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**Rebuild Your Credit in 8 Simple Steps**
Do you need to improve your credit? Having a poor credit score has a huge impact on your finances. Your credit score impacts if you qualify for loans and credit cards, and if you do and your credit score is not the best, you will be paying way more in interest than you should be.
You credit score also affects many other aspects of your life. Employers can make the decision not to hire you because of your bad credit. You may not be approved for that apartment you want. And insurance companies can charge you more for the same coverage as someone else that has a good credit score.
All these factors costs you money and takes a toll on your overall finances. A bad credit score can cost you hundreds of dollars a year. Money that could be in your wallet. You should be doing whatever it takes to bring up your credit score.
Improving Your Credit Score
Your goal should be to bring your credit score to somewhere between 680 and 740 which is a good credit score. Bringing your credit score above 740 is considered an excellent credit score, so this should be your ultimate goal for yourself.
If your credit needs some improvement, there are some steps you can take to improve it now. It doesn’t have to be complicated. You need to make the commitment, make a plan and have a bit of patience.
Every little step you take will result in a better credit score, saving money and a better overall financial future. Here are eight simple steps you can take now to get your score to where it needs to be.
Review Your Credit Report and Fix Errors
You should review your credit report at least once a year. By law you are entitled to a free credit report from each of the three major credit bureaus. You can visit AnnualCreditReport.com to get copies of your credit reports. It doesn’t cost you anything.
Once you have your credit report in hand, you need to check it carefully for any errors. If you do find errors, you need to dispute it right away. Disputing errors is not as difficult as you might think. I once disputed an error and it was removed from my credit report within a day or two. This resulted in an immediate increase to my credit score so it is worth taking the time to do it.
If you need to dispute an error on your credit report you can go directly to the credit bureaus websites. Submit your dispute and provide any documentation to back your claim.
Make a Catch Up Payment Plan
Paying bills on time is the most important factor in improving your credit score. If you are behind on your payments, this should be your priority to fix. Your credit score will never improve if you are constantly late making payments.
Make a plan to bring all your accounts up to date. If you can not afford to do this all at once, you should contact your creditors. Explain your situation and make sure you let them know that you are going to fulfill your payment obligation.
Tell your creditors that you intend to pay in full but are having a hard time because you are behind and ask if you can work out a payment arrangement. Creditors want to get paid so you should be able to work something out. If you get nowhere with the representative that answers the phone, ask to speak to their supervisor.
Going Forward Make Sure You Never Miss a Payment
Once you get your past due bills in order, make sure that you ALWAYS pay all your bills on time every month. Payment history makes up 35% of your credit score, which is the most important factor.
Create a budget and make sure all your monthly obligations are a priority. This is your chance to prove you are creditworthy. Don’t fall back into your old habits. One late payment could undo all of the hard work you have done.
The best and easiest way you can make this happen is to automate your monthly payments. Set up all your monthly bills on auto bill pay and you will never miss a payment again. You can read a post all about how to “Automate Payments to Save Time and Money” here.
Don’t Close Any Accounts
Try to avoid closing any accounts, even when you don’t intend to ever use them again. Closing accounts actually affects two factors of your credit score.
The first and most important way it affects your credit score is it impacts your debt to credit ratio. Debt to credit ratio is the percentage of debt you owe based on the total amount of credit you have available to you and makes up 30% of your credit score. Closing just one account will bring up your debt to credit ratio, which is not what you need when you are trying to improve your credit score.
The second way it affects your credit score is credit age which makes up 10% of your credit score. The longer you have open accounts the better your credit looks. If your creditors haven’t closed your accounts that means they are still willing to do business with you.
Pay Down Your Debt
As mentioned above, you debt to credit utilization ratio affects 30% of your credit score. In addition to not closing accounts your next step should be to pay down the debt that you do have. You should aim to get your debt to credit ratio to 29% to start.
Debt to credit ratio is calculated by dividing your total debt by your total available credit. So let’s say you have $6,000 worth of debt and have a total of $10,000 of available credit, this means you have 60% debt to credit ratio.
Lowering your debt to credit ratio will dramatically improve your credit score. It will show creditors that just because you have credit, you don’t NEED it. Your goal should definitely be to eventually bring your ratio down to 10%.
More posts to help improve your credit score
Mix it up
Account mix is another area that has an impact on your credit score. Creditor like to see a good account mix of credit cards, bank loans and store credit. If all you debt is in credit cards, I recommend that you try taking out a personal loan to consolidate some of your credit card debt.
Consolidating your credit card debt into a personal loan will help you in two ways. First of all, it’ll help you get a good account mix which creditors like to see. A good account mix shows that you are responsible enough to be able to handle different types of credit.
Secondly, it’ll save you some money in interest. Personal loans will have a far lower interest rate than credit cards. One word of caution here, if your credit score is so low that you don’t think you will be approved then you should wait until you bring up your score before applying.
The reason you should not apply for credit if you don’t think you will be approved is because credit inquiries also has an affect on your credit score. If you have too many hard inquiries, it makes you look desperate for money. This is not something creditors like to see.
Get a Secured Card
If you are at the point where you do not have any open credit accounts because of your history, then getting a secured credit card will help you rebuild your credit. Apply for one secured card, and use it wisely.
The best way to use a secured credit card to rebuild your credit is by making a few small purchases every month and paying them off right away. Never carry a balance on your secured credit card.
If you use this technique, then in time you will begin to prove your creditworthiness. After you prove yourself, you can ask that credit card company to upgrade your account to an unsecured card which will have a greater impact on improving your credit score.
Monitor Your Progress
Keep tabs on the progress you are making in improving your credit score. You can sign up for a free Credit Sesame account to help you with this. Monitoring your progress through Credit Sesame will keep you updated on how you are progressing with each of the five factors that affect your credit score as we discussed.
Credit Utilization / Debt to Credit Ratio
Credit Sesame will also give you recommendations based on your current situation, which makes it super simple to know what areas you should be focusing on in your journey in improving your credit score.
Improving your credit score can take some time, depending on how bad it is, but with patience and determination, it will pay off. Keep at it and you will see, in time you will be rewarded with better interest rates and loan terms so you will have more money in your pocket.
Please leave a comment if you have more tips on how to rebuild your credit score.
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