5 Ways To Begin Repairing Your Credit
One of the most important things you will need to be financially stable in life is a strong credit score. Your credit score is essentially a report card of how effectively you manage your finances. The higher your score is, the more likely you are to get approved for credit cards, other lines of credit and loans. However, it does not take much to damage your credit score, and it can be a long journey before you get it back up. Here are five ways that you can begin to repair your credit.
#1 Pay Your Bills on Time
The number one reason why credit scores commonly dip is that payments are made on a late basis. Practicing healthy financial habits should be your number one priority when it comes to maintaining a good credit score. If you miss a payment or are late with it, you can expect your credit score to take a nosedive. The easiest step to prevent this is to always ensure that you are timely with your monthly payments. Your payment history accounts for the biggest portion of what determines your score, so even one missed payment could drastically drop your score.
If you find yourself struggling mightily to keep up with the payments of your bills, then you should inquire to see if free automatic billing payment is something that your bank offers. That way, you can set a specific date each day of the month to make a payment and the money will automatically be withdrawn instead of you having to manually remember when it is convenient for you. If you are not comfortable with the bank withdrawing the money out of your account automatically, then you should also inquire if reminder services are available. Then, you could do something as simple as writing it down on a planner or calendar.
#2 Get Rid of Debt
Something else that can gradually decrease your credit score is carrying significant amounts of debt. If your balances are close to what your total credit limit is, this can be even worse. Paying down debts heavily improves your debt-to-credit ratio. This ratio is important because it shows banks a reflection of how much of your available credit you are actually utilizing. For example, if you have a credit card but only use about a third of what your overall credit limit is, then banks may see you as a reliable. However, if you are an owner of several credit cards and max out on them, lenders will see you as a high-risk candidate.
You should ideally aim to utilize no more than 10 to 30 percent of your available credit. You can have multiple forms of debt in the forms of student loans, mortgages, car loans, and credit cards. If that is the case, then what you want to do is start paying off the debts that have the highest interest rates, because those will be the forms of debt that will carry with them the longest shelf life. The longer you have those kinds of debt unpaid, the longer you will be making payments on them. Credit card debt is typically more expensive than other kinds of debt, so you will want to prioritize those payments first.
#3 Get Copies of Your Credit Reports
You cannot know where to improve in your credit score if you do not view your credit report. Understand that your credit score is separate from your credit reports because your credit reports do not include your scores themselves. With the Fair Credit Reporting Act, you can obtain free copies of your credit reports from the three primary credit bureaus. Those bureaus are Experian, TransUnion, and Equifax. These reports can be obtained free of charge once a year. Each of the major credit reporting agencies contains pertinent information that can impact your scores, and you will seldom know ahead of time which agency’s report will be used. You should ensure any issues are corrected and each report is accurate.
When you get your credit report, it will entail basic information about you, including your name, birth date, home address and other demographics. These reports can also entail any legal issues that you have financially. This includes if you have filed for bankruptcy, wage garnishment or judgments. These issues eventually age off of your reports, but some of these issues can potentially bring your credit scores down in the short term. Most importantly, however, there are five major areas that are looked at. This is your payment history, credit utilization, length of credit history, types of credit, and credit inquiries.
#4 Consider Secured Credit Cards
Secured credit cards can be used to your advantage because these kinds of cards essentially utilize your bank account as collateral. With a secured credit card, you will be able to charge the amount into your bank account. You can get approved for a secured credit card in situations where a traditional credit card is not an option for you. Unlike prepaid credit cards, a secured credit card will report to credit bureaus and your account history will be included on the credit report.
You can also earn interest onto your deposit on secured credit cards by placing the deposit into an interest-bearing savings account. While this is contingent on the amount of time your deposit remains in the account and the interest rate, you will definitely be able to earn a few dollars on the side. Your security deposit is also used if you happen to default on your payment. This means you will not have to worry about debt collectors having to constantly be on your tail about missed payments on the card (although you ideally do not want to have any missed payments at all). Re-establishing your credit can be an easier transition through secured credit cards.
#5 Improve Your Habits
While you can increase your credit score through supplemental means, nothing beats improving your core habits. This includes only keeping no more than a couple of credit cards on your person, only charging a small amount on your credit line and never missing payments. These habits are what will ultimately define your credit score, and to a greater extent, it will ultimately determine how trustworthy a candidate you are to institutions if you ever need some sort of financing.
Bonus Round: Monitor Your Credit
There are plenty of great options to keep tabs on your credit. Many of these options are free and provide premium services for a small monthly cost. Identity theft is a real problem in our modern technological world and it has become a vital exercise for everyone to keep tabs on their credit accounts. If you happen to become a victim of identity theft you should take a look at our guide to fix identity theft issues.
Start the Process Early
As you can see, your credit score is a big deal. It can take quite a bit of time to rebuild your credit score if you hurt it through missed payments and irresponsible spending. However, your credit score does not always have to stay low.
Bear in mind some of these tips and be patient. It can take quite a bit of time to see your credit score take a drastic leap, but consistency will keep your score up. It is definitely worth the effort to improve your credit score, because not only will you feel better about yourself, but you will have a far less stressful time obtaining a house, car or even a job that you desire.
Follow these five tips, and your journey to improving your credit score will be expedited greatly.