If you have a less-than-ideal credit score, you're not alone. In fact, it is estimated that about 12% of the United States population has a score under 550. Unfortunately, even one financial mistake (such as filing for bankruptcy or going through a foreclosure) can have a serious impact on your credit score for years to come. As a result, you may have a hard time getting approved for loans, credit cards, and even apartments down the road.
While there is no "quick fix" for a bad credit score, there are some steps you can begin taking to repair your damaged credit over time without spending any of your hard-earned money on credit repair or debt consolidation services. These are practices that will also set you up for greater financial responsibility throughout life.
1. Know Where You Stand
Start by simply knowing where your credit score stands and what's impacting it. When was the last time you pulled a copy of your official credit report? If it's been more than a year (or if you've never done this), now is the time to take advantage of your ability to obtain one free copy of your credit report each year. This can be done through any of the three reporting bureaus (Experian, Equifax, or TransUnion).
Your credit report may look a little daunting at first-glance, but ultimately, it's really just a breakdown of all your open and closed credit accounts and their standing. Take time to sift through your accounts to make sure the reportings are accurate. If you don't recognize an account, this could be a sign of fraudulent activity that needs to be investigated further. And if you notice any inaccuracies on the report that are affecting your credit, be sure to file a formal dispute with the credit bureau so they can be remedied.
2. Make Timely Payments
One of the most important aspects of your credit score is your payment history. Simply paying your account balances on time is the single best thing you can do to improve your credit score over time. Of course, this can be easier said than done, especially when you fall on hard financial times. If you're ever in a situation where you know you're unable to make a required monthly payment, it never hurts to reach out to your creditor and ask for an extension on your due date or some other accommodation that will prevent your late payment from showing up on your credit. You may be surprised at how willing some creditors are to work with you and protect your credit.
Unfortunately, if you miss a payment, there's a good chance this will stay on your credit report for anywhere from 7-10 years.
3. Think Before Closing an Account
Once you've paid off the balance on an account, it might seem logical to close that account--especially if you don't have any plans to use it again in the future. Before you close an account, however, consider how doing so may affect your credit. If it's an account that has been in good standing and that you've had for a long time, closing it may actually harm your credit because it will essentially delete your great payment history and bring down the average age of your accounts (which affects your credit score).
For example, if you just paid off the balance on a credit card that you've had for 10 years, it will actually be better for your credit score if you keep the credit card account open rather than closing it. Furthermore, using the credit card for a couple of small purchased each month (and then promptly paying off the full balance when it's due) will continue to improve your credit.
4. Keep Utilization Low
Have you ever heard of a credit utilization score? Essentially, this refers to the percentage of your available credit that you're actually using at any given time. For example, if you have a credit card with a $10,000 limit and you currently have $2,000 charged to the card, your credit utilization is at 20%. Your credit utilization rate can have a major impact on your credit score, and it is ideal to keep your total utilization below 30% at all times.
You can reduce your utilization by either paying down some (or all) of your current account balances or requesting an increase on your credit limit. Just be sure that if you opt for the latter option that you won't be tempted by the higher credit limit.
5. Open New Accounts Wisely
Any time you're thinking about applying for a new credit account, be sure to consider how doing so could affect your score. Every time you take on more debt or open a new account, your credit is going to take a hit. That's because hard inquiries must be made in order to open these accounts. With this in mind, you'll want to avoid opening multiple new accounts in a short period of time--and you should always do your research before applying for any form of credit so as to avoid unnecessary inquiries.
6. Opt Into Rental Reporting
Paying your rent on time can improve your credit score, but only if your rental payments are actually being reported to the major bureaus. You can check with your property management company to find out whether or not this is the case. If not, you can manually opt into rental reporting by paying your rent online with VerticalRent. From there, each rental payment you make will reported to Experian RentBureau and thus build your credit.
When you have no credit history or a poor credit score, it may seem impossible to improve things. And while you certainly won't attain a perfect credit score overnight, taking these steps will certainly lead to a gradual improvement of your credit score. For more information on boosting your credit score through timely online rent payments (and other services offered to make your life easier), be sure to contact us today!