in front of you, then you can go to www.consumer, C-O-N-S-U-M-E-R, .ftc, Frank, Tom, Charlie, .gov. That is www.consumer.ftc.gov, and it’s going to take you to the Federal Trade Commission site, that is how to dispute errors on your credit report. It’s pretty old school how you’re going to have to go about this.

Essentially, you’re going to have to create a letter. You’re going to send a letter to one of the three credit reporting agencies depending on which one has the problem. If all three of them have a problem, then you’re going to wan to send the same letter to all three credit reporting agencies. If you want to just call them and kind of get information about where you send this, there’s a phone number you can totally do that at. But basically, if you want to do this, you’re going to need to come to this page, and then you’re going to click the our sample dispute letter, then I would just copy this information into a Word document or whatever. You’re going to dear sir, or madame, blah, blah, blah. Then you’re going to explain the item that is in your credit that is incorrect.

You’re going to describe that in the letter. And if there are any things that you’ve enclosed, documentation, payment records, court documents that support your position, you definitely want to put those in there. You want to do everything you can to convince them that this is incorrect and it should be removed from your credit. Then you’re going to ask them to please delete or correct the dispute item as soon as possible. And you’re going to send them out to them. Or send these letters out to them.

Now, it takes a little while to get the letters to these places, but hopefully when they get this, they’ll see that there are inaccuracies in your credit score, and they will fix those. When they fix them, those inaccuracies will not be affecting your credit anymore, and can very quickly increase your credit score. So that was step two in the process is to dispute errors.

Step three is, you know, these next steps are pretty straightforward. This is just getting your financial situation right. So, if you see red flags in your credit report, maybe these are credit cards that you have bills due and haven’t made payments, or maybe you didn’t even realize that they were behind and they are. Maybe you’ve not been current on the monthly payments on your auto loan, or your mortgage, or something like that. So you’re going to see what is behind, and you need to get that current, however you can, you need to get those bills current, and then stay current.

So that may mean setting up reminders, or automatic withdrawal for all your monthly bills. If you get current and stay current for six months, and even a year, you’re going to see your credit score increase dramatically. So that’s number three, is get those bills current if they are behind, and you can see that in your credit report.

Finally, if you can reduce your debt to income. I know, easier said than done. I realize that. But it will increase your credit score substantially. It doesn’t mean you have to close credit cards. In fact, many financial advisors would say you don’t want to close credit cards. Part of your credit score is how much open credit you have, and then how much debt you’re carrying in that. So if you have $10,000 of open credit cards, maybe one is a $2,000 credit card, the other is a $5,000 credit card, another is $3,000 credit card. And that you’re not maxing those cards out, then your credit score can really be based on the difference between how much open credit you have and how much debt you’re carrying on that.

So if you have $10,000 of open credit, but you’re only carrying $1,000 of debt inside of that $10,000 of open credit, then that’s a good thing. It shows a ratio of only 10% of what you have available used. So having open credit is okay, but carrying a balance in those credit cards is what can really hurt you. So if you can pay off some of the debt on those credit cards, I would not suggest closing the credit card, but paying it off is totally cool, and a great thing to do. Then, if you can increase your income, obviously, that is changing jobs, or something like that, finding a second job, having more income that you can show as a part of your credit report is going to raise your credit score.

So three things you can do to fix your credit after you’ve gotten your annual credit report from all three reporters, TransUnion, Experian and Equifax, is to dispute any errors simply by sending a letter to the reporter that has the error in it. If all three of them have an error in it, then you want to send that letter to all three. Get your bills current, if you have anything behind you want to get those bills current and keep them current for a period of time, six months is the minimum, a year is even better. You’ll see your credit score increase dramatically. Finally, reduce your debt to income. That could include lowering your debt amount by paying down your carried balance on your credit card, or it could include increasing your income, getting a second job, or a higher paying job so that the ratio of carried debt to income is farther apart.

All right, that was episode seven, we dug into how to fix your credit. I hope you’re feel empowered, I hope you feel like you understand even if your credit is in the dumps, or just kind of not the best, I hope you understand maybe how you can fix it. Now, you have your credit report in hand, you can see the problems, maybe if you’re lucky, there are actual issues, you know, that you can write in and have them just fixed and sort of magically make your credit go up. But more than likely you’ve got some work to do on your debt to income ratio, and you can do that. You just have to take the time, you have to budget, you have to think about what you’re spending money on, and put those things together so you can get your credit back in order.

Okay, so we’ve really kind of nailed all this stuff that has to happen beforehand. So in episode eight, I’m super pumped, because we are going to dig in with a great mortgages lender who’s going to talk about the five things you need to do to get a loan, right. So this is the next step in the process. You got your credit right, you’ve got your down payment that you’re working on, you’re kind of getting the process down, but we’ve got to get pre-approved. We can’t go looking for houses, we can’t hire that realtor, even though realtors don’t cost any money, as we found out in the former episode, but we can’t connect with those people until we have a pre-approval letter, so important, and we’ll hear about that in episode eight.

Okay, now some action steps. So first, head over to Instagram and follow us @NewHomeBuyersGuide, we put lots of stuff up there, great posts, great information, just trying to kind of create a community in that space. If you want to go to the posts with the red house on the hill, that’s our podcast logo, and you can share your questions, your comments, give us some love, give us some hate, whatever, do that in the comments section, we want to hear from you, we want to know what you learned, and maybe what you want to learn in the future that we didn’t hit on today.

Okay, one more thing, home buying is tricky. The process has clear winners and losers, you know that because I was a loser the first time I bought a home. And home buyer’s remorse is real. Sometimes you just truly get it wrong. So you need to know if you’ve got your financial ducks in a row, and to understand the timeline that you’re going to go through to anticipate the hidden costs, and all the steps along the way. How are you supposed to do that when you’ve never done this before? We totally get it. Well, easy, you’re going to go to the NewHomeBuyersGuide.net, that is NewHomeBuyersGuide.net, and sign up for our e-course.

You’ll get walked through the process step by step. Think timelines, checklists, videos, expert interviews and more. It’s like this podcast, but totally beefed up and ready to walk you step by step through the process. Remember, you’re about to make one of the biggest purchases of your life, do yourself a favor that’ll last maybe the next 30 years, and head over to NewHomeBuyersGuide.net.

All right, until the next time, happy home buying.