Taking Stock: Credit Cleanup

What’s your financial goal for the new year? Perhaps it’s saving for a big purchase, finding more affordable insurance, or planning to buy or rent a new home.

Did you know your credit score impacts all of those costs? It literally pays to learn how to build your credit and avoid common myths, particularly if you’ve had issues or negative information on your report in the past. 

SaverLife members will testify that you can make a lot of progress on your financial health by cleaning up your credit. Member Tenesha spent several years accumulating debt on credit cards during seasons when her children’s needs took top priority. But now, Tenesha is debt-free. “You can get there if you put the work in,” Tenesha says. “It might take a while, but you’ll eventually get there.” Here are some action items to help clean up your credit:

  1. Pull your report. The official and recommended site is www.annualcreditreport.com. If you use a third-party site, make sure to only utilize it for the features you need (reviewing your report) and not services you don’t – such as opening unnecessary cards or paying fees for credit monitoring.
  2. Catch up on any open past-due accounts. Open credit cards and longer-term loans are good credit waiting to happen, but only if you are regularly paying at least the minimum by the due date. Change a negative to a positive by bringing these accounts current. That’s a double win!
  3. Pay down high-interest debt. Prioritize paying off short term or pay advance loans then work toward paying off your credit cards in full each month. While this is a long-term goal for many people, aim to at least pay more than the minimum and don’t use the card unless necessary until it’s paid off.
  4. Consider your options for collections. In general, paying in full is best for your credit. Settlements or bankruptcy may suit your particular situation, but make sure to check out your options and the pros and cons before making a decision. 
    • Paying off these negative balances will shift the focus of your credit score to the positive information you’re building. It will also eliminate the “ceiling effect” that their presence can create while they remain unpaid.
  5. Add new credit only when needed. If part of the issue is insufficient credit, remember that quality is more important than quantity. A secured credit card is a common strategy for building credit – particularly once you’ve started with the steps above. 
    • You may also be able to have other payments, such as prepaid accounts or utilities (through Experian Boost), added to your account. These are not as robust a benefit as true credit, but they can help add positive information to your report if you are uncomfortable with traditional credit or aren’t ready to add that level of complexity to your financial life for now. 
  6. Understand disputing. It’s helpful to know what disputing can and can’t do. Disputing is a powerful tool for requesting that the credit bureaus review and remove inaccurate information. For example, a debt that isn’t yours or one that’s still showing a balance long after you’ve paid it off.  
    • However, the credit bureau isn’t advocating on your behalf (i.e.whether or not you should owe that fee from your old landlord). It’s merely double-checking that the information on the credit report is still in line with the creditor’s records.  
    • If you feel there’s an error in the amount or whether you owe it, you need to work directly with the creditor. Disputing is always free to do yourself, so it’s beneficial to do it directly rather than paying high fees to a third party. Save those funds to pay off debts!

Come back to your goal for the next year, how can having a better credit score make that a reality? Take a few minutes to make a plan for yourself and this important aspect of your finances!  

🗓️ Action Item: Set a time on your calendar during the next week to pull your report, review it, and identify one thing you can do to clean up your credit.