Your credit score affects you in more ways than one may initially consider. If you have a poor credit score, it will have an impact on many aspects of your life that seemingly have nothing to do with credit.
- You won’t be able to take out a mortgage or new loan.
- You’ll face difficulties when trying to rent at a new place as most landlords will check your credit score while reviewing applications from prospective tenants.
- Interest rates for auto and home loan will vary based on your credit score. If you have an excellent credit score (750 or higher on a 300 to 850 scale), you will likely qualify for the best loan terms available.
- You may have difficulty getting a new job if you have major deficiencies in your credit report.
- When you apply for a new credit card, the issuer will review your credit history to determine whether or not you qualify for the card and what terms you will receive if you do
- If you have a poor credit score, electricity, cable, and other utility companies may ask for a deposit or cosigner when you request services. Furthermore, having too many inquiries from utility applications can also have a negative effect on your credit score.
- Cellphone companies may review your credit reports to provide you a service plan.
Now that you know the broad range of potential impacts that your credit score can have on your life, you should always strive to maintain a good rating. If you are reading this now and feel a bit discouraged, it’s going to be okay! Depending on your individual situation, you can take the following steps to fix bad credit:
Check for Errors in Your Credit Report
Believe it or not, credit rating agencies frequently make factual mistakes while preparing reports. In fact, almost 70% of credit reports have them, according to some studies. Once you get free copies of your credit reports, you should carefully examine them and review the entire report for errors. If you come across one, you should immediately report it to credit rating agencies and request a correction.
Examine your credit report to find reasons for poor credit score
You probably already know that you can get free copies of your credit reports once a year under the Fair Credit Reporting Act. You can request your credit files from Equifax, Experian and TransUnion. You can either order and view each copy online, or request that a copy be mailed to you. Getting your report from as many different credit rating agencies as possible may be a good strategy because each report can highlight different data impacting your credit rating.
Once you get the reports, try to pinpoint the exact reasons for your poor credit score. While a credit rating of 720 or more is considered excellent, you are in trouble if it is less than 550. If you missed payments for a previous loan, it can stay on your credit report for up to seven years. A foreclosure, collection accounts, short sale, bankruptcies, repossessions, and tax liens can show up on your credit report for anywhere between 7 to 10 years.
These are the events that can have very long term impacts on your credit score, but by utilizing the time tested principle of credit utilization, you can make sure that any of these events stays a short term impact. Credit utilization is the amount of debt you have relative to your credit limit. Ideally, you should keep it below 30% (10% is even better), so you can quickly undo any small drop you may have noticed in your score by paying off those balances and getting your percentage back under 30%.
Pay your bills and installments on time
Now that you know the reason for your poor credit score, you can start building your score back up by paying your bills for utilities and rent on time, every time. If you have missed monthly payments for a loan, Make sure that you get current and stay current. The longer you pay your bills on time after being late, the more your scores should increase.
Small actions can have a major impact
Once you start paying your bills on time, wait for a few months and then try to upgrade to an unsecured card like a department store card. Make sure to pay your balance on these cards is paid for in full and paid on time every month. If you have had a card for years, don’t close it even if you don’t use it. It will have an adverse impact on your credit history. People try to close credit cards in order to improve their score, but what they should do instead is try to lower the amount they owe as a percentage of their total credit amount. It is generally also considered a bad idea in regards to your credit score to open a lot of credit cards to artificially raise your credit limit.
Lastly, it is important to never make too many inquiries for lines of credit at the same time. It will have a negative impact on your score. Instead, apply for one loan at a time. For example, if you are applying for mortgage, don’t apply for a car loan at the same time.
It only takes a few good habits to start a chain reaction of positive change in your life
Conclusion
Poor credit score is a problem where an ounce of prevention is worth a pound of cure. It is always better to take care of the problem before it gets out of hand. A perfect example is the fact that it is miles better to proactively take steps to avoid foreclosure in the first place rather than spend seven long years attempting to rebuild a damaged credit score after the fact.
“Treatment without prevention is simply unsustainable.”
Written by Brandon Lor