The Top 5 Things You Need to do to Improve Your Credit
Having poor credit can really make life difficult.
After all, your credit score affects more than just how easily you can get bad credit car loans at a good interest rate, among other things. Some employers check credit periodically, as do many insurance companies. When you fill out an application for housing, expect that your credit will be reviewed. Problems on your credit report can block you from enjoying many great things in life.
Even if you have fairly decent credit, there’s always room for improvement. By engaging in any or all of the following five activities, you will see an uplift in your credit file, possibly unlocking opportunities you might never have had access to in the past.
5. Pay Off Debts
As one of the main factors affecting your credit score, the number and especially the amount of your debts matters. Doing everything you can to shrink that total will have a positive effect on your credit file and score.
You hopefully have two types of credit lines in your file: installment and revolving. Installment loans are for things like bad credit car loans, a mortgage, etc. A revolving credit line would be something like a credit card, which you use and pay down, then use again. While paying off both of these kinds of debts is certainly a good thing, the fact is concentrating first on the revolving credit lines comes with the biggest benefit for your credit score.
Not only does paying down revolving credit lines help boost your credit, it’s also a wise financial move. Because credit cards typically have much higher interest rates than a secured loan like what you have for your car, you’re paying more each month in interest. The more the initial amount you borrowed, called the capital, remains each month, the more you’ll keep paying in interest since interest is calculated using the total amount of the capital. Making big payments or even completely paying off a credit card stops this vicious cycle, freeing up more finances each month.
If you’re looking at several different debts, some which are small and some which are quite large, paying them all down or off likely seems daunting. One way to give yourself a confidence boost while also helping with your credit early on is to choose the smallest debt and pay that off first. Once you’ve paid down that first credit line, your other debts won’t seem quite as formidable as before. This will help you to keep pressing on in the quest to improve your credit, instead of leaving you feeling drained.
4. Establish Positive Credit
When you have negative items in your credit report, one of the best ways to combat that is to establish new positive credit lines. The more recent items in your report have the bigger effect, so applying for a new credit card you know you’ll get, or bad credit car loans can provide a nice boost. Just remember that you must keep current on the payments, otherwise your credit will continue to suffer, possibly even more than before.
Securing fresh credit when you don’t have a great credit score or you’re lacking credit history can seem almost impossible. Many lenders are weary of extending credit to people in challenging situations, but there are some which cater to people in your situation. Just remember to not be so desperate you’ll agree to super high interest rates, monstrous annual fees, and other loan terms which can actually put you into a financial hole.
One excellent way to establish some positive credit after a period of struggling is to apply for a secured credit card. You put down a deposit which matches the credit limit for the card, so if you skip the payments, the lender can cover what you owe without problems. You want to get a card which reports your activity to the credit bureaus, so each on-time payment is boosting your credit score. Even better, find a secured card which converts into a regular credit card after a certain number of months with on-time payments.
You might also want to look into bad credit car loans. Since you need a set of wheels anyway, it’s a good idea to get a loan which is designed for someone with a challenged credit report. You likely won’t be dealing with a rejected application for bad credit car loans, ensuring you can establish a positive credit line. Pick a reasonable car that doesn’t cost too much and should be reliable while you’re making payments. That means likely passing up flashy, fun options which might seem like a good idea now but can end up hurting you financially in the long term.
Over time, you need to keep establishing more positive lines of credit. This isn’t a race, so take your time. If you rush into getting several new credit lines, the result could be that you get in over your head and actually end up damaging your credit score.
3. Reduce Credit Utilization
As you prepare to get something like a bad credit car loan, one excellent thing you can do is to reduce how much of your credit you’re actually using. Out of all the things you can do to improve your credit score, this one will yield some of the quickest results.
Credit utilization is usually expressed as a percentage. For example, if you have a credit card with a $10,000 limit and you have used $1,000 your usage is 10%. If you use another $1,000 of that limit, your usage has ballooned to 20%.
Every month, credit card issuers will report the balance and credit limit of your card to the credit bureaus. From this information, the bureaus will then calculate your usage. If you’re carrying too high of balances, your credit score will suffer. On the other hand, low balances will help improve your score.
