What is the Solution to Poor Credit History?

The solution to poor credit history, in a word, is time. Developing and implementing good financial habits over time can repair a poor credit history. That process can take years, but along the way, you can take positive steps to make a difference.

What Is Your Credit History?

Each time you took out a loan or applied for a credit card, your lender reported it to the three credit bureaus, Experian, Equifax and TransUnion. The same goes for negative activity such as late payments. Your credit history is used to calculate a credit score for you, called your FICO score, which is a number between 300 and 800. The median FICO score is 720; 760 is excellent, 620 and below is poor.

Negative information stays on your credit report for seven years, or 10 years for a bankruptcy. If you borrow a reasonable amount of money for someone in your financial position and repay on time, eventually your credit history will improve and your credit score will go up.

Checking Your Credit History

You are entitled to one free credit report from one of the three credit bureaus each year. Take advantage of this offer now and check your report for accuracy.

If negative information is reported in error, it is the only way to get it off your credit history quickly. If you can document that information is wrong, send a letter to the credit bureau explaining that along with a copy of the documentation. They must acknowledge your letter in 30 days and if the claim appears valid, they must take up the dispute with the lender in question.

More than 60 million credit reports have errors, so this is a legitimate way for many to begin repairing a poor credit history.

Establishing Good Habits

Continued negative activity such as late or missed payments will further reduce your credit score. To repair a poor credit history you must establish good financial habits so that you can avoid any more blemishes on your report.

The first step is to take care of systemic budget problems. If you cannot meet your obligations go to your lender for alternatives such as refinancing or loan modification. Once obligations can be met by your income, establish a budget that allows you to pay debts on time, prepare for the future, fund your lifestyle and set money aside for a rainy day.

Pitfalls to Avoid

It is not only late payments that give you a poor credit history and score. You will be downgraded if you open and close multiple credit card accounts or take out too many loans. Often, those with poor credit history, particularly from misusing credit cards, try to borrow their way out of trouble with more cards.

Avoid that pitfall. Communicate with your credit reporting bureau before jumping into more credit cards or other debt. It might make more sense to simply pay off existing cards and leave them unused than to open new accounts and close old ones.

Beware of Scams

The internet is of credit offers to quickly fix your poor credit history. The only quick fix is if there are mistakes in your report, and you can make that fix yourself. The credit bureaus have dispute departments just for this. Despite what advertisers promise, if your report is accurate, implementing good financial habits over time is the only way to repair your credit.