Apart from a very select few individuals, most people need some kind of credit to be able to get certain basic things done in life. Whether it’s buying a home, financing a car, paying for college or getting that home theater set you’ve always craved, your credit rating will determine what lenders can give you. In fact, it will determine whether you might be eligible for some facilities, in the first place.
So what happens if you have less than stellar credit (or you have a really poor credit score)? Well, you’ll have a harder time getting the best loans out there. Therefore, it’s important that you do everything within your power to repair your credit.
So how can you rebuild your credit? Well, here are some time-tested credit repair tips that will make a BIG difference…
1. Make Sure You Pay All Your Bills Promptly
If you’re looking for one of the biggest factors that affect your credit rating, it’s how promptly you pay your bills. Note that this can contribute up to 35% of your overall FICO score so pay close attention to it.
If you are guilty of a late payment or, even worse, miss a payment, you’re going to have some difficulty getting either off your record. Obviously, missing a payment is much more difficult.
To give you an idea of how difficult it can get if you wait until a collection agency gets involved, it would stay on your credit report for as many as SEVEN years. Yes, that’s how long it will stay AFTER you’ve paid off whatever you are owing in the collection account.
2. Simplify Your Life And Reduce Your Debt
Yes, NOT using any credit at all isn’t good for your credit score. But you’re NOT reading this article because of that. You are likely because you’ve run up the debt on your cards (Possibly, maxing out on a few of them).
If this is you, you can start repairing your credit by simplifying your life a bit. This is because there are many things we use our credit for that aren’t necessities.
Do you really need that new TV set or MUST you really upgrade to the latest iPhone?
When we see retailers who encourage us to buy and pay over 36 months, do we quickly pull out our credit cards even though they aren’t for necessities?
If you can, limit your credit card purchases to the essentials. If you can’t then tell yourself the truth and see a good credit counsellor.
While working on simplifying your life, you need to start paying off your debt. A good strategy is to allocate the highest chunk of your budget to cards with the highest interest rates. On your other cards with lower rates, you can make the minimum payments.
Note that your credit utilization contributes up to 30% of your FICO score. What this means is that you’ll be doing your credit a lot of good if you can keep the ratio between credit available to you and that used within acceptable limits.
For example, if your credit limit is $10,000, try NOT to exceed $5,000. Using up a high percentage of your available credit indicates that you’d be more likely to miss a payment or make late payments. This, in turn, will impact your credit score negatively.
3. Don’t Get Rid Of Your Old Cards
There are times when you discover that you have too many credit cards and then decide to trim things down. If you’re in such a situation, don’t start getting rid of your cards from the oldest. It’s in your best interest to start with your newest card. Here’s why…
One of the things that affects your credit score is how “old” your credit history is. If you have a credit card that you’ve used for 12 years, getting rid of it will have a negative effect on your credit score (in the short term in particular). This is especially true if your payments on that card have been timely.
4. Stay In Good “Credit Company”
This might sound confusing but you’ll get it shortly…
You can benefit from someone else’s excellent credit if they agree to add you as an authorized user. Say, your spouse has awesome credit and decides to add you as an authorized user. Bam, some of that “credit juice” passes onto you and helps improve your credit score.
But also note that this is a double-edged sword: If that person who adds you as an authorized user defaults in payments, their “bad credit juice” also flows into your records, reducing your credit rating.
So, choose your “credit company” wisely.
5. Try To Raise Your Credit Limit
What? Yes, see if you can raise your credit limit. And, yes, we understand that you are having problems with your credit so why would we advise you to try and raise your credit limit?
You see, the amount of debt you hold is NOT as important as what percentage of your available credit that debt constitutes (We talked about it in Tip 2). So if you owe a total of $3,000 but your available credit is $5,000, you’ve used 60% of your available credit. That’s bad!
Now let’s compare you with another person in similar circumstances who has higher debt but a much higher credit limit…
This person owes $4,000 but has a credit limit of $10,000 and so has ONLY used 40% of their available credit. That’s good!
Note: For this to work, you need to have a decent payment history on the card. If you do, ask your credit card company if they can raise your credit limit.
6. Let Your Rent Help You Improve Your Credit
For most people, their rent is the largest single expense they make every month. All you have to do is ensure your monthly rent payments are reported to TransUnion and Equifax.
Note that many landlords or property managers don’t provide this service to their tenants. They avoid reporting your rent payments because of the stringent requirements placed on the reporter.
So if you are one of such tenants, that’s robbing you of a glorious opportunity of improving your score. In fact, it’s NOT just robbing you alone of this opportunity but it also robs a few others.
Did you know that your spouse or roommates (In fact, anyone who’s on the list) can get credit for your rent?
A good credit reporting service provider can help you report your rent payments for the past 24 months. Yes, even if it’s your past address. So, don’t miss this golden credit repair opportunity that uses an existing monthly expense.
Follow these tips and you can start to repair your credit the right way!