Having a good credit score is an essential piece of your financial puzzle. It can determine what you can buy, where you can live and even whether or not you land a job. During your lifetime things can happen that have a negative effect on your credit score. When this occurs it’s important to make every effort to repair it as quickly as possible. Otherwise, you’ll take the chance of getting denied for things you need and want.
Factors that determine your credit score
There are many factors that play a role in the final credit score. Your payment history, the length of your established credit, balances on revolving accounts, new accounts, inquiries (applying for accounts) and public records. Your payment history, the amount of your total debt owed and the age of your accounts are the three that most affect the score. So, even if you make your payments on time, if you have too many open accounts with a large available amount of credit, it can work against you. These companies consider credit as not just what you owe, but also what you have access to. Inquiries into your credit score, while they don’t affect it at the level of a late payment, can still harm you. So, if you are looking to buy a car, shop around first and don’t let anyone check your credit score unless you are certain you want to purchase it from them.
Restoring your credit
There are many ways to restore your credit. First, it’s best to acquire a copy of your credit report from all three of the reporting agencies. Then compare them to see if there are any discrepancies. If everything is on order, you’ll have a good understanding of what needs to get fixed. If you’ve made a few late payments to several creditors, the score will come back up in a few months once the payments are received on time. If however, you have several in collections, repairing the credit will take much longer. If you are able to make arrangements on your own, one by one on the outstanding monies, then you can work towards resolving the balances and restore your credit over time. However, if you don’t have the money coming in to repay the debt then you may need to seek outside assistance. There are a number of credit repair services that specialize in this and they can work within your budget to come up with an affordable monthly payment. In order to benefit from these type services, you must first become familiar with credit repair and define credit repair service in terms of what it means to you. Figure out what you expect to gain from it and then decide which is the best way to move forward and resolve your debt.
Making your payments on time
Ultimately, what you need to do to is to begin to make your payments on time. This includes your utilities, rent or mortgage and any revolving credit you may have. Anything that you default on can hurt your credit score, even if it only happens for one month. This may mean that you have to cut back on extras for a bit until you reduce your debt to where it’s affordable. If you don’t bring in enough even with the cutbacks you may want to consider finding a cheaper place to live or taking on a second job for the short term.
Raising your credit score
There are many ways to improve your credit score. One of the best ways it to reduce your debt to income ratio. If you have more than 5 or 6 credit cards and they are maxed out or near their credit limit, start by reducing the one with the highest interest rate first and then go from there. Credit cards should never be used as a means to pay bills or buy necessities. If you don’t have the money from your budget for these things, using a credit card to pay for them is only going to compound the problem. Plus, when you keep your balance near the available credit limit it negatively affects your score. Try to keep your credit card usage below half of the available credit limit. Also, when you have too much revolving credit at your disposal it also works against you. So, select 3 to 4 that have a low-interest rate and keep the ones that you’ve had the longest.
Your credit score is important. It’s what banks and other lenders use as a means to determine if you are a high risk. By restoring your credit you’ll be able to acquire a mortgage, buy a new car and apply for a job without the fear of getting turned down or denied.