Credit – Repair Tricks and Tips

Not paying bills on time or carrying on debt can cause you a lot of additional headaches.

1. Effects of Bad Credit

With so many businesses judging us based on our credit score, having bad credit can make life extremely difficult​.

Difficulty getting approved for a loan

Creditors are willing to accept some amount of risk, but if your credit score is too low, your application is likely to be denied.

If approved, you’ll be in for a higher interest rate

Having a low credit means indicates you’re a riskier borrower than someone with a better credit score. You will need to “pay” for this increased risk in the form of a higher interest rate.

Difficulty finding a place to live

Landlords also like checking credit score of their potential tenants. Even if they do decide to choose you, you’ll probably have to pay a higher security deposit.

Security deposits to establish a service

Utility companies such as electricity, phone, and cable also check your credit score, even if you’ve always paid your bills on time. You may be asked to pay a security deposit upfront to establish a service in your name.

Getting denied

Besides difficulties in finding a place to live, you could also be denied for a cellphone contract, a car loan or a loan to start your own business.

Higher insurance premiums

A poor score makes your riskier. The better your credit, the lower your rate and vice versa.

Not getting a job

Although employers don’t care about your credit score, they could turn you down because of negative items on your credit report.  They look for items that could affect your job performance such as high debt amounts, bankruptcy, or outstanding bills.

2. What Causes a Bad Credit Score

While it’s important to know what things help you build a good credit score, it’s just as important to know what could hurt your credit score.

Not paying bills on time

Thirty-five percent of your credit score is your payment history.

Not meeting your obligations at all

Each month you miss a credit card payment, you are one month closer to having the account charged off, which results in one of the worst damages to your credit score.

Having an account charged off

This happens when creditors begin to think you won’t pay your bills at all so they give up on you and charge off your account.

Defaulting on a loan

Loan defaults are similar to credit card charge-offs. It means you chose not to pay back the money.

Filing bankruptcy

Besides staying on your record for seven years, bankruptcy destroys your credit score.

Getting a judgement

A judgement means the court had to get involved to force you to pay. If it came to it, at least make sure your record says it’s a paid judgement which is slightly better than an unpaid one.

Closing cards

When you close a credit card that still has a balance, your credit limit drops to $0 while your balance remains the same and it makes it look as if you maxed out your credit card which make your credit utilization 100%- which is as bad as it gets. Closing old credit cards, especially your oldest card, won’t do you any good either as it makes your credit history seem shorter and longer credit histories are better. If you have several credit cards, some with balances and some without, closing those without balances increases your credit utilization.

Having just one card

A mix of credit is 10 percent of your credit and this usually comes into play if you have very little additional credit information in your credit history.

3. How To Repair Your Credit

There is no quick fix for your credit as the information will remain on your credit report for seven to 10 years. However, the sooner you start repairing your credit score, the better as you will improve it over time with consistent effort.

Improve your payment history

Your payment history is the most important part. Bringing accounts current and continuing to pay on time will almost always have a positive impact on your credit scores.

Think of ways to lower your bills

The more you can reduce your bills, the easier it’ll be to pay them and on time. Go through each line of your expenses to identify ways to lower them such as comparing electric rates and getting a more affordable utility provider, conserving water, practicing energy-efficiency around the house and making a price comparison analysis for all your purchases. Adopt a ‘smart shopper’ mindset for all your purchases, see if you can adopt a minimalistic lifestyle and try to be an aware consumer.

Keep your credit utilization low

Generally, you should aim to keep your credit utilization ratio below 30%, but no rule is written in stone—the lower it is, the better. Start paying down your account balances, increase your total available credit by opening a new credit card account or requesting a credit limit increase on an existing card and see if you can consolidate your credit card debt with a personal loan, which isn’t included in your credit utilization rate calculation.

Takeaway – Your credit score is one of the most important factors of your financial health. A poor credit score can bring you a lot of problems and make your life miserable so any effort to repair it is worth the trouble.