In today’s tough economic world good credit can make you king while bad credit can you make you the court jester. We have all been there, missed a payment on a credit card, forgot to pay that phone bill and it ended up in collections, whatever the case is, chances you might have experienced one of these. The questions are how does it affect your credit and what can you do to increase your credit score?
Let’s tackle the first quest and that is how much do these negatives affect your credit score. Depending on how delinquent they might be they could have a major impact and that in turn could mean the difference between getting a great interest rate or a terrible one or even worse getting the loan for that car or house or being declined. Now that is the bad news. The good news, everything is always fixable.
If you have something in collections get it paid or even better (if you have the cash) settle the debt. Settling is the process by which they reduce what you owe and you pay it then the remaining balance is no longer owed. Make sure you get all settlement offers in writing before you send money though. It will show on your credit report as “settled”. Meaning that even though you did not pay it off in full you still made an attempt to pay most of it and the creditor was satisfied with what you paid and that looks far more favorable than “charge off” or “judgment”.
Now that you have caught up on the “bad” items, what can you do start rebuilding that credit score. Also keep in mind that all items (good and bad) stay on your credit report for 7 years. So if you have taken care of the “bad” items, these 7 years can be used as a great time to rebuild and strengthen that credit.
For starters pay your bills on time. Whatever you do, do not be late on any bills, especially ones being reported to credit agencies. These are usually your credit cards, rent, mortgage, car loans and so on. Keep these up to date and that will improve your score.
Second, keep your revolving credit balance to a minimum or zero if at all possible. These are most notably your credit cards. It is looked at negatively when you have a credit card with a limit of five thousand dollars and you are carrying a four thousand dollar balance. You need to take the steps necessary to get that balance down. So in order to do so you will need to pay more than the minimum to speed this process up. Sure that high balance may seem insurmountable, but remember you have 7 years to work with, and work it you will.
Third, stop applying for credit. When you apply for credit an inquiry goes on your credit report. What that means is to let other borrowing agencies know of where else you have been trying to get credit. The more inquiries you have the worse it looks because it makes you look desperate for credit. Inquiries stay on your credit report for two years, so if you have a lot of them, stop applying and let them start falling off your report.
Since you are now going to be responsible with your credit, there is not need for multiple credit cards. Even though many say closing them is a bad thing as it goes towards your score, I say it’s a good thing in the long term because the credit card won’t be there for you to put anything on. So cancel those cards that you use infrequently and keep one maximum of two cards active. Just make sure you pay those cards off.
Finally and the most important tip of all, but I left it for the end for a reason, and that is get copies of your credit report from all three major credit reporting agencies (Transunion, Equifax, and Experian). You want your credit reports so you can look them over to make sure they are accurate and if they are not to take the necessary steps to contact the creditors who may not be reporting the information accurately. Don’t be surprised if you see an account on one report that does not appear on another, this is common because not all creditors report to all three credit agencies.
With the information you now have in hand you are set to repair and improve your credit. As you can see mot of it is common sense, but the majority of it is discipline to use your credit wisely. Remember the money you spend from credit does eventually have to be paid back.