Setting up and repairing your credit holds great significance when it comes to large investments such as auto loans, purchasing a home, and purchasing anything that requires a small to large debt. Your credit score could be impacted by a missed payment or credit card default, there is no need for huge concern. I am here today to dive into my strategies that I personally use to increase your credit score and your credit history.
There are many reasons why your credit score has taken a hit, and here are a few of the most common reasons why.
- Late Payments: Missing payments or making late payments is one of the most common occurrence when taking a significant drop in your credit score, on credit cards, loans or other bills.
- High Credit Utilization: Using the majority of your credit line will negatively impact your credit score, as it indicates that you may be struggling financially. It is extremely important to keep your credit usage below 30% of your limit.
- Opening New Accounts: Opening multiple credit accounts could potentially damage your credit score if you open them all in a short period of time. Leading to a temporary decrease in your score due to the higher risk of becoming over leveraged in your debt.
- Collections: If you have unpaid debt you may be sent to a collection agencies in which they’ll attempt to contact you for the money you owe them. Collections can substantially lower your credit score but there’s room to improve it afterwards.
- Hard Inquiries: When you apply for a car loan or for a new credit card. The company will need to run a “Hard Inquiry” in which dives into your credit history and credit report to determine if you’re a safe individual to send a loan to. This will temporarily lower your credit score.
9 steps to improve credit
- Managing Credit Limits
- Becoming an Authorized User
- Check Your Credit Reports
- Negotiating payment plans
- Paying Bills on Time
- Secured Credit Cards
- Positive Payment History
- Budgeting correctly
- Patience and how long it takes `
1. Managing Credit Limits
The correct approach to credit rebuilding begins with avoiding unfavorable credit situations. This involves strategically and properly managing our credit limits, I will be going over how you should manage your credit limits from a beginner’s stand point to an advanced credit user.
If you are a complete beginner with no credit history I recommend a secured credit card, a secured credit card requires you to provide a cash security deposit, usually equals to your credit line. The issuer holds the deposit in case you can not make your payments, saving your credit score and also building your credit history.
Popular secured credits card can be from Capital One, Chase, and Wells Fargo providing excellent options for new credit card users.
2. Becoming an Authorized User
Becoming an authorized user on someone else’s card can have a huge positive impact on your credit report. If the primary cardholder has a history of on-time payments and not missing payment, it can positively impact your credit.
When you become an authorized user, the credit card payment history may appear on your personal credit report as well. If you are over the age of 16 you could become an authorized user.
Credit Utilization while being an authorized user, is also very beneficial. If the card has a low balance relative to its overall limit, it can potentially improve your credit utilization when you personally apply for your very own credit card.
Lastly why becoming an authorized user is key is due to the age of the credit card account. If the age of the credit card account has a long history it could contribute to your credit score massively impacting your overall credit score for the better.
3. Check Your Credit Reports
Having a clear understanding on where you stand with your credit score is important. There are many free services that allow you see where you stand with your credit. The most popular and free service is Experian which 90% of top lenders currently use. You have many opportunities to instantly increase your credit score with Experian Boost services.
Poor credit score range: 300 – 579
A poor credit score is going to make it extremely difficult for you to receive loans or any line of credit within this range, the majority of lenders will deny your application. If you happen to get approved you’ll most likely receive very high interest rates in which will become very expensive.
Fair credit score range: 580 – 669
If you have a credit score between this range you’ll be considered very risky and lenders will still be skeptical in giving you a loan. When you’re in this range, you’ll want to ensure you pay your bills on time to continue to build your credit score, because doing so can save you a lot if money from interest.
Good credit score range: 670 – 739
4. Negotiating Payment Plans
Negotiating payment plans for credit cards or other debt requires clear communication, and a clear understanding of your financial situation. You will need to contact your creditors customer service department and gather your account information in which you’ll explain your financial difficulties.
Explaining your situation with clear honestly will increase the chances of decreasing your interest rates and changing up your payment plan that fits for your financial struggle. Proposing a payment plan that works for you, and offer a specific monthly payment amount and explain why you believe it is a fair and manageable arrangement.
5. Paying Bills on Time
Making your bill payments on time will enhance your credit score. The act of consistently avoiding payment delays holds the potential to improve your credit score and history significantly. It’s worth noting that a solitary missed payment alone can lead to a massive credit score drop of up to 30 points. It can take 6-12 weeks to recover from such impact. To make sure you won’t accidentally miss a payment, you can always set up an automation payment system with a popular service known as “autopay“.
6. Secured credit cards
Secured credit cards present an ideal avenue for people that is just beginning their credit journey, especially those that have just graduated from high school. By opting for a secured credit card, you embark on a clear path, of creating a amazing credit score. There are many great beginning credit cards and the first notable choice is from Wells Fargo, providing you a secured credit card with many benefits.
7. Positive Payment History
Surprisingly, payment history carries even greater weight than your credit score in some scenarios. When these two intertwine and both displaying pure excellence, I can assure you that you’ll be receiving the very best interest rates. Improving your history is crucial by opening another credit card and attaining slightly more debt and making your payments. By keeping your monthly payments at only $300 a month won’t provide the lender much history to be sure that can trust you. Focus on your history and you’ll have an amazing credit score.
8. Budgeting correctly
Being precise in budgeting and focused on managing your money is important. Falling into the trap of becoming complacenent and neglecting your financial obligations can lead to a total disaster in debt. This can increase your overall stress tremendously. Do not surpass a 40% mark of your credit limit in borrowing can deal a blow to your credit score.
9 Patience
Patience is important in achieving success. Embrace the notion that the process of cultivating a strong credit foundation spans years, ultimately culminating in your ability to make significant investments such as owning a home or acquiring a new car. The dedication and effort you invest in building your credit over time will undoubtedly yield substantial rewards in due course.