If you have more than one line of revolving credit, you might be wondering how your utilization is calculated. After all, it could be how much you’re using for each line of credit. If you have one credit card with a $10,000 limit and you’re carrying a balance of $1,000, the utilization for that card is 10%. If you have another card with a $3,000 limit and you have a $600 balance, your utilization is 20%.
The other way of calculating usage would be a combined look. That means it would combine the two credit limits, making a total of $13,000. Then your total usage would be $1,600, which is about 12% usage.
So, which is it? Sometimes creditors look at the usage for individual lines of credit, and sometimes they look at overall usage. In other words, you need to be concerned about both and not just one or the other.
Since the most recent credit utilization affects your credit score, this is a great chance to turn around your score quickly. Every month creditors will report your usage for each credit card. That means if you’re able to pay down your cards to low utilization in just one month’s time, you can have a significant impact on your credit score in a short period.
Now, paying down your credit card balances is a smart thing to do, but it’s not the only way to reduce your utilization. To lower your utilization for a specific card, apply for a higher credit limit. If approved, that alone will help. And if you also are paying the balance down, your utilization will shrink even more.
When you’re concerned about overall utilization, applying for a new credit card and getting approved helps. Of course, it only helps if you don’t start carrying a balance on the new card, so keep that in mind. Sometimes you can get a balance transfer card with an extremely low interest rate, making it easier to pay off what you owe, so keep that in mind.
If you must use your credit card for an expensive purchase, you don’t necessarily need to be worried. If you can pay it off before the card issuer reports your balance to the credit bureaus, it won’t affect your credit score at all. This just means any big purchases you make with a card as a way to gain rewards points or to make the purchase more secure should be backed up by you having the cash ready to go. This is just good financial sense.
2. Pay Your Bills On Time
This should be obvious, but constantly paying on your loans late is a good way to get into a bunch of trouble with your credit. Every month that you’re late or skip a payment on something like bad credit car loans, your creditors should be reporting that activity to the credit bureaus.
When you have multiple credit lines, plus many other bills, it can be easy to forget a payment. This is where getting and staying organized really pays off. People have all kinds of budgeting tools they leverage, including spreadsheets, special software, and so forth. The important part is that you use a system to budget which works for you. If you forget to pay on loans once every few months, your credit score will start to take some damage. It’s best to keep everything organized and pay each bill on time month after month.
Maybe you sometimes have a financial emergency, making it impossible to make one or more of your loan payments on time. If that’s the case, the best thing to do is contact your creditor as soon as you know about the situation. Explain what’s going on and ask if it’s possible to extend your due date. This isn’t something you should abuse month after month, but instead you need to save it only for when there’s a genuine, unavoidable emergency.
Sometimes the problem is that you’re spending more each month than you’re bringing in. This requires you to carefully go over all your expenses and determine which can be reduced or completely eliminated. That can be a grueling, stressful process, but it will save you more anxiety by avoiding further damage to your credit score. In fact, living within your means has a positive impact on your credit rating, which does plenty to relieve stress.
1. Practice Patience
This might be one of the hardest things to keep in mind when working to improve your credit. In today’s world, we’re used to instant gratification. Restaurants with food ready to go abound, streaming video services provide immediate entertainment virtually anywhere, and we can order all kinds of items online for quick delivery to our doorstep. But when it comes to improving your credit, there are no overnight fixes.
Some credit repair services will promise ultra-quick results, but you need to be careful. While they might have good intentions, some so-called experts can actually hurt your credit to the point that getting bad credit car loans is unnecessarily difficult. Always be skeptical of offers which seem too good to be true.
If you’re dealing with years of damage on your credit, keep in mind that doesn’t go away instantly. As negative items get older, they have less effect on your score.
When you’ve established new, positive credit lines, you likely won’t see much of an impact for a few months or so. As time passes and you keep paying on time, keeping your usage low, the result will be a better credit score. It’s all about establishing and maintaining good practices, staying organized, and not giving up. While trashing your credit can happen quickly, fixing the damage is anything but a quick process.