Since a credit score is one of the most important figures in your financial life, it is crucial to maintain a good credit score. However, do you know the steps to be taken if your credit report is faulty? Well, read on to know what you must do to repair your faulty credit report. But before that, let’s understand the implications of a faulty credit report:
This is one of the negative implications of a faulty credit report. A credit report is a report card of your creditworthiness and not having a good credit profile will give an impression of you being a risky customer to the lender(s). This might put you at risk of high-interest rates and you might end up paying a lot more than what you should be. This means you will pay more interest over the time than you would have if you had a good credit score.
In times of credit requirement, you might get rejected due to your faulty credit report. Although creditors are willing to take some risk, the chances of getting approved for credit becomes too low if you have a faulty credit report.
Now that you know the side effects of a faulty report, here are the steps you must take to repair it:
There is a high possibility of your credit report showing incorrect information. This could be manual or system-generated but can drop your credit score. Therefore, when in times of repairing your credit report, it is important to check your credit report for any incorrect information. Keep a track of whether your lender(s) is reporting your on-time payments to the bureaus or if there are any unauthorized credit inquiries made on your report.
Another way to repair your faulty credit report is by increasing your credit limit. You might be wondering how can you repair your report by increasing your limit. When your credit limit is increased, it helps in improving your credit utilization ratio which is an important determinant when calculating your credit score. The credit utilization ratio comprises 30 percent of your credit score.
Your credit payment history is another important aspect of the calculation of your credit score. In fact, your credit history comprises 35% of your credit score. Therefore, paying your bills on time is another way to repair your faulty credit report. It is best to pay your bills before your due date and in full. This will not only improve your credit score but also help in avoiding interest payments.
One of the most popular myths about credit scores is that keeping outstanding balance in your credit account will help your credit score. However, this is completely untrue. Keeping balance in your credit account will only affect your credit score adversely. Moreover, it will accumulate interest and will increase your debt in no time. Since credit cards have high-interest rates, it is always better to pay off your outstanding balances in time.
As mentioned above, keeping balance in credit accounts with high-interest rate will not increase your debt but also drop your credit score. Therefore, when deciding to pay off your balances, it is best to start with accounts that have a high-interest rate. Alternatively, you can opt for a balance transfer if you wish to lower your interest cost.
The age of your credit accounts also plays an important role in determining your credit score. It comprises 15 percent of your credit score and the best way to repair your credit report is by not closing your old accounts. For instance, if you have a credit card that you no longer use but have it since you started building your credit history, you can avoid closing it. This will also reduce the impact on your overall credit utilization ratio.
This is a no-brainer. If you are repairing your credit report, it is important to check your credit report on a regular basis to track your progress. This will give you a proper understanding of what is working for your profile and therefore help you know what steps to take to improve your credit score.