A low credit score might not seem like a big deal until you find your dream house, apply for the job you want, or need to take out a loan to purchase a new vehicle. If your score is low, rates are unaffordable.
If your score is exceptionally low, you might not qualify for any loans. Millions of Americans suffer from bad credit related to poor decision making, lack of financial education, or an unexpected tragedy in their lives. Whatever the reason for your low credit score, there is no time like the present to take back your score and work on raising it. Every day counts. It’s far easier to lower your score than raise it, which is why you need to begin the work to repair your credit today.
Lower Your Credit Utilization
One of the most important factors used in considering your credit score is the amount of credit you utilize. If you’re unsure what this means, the explanation is rather simple. Each of your credit cards comes equipped with a credit limit. Say you have 5 credit cards, and each one has a $10,000 limit. That’s a grand total of $50,000 in available credit. If each of your cards is maxed out to the full $10,000, you are utilizing 100% of your credit. If you only owe $25,000 to your creditors, you’re utilizing 50% of your available credit.
Creditors and the credit bureaus want to see you utilize no more than 30% of your available credit. In this situation, it’s ideal to keep your outstanding balance at or below $15,000. In a perfect world, you will pay off all your outstanding debts and utilize none of your available credit. When you keep your utilization low, your score rises. This is also an important lesson regarding canceling old cards or paid-off cards. When you pay off a card, don’t cancel. It lowers your available credit limit and raises your credit utilization as a result. It’s also wise to keep your oldest accounts open as a way of showing your long credit history.
The most important thing you’ll do to maintain a good credit score and/or repair your credit is dispute inaccuracies on your report. The major credit bureaus each offer one free credit check per year, and your job is to take advantage of those. You’ll want to fix your credit by contacting the credit bureaus as well as your creditors in writing anytime you see something inaccurate on your report. You can also utilize a credit restoration tips that few people know is an option.
If you have old debts you haven’t paid in years and they’re past the statute of limitations in your state, you might be able to dispute them right off your credit report as they come up on the 7-year mark. They fall off automatically after 7 years, but you can dispute them and sometimes see them come off your report. Another credit restoration option for other accounts past due is negotiation. Offer creditors a portion of the balance you owe in return for the item to come off your credit report. Many are willing to do this to recover at least some of what you owe.
Review Your Finances Daily
As you begin the process of repairing your credit, make it a habit to check your finances each day. It’s a long road to raising your score and eliminating the negatives from your credit report, and even the smallest mistake can set you back months or even years in the restoration process.
- Make a list of your monthly expenses, due dates, and amounts
- Set up automatic payments for each creditor and account you owe
- Balance your checkbook each day
- Create a budget
- Create a repayment plan for debts
- Monitor your credit score monthly, and your reports quarterly
- Do not miss payments
- Do not make any payments even a day late
These tips help you keep your credit on track, your score from falling again, and they make you accountable for your financial actions. It’s not easy to change your spending habits and create a new financial plan, but it gets easier the more you do it. Allow yourself the opportunity to learn from past mistakes and apply those lessons to your new financial plan.
You can’t raise your credit score in a day, but you will see it rise throughout the year as you continue to make on-time payments, lower your debt, and make wise decisions. It’s easier than you might imagine when you make the initiative and treat your finances seriously.