Rebuild Your Credit With These 5 Tips
According to credit.com, bad credit is having a score of 600 and below. Poor Credit is having a score from 600 to 649 and fair credit is having a score from 650 to 699. If your credit score falls anywhere in this area and you need to secure some sort of financing in the near future i.e. for a house or car, you are more than likely concerned about improving your credit score to get it into the good range which is 700 and above (excellent credit is 750+). In this blog post I'm going to give you some tips on how to do just that.
Why should you care about having good credit?
Having going credit means you can get the best available interest rates when it comes to credit and financing. It also lets landlords and even employers know how you have handled bill payments in the past via your credit report.
"Having going credit means you can get the best available interest rates when it comes to credit and financing."
Not only can your score affect the types of financing you qualify for and the interest rates you get, it can also affect your employment and housing. Your credit is very important.
So what can you do to rebuild or maintain your credit?
1. Get a copy of your current credit report from all 3 credit bureaus
First things first, you want to know where you currently stand with your credit. You need to understand what has been reported about you to the credit bureaus regarding your payments, how much you owe, your different account types, any late payments or delinquencies etc. (Once you understand what has been reported, you can then dispute any inconsistencies you might find with the credit bureaus and your creditors).
2. Pay your bills on time; Catch up on your payments
Paying your bills on time proves your credit worthiness to lenders and has a huge impact on your credit score. If you are behind on any payments, you need to get caught up as soon as you can. Call up your creditors to create payment plans and set up new payment dates.
Set reminders for yourself for all your bills to make sure you don't forget to make any payments in future. Tip: Build all your recurring payments along with their due dates into your budget. You should also consider automating your payments.
3. Pay down your debt
Your overall debt load as well as your percentage of credit utilization affects your credit score. Let's say you have a credit card with a limit of $1000 and you owe $950 on it, your utilization is 95%. This high utilization can count against you because creditors use it as a gauge to see how likely you are to pay back what you owe.
A high utilization makes you less attractive to a creditor and so reducing your debt load can increase your score immensely. Keep in mind the goal of paying down your debt shouldn't just be for a good credit rating. By paying down debt, you save yourself tons of money in interest payments that you can then put towards long term savings and investing.
4. Don't close your credit card accounts
Your credit card accounts make up a vital part of your credit report, specifically your credit history, and if you have accounts that show you've been paying your bills on time consistently then you want to keep them as part of your credit history.
If they are accounts that you have paid off, keep them open and make the occasional small purchase on them and then pay it off in full each month. If they are accounts you are actively paying off, keep them open, over time those on-time payments and the reduction of your debt will positively impact your overall credit score.
5. Be smart about your finances
Pay off and avoid debt, build an emergency fund, save for retirement, check your credit frequently - these are all things you should be doing over the long term. Establishing good financial habits ensures you avoid scenarios that will impact your credit.
How long does it take to rebuild your credit? I must say it takes time - any where from several months to several years - and so it's important you stay consistent with the steps required to rebuild and maintain good credit.
Do you have any other tips that have helped you maintain good credit? Please share!
Bola Sokunbi is the founder of Clever Girl Finance and she's passionate about helping women take control of their money so they can live life on their own terms.