Daily Money - Your next DIY project has arrived

I wouldn’t call myself handy — I can’t build IKEA furniture to save my life — but I am great at crafting. As a kid, I went through a whole phase where I made jewelry out of paper clips. These days, I’ve turned my attention to a more sophisticated pastime: painting denim jackets.

When the Jonas Brothers reunited in 2019, I was so excited that I painted a denim jacket with one of my favorite lyrics in a fancy script surrounded by flowers. I did the same for Harry Styles’ 2021 tour, carefully illustrating each of the fruits mentioned in his songs, and then created a “Satellite”-themed jacket last year. With each project, my hand got steadier, my lettering got cleaner and my designs got better. (Crucially, I also bought a bedazzler, so now I can make the jackets SPARKLY, too.)

I love that I can see myself improving over time. I bet this strategy could also apply to my financial life — specifically, my credit score.

How do I DIY credit repair? Can I improve my credit myself?

Longtime Scholars know that credit scores are hugely impactful. Because they’re used by a wide variety of lenders to evaluate my worthiness as a borrower, they affect everything from my mortgage rates to what kind of cell phone I can get. And that means it’s pretty important that I have a good one.

Credit scores typically range between 300 and 850; anything below 580 is considered “poor.” To have “good” credit, I’ll need a score that’s over 670.

Working myself up to that point — especially if I have a less-than-amazing credit history — can be time-consuming. But it is 100% possible to DIY, says Lamine Zarrad, founder and CEO of StellarFi, a public benefit corporation focused on credit-building.

The first, most basic step is to download a copy of my credit report. (I can get a free credit report from all three major credit bureaus — Experian, Equifax and TransUnion — by visiting annualcreditreport.com.) This won’t give me a score, but it will show negative info, inaccurate items and areas that need improvement.

“With some folks who have bad credit or adverse marks on the credit report, it may not be their fault — it could be an error,” Zarrad says. According to the Consumer Financial Protection Bureau, common credit report mistakes include closed credit accounts showing as open, debts that appear multiple times and incorrect balances.

If I spot any incorrect information on my credit report, I can dispute it by writing a letter to the appropriate credit reporting agency.

Once I’m aware of where I stand, it’s time to tackle the major factors that impact my credit score. There are a ton of these, but among the most heavily weighted are payment history (35% of my FICO Score) and amounts owed (30%).

Paying my bills on time every month is central to having a good credit score. If I’m prone to carrying a balance, I should think about ways I can find cash: Can I adjust my spending habits? Are there expenses I can cut to free up money to put towards my bills? Do I have unneeded subscriptions I can cancel?

“Payment history is so impactful on a credit score. Late payments on your credit bills [are] about the worst thing you can do to yourself,” Zarrad says.

Keeping my amounts owed under control is vital, too. Specifically, I need to keep a handle on my credit utilization ratio, which measures how much credit I’m using in relation to the overall credit limit I have at any given time.

Ideally, this ratio should never go over one-third or roughly 30% of my spending limit. For example, if I have a total of $1,000 of available credit, I generally don’t want to use more than $300.

“It’s a good sign to a lender that you’re disciplined enough, you’re not utilizing all of it, and if you were to fall on hard times, you have something to fall back on,” Zarrad says.

I can also improve my score by expanding my credit file. There are a ton of programs that do this, mainly by including alternative data as part of my credit report. Experian Boost, for instance, will expand my credit file for free by reporting my monthly payments to Hulu and Netflix. I can ask my landlord if they’re signed up with (or willing to sign up with) a rent-reporting service like Esusu.

These help establish that I’m a person who — say it with me — has a history of paying their bills on time, and therefore I’m a safe bet for new lines of credit.

Alas, rebuilding bad credit isn’t a fast process. Negative marks or delinquencies, such as missed payments, can stay on my credit report for up to seven years, while some types of bankruptcies can stay on my report for up to a decade. It may take a few months — or even years — for a person to raise their credit, but it is feasible with some elbow grease.

Credit builders will have an impact, but even those are “a long-term solution,” Zarrad says, and they won't just rocket up your score “if you have bankruptcy or a history of missed payments.”

These are all steps I can take for free without paying someone (and probably should, as credit repair companies can be dicey.) But there’s no shame in asking for help, either. Nonprofits like the Association for Financial Counseling and Planning Education and the National Foundation for Credit Counseling can connect me with certified experts who can guide me.

See you next week.

P.S. Have you tried improving your credit? Do you play Wordle? Would you share a bank account with your best friend (even if he wasn’t Ben Affleck)? Send on-time payments to julia@money.com.

This newsletter is free because Money earns a commission when you click or make purchases from the links in this email and on our site. We also receive compensation for some of the products and services featured in this message. Offers may be subject to change without notice. Learn more about how we make money.

Privacy Policy • Advertise With Us • We're Hiring!

To stop receiving these emails, unsubscribe or manage your email preferences.

Copyright ©2023 Money Group, LLC. All rights reserved.

Metro Office Park Calle 1, Building 7 Suite 204, Guaynabo, Puerto Rico 00968, USA