How to Repair Your Credit Score
Having good credit is essential for a consumer to have, so if you have bad credit, learn how to repair your credit score. A favorable credit rating enables you to borrow money, make purchases and pay for them at a later date. When you borrow money, banks charge you interest which is a percentage of your balance tacked on to your payment(s).
The better the credit you have, the more money you are able to borrow and the less interest you are forced to pay. Good credit will come in handy when you are making large purchases, such as buying a car or home. In the case of the home, you’re unlikely to be able to buy a house at all, if you don’t have a good credit history.
How to Improve Your Credit Score
Knowing how to improve your credit score requires some responsibilities. You have to pay your credit card bills, pay them on time, keep your balances low and avoid having too many different lines of credit. If you fail to do any of these, it is possible to receive marks on your credit report that will have a negative impact on your credit score.
This will make it more difficult to receive lines of credit (if you can get them at all) and the interest you will have to pay will be much higher.
The great thing about credit, though, is that if you happen to make one of these mistakes and tarnish your credit report, it’s not the end of the world. There are ways to repair your credit score. We have provided some tips on how to do so below.
Tips on How to Repair Your Credit Score
These tips for how to repair your credit score will help you get your debt situation under control, while clearing your credit rating. This is going to take a year or two, in most cases, so start to improve your credit rating now and not later.
Have Someone Cosign for You
A cosigner is someone who signs a credit application with you and acts as a backup in case you don’t pay. This is less risky for the lender seeing as they can hold more people accountable for the monies owed.
Be aware that finding a cosigner can be difficult to do. Let’s face it; you wouldn’t need a cosigner if you paid your bills on time in the first place. So understand that you might run into some resistance and whomever you ask might be a bit weary of putting their name and credit on the line for you.
Apply for a Credit Card
Obviously, if you’re having issues with your credit score, the last thing you might want and/or need is another credit card. However, the only way to build or repair credit is to put yourself into situations where you have to borrow money and pay it back. Having a credit card will allow you to do this.
If you happen to go this route, don’t be surprised if you encounter a high interest rate (because of your credit score) or have to pay tons of fees before you can even use your card. Many of these fees include annual fees, sign up fees and monthly service fees.
People with good credit can find lenders that will not charge these fees. But people with poor credit do not have enough leverage to avoid them.
Secured Credit Cards
Another option is to find a secured credit card. Secured credit cards often have an amount that you need to pay first prior to the card being activated. This money will act as collateral in case you fail to make your payments.
Secured credit cards are easier to obtain, as opposed to unsecured credit cards.
Pay Down Your Current Card or Cards
One of the factors that are considered when determining your credit score is your balances in comparison to your limits. As a general rule of thumb, you should never owe more than 30% of your maximum limit on any one line of credit. For example, if you have a card with a $1,000 limit, your balance should be $300 or less.
Anything higher and your credit score will suffer.
If you cannot pay your balance down far enough, a good idea might be to ask for a credit limit increase. So, if you owe $400 on a card with a $1,000 limit and cannot pay the balance down, see if you can get an increase on your max limit up to $1,350 or more.
The increase in your debt limit will put you under the 30% threshold, thus lowering your credit score.
View Your Credit History and Search for Errors
Monitor your credit report to ensure that it is accurate. Small errors, such as supposed late or missed payments, can affect your score quite a bit. These errors are worth pursuing and correcting.
If you have sent in bills late, it might be possible to ask for leniency, even though it’s not technically an “error.” If you have been on time and have a proven track record, some lenders might do this for you, if you ask.
Pay your Bills on Time
The best way to repair your score is to maintain good habits, such as continuing to pay your bills on time. You want to be sure to send the minimum payment (although more is always better) and be sure to drop it in the mail at least a week prior to it being due.
If you have issues getting your bills sent out on time, many banks offer an online service where payments can be sent on your behalf automatically. You set the date, the amount that you would like to send and where the money needs to be sent to and the bill pay service does the rest.
Establish a Credit History
The longer your history with any one lender, the more proof there is that you make payments on time. So there is more room for error, if you have a late payment. If you have a habit of opening and closing accounts, in an attempt to chase better rates, then the mistakes you make will have more bearing, since they were done within a shorter timeframe (smaller history with a lender).
This is how your report a credit score. Improving your credit history is a matter of showing you have your credit situation under control, exhibiting self-control and planning.