Having good credit makes life a little bit easier on a few different levels, including saving money! You’re more eligible for better interest loans and financing options, for one. For two, within that eligibility lies a world of opportunity when it comes to buying a car or financing a home loan.
But, what if you don’t have good credit?
Then, you need a credit “fix” model to help guide you through the necessary steps to obtain and maintain good credit standing. You can always contact a credit repair expert, but it’s still a good idea to know what it takes so that you can be better prepared for the process.
The worst thing you can do is stick your head in the sand and ignore your credit rating. You must be proactive and willing to give it your best effort. It takes some work, but it’s worth every last push until the end.
Check Your Credit Report
One of the first and most important things you can do while preparing to rebuild or repair your credit is to check your credit report. You can request a free copy from each of the three separate credit bureaus (Equifax, Transunion, Experian) once per year. You may also sign up for free credit reporting websites to help you monitor your Equifax and Transunion scores.
Check your report for errors and dispute ones you find. You may have to dispute errors three separate times or more in order to have them completely removed from your credit report. Otherwise, make sure everything is accurate and look for areas where you need to improve.
This is a good time to set a budget based on your debt. Your credit report provides a simple snapshot of what you owe so you can set your finances accordingly.
Fix Late Payments
If you have late payments on your credit report, now is a good time to contact the creditors and see how you can have them removed, updated, or fixed. If you’ve only had one late payment with a particular creditor, they may be more inclined to remove it as a courtesy.
If you have several late payments showing on your credit report, you may have to sit tight and allow them to age before they stop affecting your score. The important thing is not to be late on any future payments so that you can rebuild your credit reputation.
When you’re trying to repair your credit, you need to have a defined budget in order to ensure that you’re making payments on time and knocking down debt.
Consider making a handwritten list of all your bills and write the math down so you can see what you make and what you owe. You can also use spreadsheets or other finance programs and apps to help you stay on track.
Pay Down Debt
Of course, part of having good credit is actually not carrying a lot of debt. You need to pay off credit cards and loans in order for your credit rebuilding efforts to work.
Try paying small balances off first. You’ll feel accomplished each time you reach a goal and it will make paying the larger balances off easier in the long run. You can use those funds from the small balance accounts to knock down the larger balances faster.
Pay On Time
Whatever you do, don’t miss payments or make late payments. Set up payment reminders if you have to or have payments automatically deducted from your checking account.
Just one late payment will impair your credit score so it’s important to have your monthly budget set up around your income. Meaning, make sure your payment dates revolve around your paychecks. You can often work with creditors to select payment dates that work with your schedule.
While credit cards don’t allow grace periods, you can ask loan companies how late they’ll accept a payment before reporting it to the credit bureaus if you’re in a tight spot one month.
Collections can stay on your credit report for up to seven years. It’s important to consult a professional credit repair company first before paying off collections! If you would rather just pay the collection accounts off, ask to have them removed from your credit report when you do. However, old collection accounts should be left alone.
It can actually hurt your credit score to pay on a collection account that is nearing the seven year mark on your credit report or has passed this timeframe. It only proves to the credit bureaus that you are admitting to the debt after it has been dormant on your credit report. Paying off recent collections will reset the date of last activity and actually stay on your report longer than had you left it alone, affecting your credit score.
Keep Balances Low
Another important factor on your credit rating is the amount of credit you are utilizing at any given time. Try to keep your balances below 10% total usage. Also, try not to use more than one card at a time.
If you do have an expense that you need to use your credit card for, use the card that you already have a balance on. Preferably, this card should be your lowest interest rate card.
Don’t Open New Accounts
Do whatever you can to avoid opening new accounts while you’re in credit rebuilding mode. Hard inquiries on your credit will bring your score down. Not to mention that creditors are suspicious of consumers opening several accounts.
Stick with two to three credit cards (not store cards) and one loan (auto) so that your credit has something to build on. You shouldn’t need more than one credit card for emergencies. And, you shouldn’t rely on your credit cards for financial support.
If you do find yourself in need of a loan, such as an auto loan, do your rate shopping all at once. Don’t allow your credit to be pulled over the span of several months, but try to keep it within a specified time frame of two weeks to one month, instead. Remember, hard inquiries count against your credit score.
When you have all of your credit reports pulled within a specified time frame, it can be reflected as only one hard inquiry, instead of several. If you’re shopping for a car or personal loan, it’s best to wait to have your credit pulled until you’re ready to make a purchase.
If your credit score has fallen into the poor category and you need to completely re-establish credit, there are a few options. The first thing you should do is open a secured credit card. These cards are designed for people that have no credit or need to rebuild their credit with no positive credit history.
Secured credit cards work much like a traditional credit card in that you are able to use it anywhere credit cards are accepted. They typically report to the credit reporting agencies, but its best to find out first if they report to all three bureaus. The only difference between a credit card and a secured credit card is that you pay a deposit up front, usually in the amount of the credit limit.
Some secured cards offer credit lines above your initial deposit amount, typically $350-$3500 depending on your credit history. You are securing the financing with your own funds up front in exchange for use of the credit card. You may later become eligible for a traditional card with your lender with responsible use.
You should really only apply for new credit as needed. This means that you should avoid new credit card offers, especially at retail stores. The discount for opening a new card may be appealing in the heat of the moment, but your credit score will be affected.
A good budget doesn’t require the use of much credit, anyway. Use your credit wisely and you won’t need new credit accounts.
A Credit “Fix” Takes Time
The most important thing to understand about fixing your credit is that it takes time. Depending on the severity of negative remarks on your credit report will also depend on how long it takes you to rebuild it.
You also need to build a strong credit age. This means that you should leave older accounts open even if you’re not using them. Credit agencies will see your available credit history as a positive indication of your financial stability.
Otherwise, you mustn’t expect a credit improvement to happen overnight even if you’re paying off debts and taking all the necessary measures to keep it clean. With due diligence and a little patience, you’ll see improvement sooner than you may think.
A Credit Rebuild Is Just What You Need
Remember, there is no quick credit fix method. Any company that represents they are able to help you improve your credit super fast is simply not telling the truth. Beware of these scams and be patient instead. Remember, it took time to decrease your credit score so it will need some time to increase.
Be careful not to make mistakes with your finances that may damage your credit further. Especially if you have several issues with your credit, it may be a good idea to seek the help of a legitimate credit repair agency. These programs are designed to help you remove, update, or fix damaging items from your credit report and should provide some credit education to not just obtain, but maintain good credit as well.
Keep these tips in mind while you work to rebuild your credit. All you have to do is make a dedicated effort and you should find success.
When you’re ready to put your credit rebuilding hat on and get down to business, or if you have questions, feel free to get in touch. We have a dedicated team of specialists standing by.