If you have bad credit, you need to fix it. The good news: it’s possible!
A bad credit score can affect your ability to access financing and can affect your interest rates, possible housing rental opportunities, and even some forms of employment.
Here are 7 things you can do to start improving your credit rating:
1. Get a copy of your credit report.
Sadly, it is possible for mistakes to be made in your credit report, and even identity theft or computer glitches can impact your credit report. You want to make sure that the information on your report is accurate. See this post for information on how to obtain a copy of your credit report.
2. Correct any errors.
Once you’ve gone over your report, if you find mistakes, you will need to fill out forms to get them corrected. For more information on how to do this, visit the credit agencies’ websites. You can also contact the company or institution that made the error (i.e. your bank or other lender) and ask them to make the correction.
3. Make payments on time.
Keep up to date on all of your credit card and loan payments, utility bills and rent payments. If you do end up missing a payment, contact the company and ask them to remove late fees, which show up as bad marks on your credit report. This is at the company’s discretion, of course, so there is no guarantee, but asking costs you nothing and is worth your time and effort.
4. Keep the same job and residential address as much as possible.
This consistency is seen as a sign of financial stability. Practically speaking, staying at the same address prevents bills and notices being sent to the wrong address or getting lost in the mail.
5. Rebuild credit through borrowing.
In the case of a bankruptcy, for example, it can be difficult to rebuild credit because it is such a challenge to obtain financing or to be approved for a credit card. It is still possible by applying for a secured credit card with a financial institution. A secured credit card has you deposit a lump sum of money ahead of time which is used as security against your debt. By using a secured card and paying it off in full each month, you will slowly improve your credit rating.
6. Avoid common credit mistakes.
It is recommended that you not exceed a balance between 35-50% of your credit limit.
Don’t have too many credit cards and store cards. Even if they have a zero balance, lenders see them as credit risks.
That said, don’t cancel all of your credit cards all at once. Cancelling cards can be a balancing act. For example, if you have 2 credit cards with a $5,000 limit each and have a balance of $2,500 on one card, your credit utilization sits at 25% of available credit. However, if you cancel the card with no balance, your utilization of available credit jumps to 50%.
7. Limit how much and how often you apply for credit.
Every time you apply, your credit rating takes a hit. This is true even for store credit cards. Every time a retail store of any kind offers you a store credit card, it is important to understand that no matter how small the available credit amount on the card, applying for that card will affect your credit rating. Think carefully before accepting every credit offer that comes your way. (This includes the “pre-approved” credit cards you receive unsolicited in your mailbox. Read the fine print and know that you may be giving permission for a credit check if you fill out the acceptance form.)
Note: Anyone that does not already have a financial relationship with you must obtain your explicit consent to check your credit rating. Any bank that you already have an existing relationship with already does have your permission to check your credit rating from time to time.
Credit isn’t a bad thing.
Credit isn’t a bad thing. It just needs to be properly managed, like any useful tool in our lives.
The ability to obtain credit is a valuable tool for individuals and businesses. We must be responsible with this tool, though, and educate ourselves, learning how to use it wisely and manage it well. Let’s not forgot the importance of educating our young people, as well. These things don’t come naturally – they must be taught.
