If you don't know what to do about your credit, this simple guide will put you on the right track.
Crafting A Credit Repair Emergency Kit
There are certain numbers we all dread: our weight, our age and, perhaps, our IQ. But our credit score doesn’t have to be one of them.
Your credit score, of course, is immensely important these days. That’s because lenders of all types, whether they are passing out mortgage, auto or personal loans, rely on these three-digit scores to determine whether you have been a responsible borrower in the past. If your score is too low, traditional lenders may refuse to lend you money. They worry that because you have a history of not paying your bills on time that you’ll default on their loan, too.
If your score is this low you may have to rely on subprime loans. These loans come with exorbitantly high interest rates, rates that offer protection to lenders.
What is a good score? Generally, any score of 740 or above will guarantee you access to the lowest interest rates and fees. If your score is below 620, though, you will pay up to 3.5 percent more in interest rates to borrow money.
Having a low credit score can also make it difficult to get approved for even the least attractive of credit cards. No, it’s not at all easy to go through life with a low credit score.
Fortunately, you can take steps to boost your credit score. Unfortunately, all of these steps take time. There simply is no magic formula to improving your credit score. So don’t work with any outside company that promises you that it can instantly improve your credit. There is nothing that these companies can do for you that you can’t do on your own for free.
Federal law states that you can order one free credit report from each of the three credit bureaus, TransUnion, Experian and Equifax, every 12 months. Once you receive this report, and you can get it almost immediately through e-mail, make sure to look it over thoroughly. The credit bureaus do make mistakes. If you see several late payments on a car loan that you know you always paid on time, you must correct the error in writing. Finding and correcting errors such as this will help boost an ailing credit score.
Next, make a new habit of paying all your bills on time each and every month. The timeliness of your payments accounts for 15 percent of your credit score. By always paying your bills on time, you will gradually boost your credit score.
Pay back your creditors, too. This will also increase your credit score. If you worry that you’re too far behind, call your creditors and explain that you have suffered a financial setback. They may be willing to work out a deal with you, perhaps even eliminating some of your debt in exchange for at least some payments from you.
There are also several steps you shouldn’t take if you hope to rebuild your credit. Don’t hide from your creditors. Whether they find you or not, your credit score will suffer when you fail to repay your debts. If creditors eventually give up on you, they’ll simply mark you as a charge-off. This will have serious negative implications for your credit score.
Don’t use too much of your available credit. Your score will suffer if you use more than 30 percent to 40 percent of the credit available to you. And finally, don’t open too many credit cards in too short of a time period. This looks risky because you are taking on so much new credit at one time. The credit bureaus view this as an invitation for you to run up too much debt.
Credit repair isn’t complicated. It’s about making wise spending decisions and living within your means. If you can do this, you’ll see your credit score slowly, but steadily, rise.