Credit issues can impact just about every aspect of your life. Why? If you do not have a good credit score, it is harder to qualify for mortgage loans, auto loans and other types of financing. In addition, a bad credit score can result in higher insurance premiums, and you may not be able to secure certain types of employment.
Fortunately, there are effective ways to deal with credit issues. Since you didn’t get into this situation in one day, you can’t repair your credit overnight. Therefore, you should not expect a better credit score after only a few days or weeks. Even so, if you take the necessary steps to get your personal finances on track, your credit score will gradually improve and you’ll be a step closer to achieving A+ credit.
1. Check your credit report each year
Many consumers do not check their credit reports on an annual basis. Your credit report provides a detailed account of your credit history. It includes your most recent accounts, balances, older accounts, as well as your account statuses.
When you apply for new credit, creditors review your credit report to see if you qualify for financing. But unfortunately, your credit report may not be accurate. A creditor may report information in error, or someone may steal your personal information and open accounts in your name.
Checking your credit report regularly is the best way to identify mistakes early and each consumer is entitled to one free report from each of the bureaus every 12 months.
2. Seek professional help
If you notice errors on your credit report, you can notify the reporting creditor to clear up any mistakes. In many instances, this is all it takes to improve the accuracy of your report. But sometimes, repairing serious credit report errors requires professional help.
Credit repair agencies have experience fixing mistakes on consumer credit reports. They’ll investigate a claim and work with your creditors to remove any information that’s inaccurate. Negative information on your reports can drop your credit score by several points. However, once this information is deleted from your report, your credit score will improve.
3. Understand how credit works
If you do not understand how credit works, you may not make wise credit decisions. Several factors influence your credit score, such as your payment history, the amounts you owe, the length of your credit history, the types of credit, and new accounts.
Since your payment history and the amounts you owe make up 35% and 30% of your credit score, respectively, it is important that you pay creditors on time and maintain low balances.
This is much easier to say than do. However, if you only charge what you can afford to pay, and if you pay your balances in full each month, you can improve a low credit score.
4. Get rid of your credit cards
Canceling a credit card may reduce the length of your credit history, thus lowering your credit score. Rather than get rid of credit cards, destroy your cards and only use cash. The less you use a credit card for purchases, the less debt you’ll accumulate.
In addition, do not splurge when applying for a loan. Oftentimes, consumers overspend when buying a house or car. As a result, a larger percentage of their income goes toward paying off these debts. They end up living paycheck to paycheck; and if unable to make ends meet, they might rely on a credit card. This complicates a financial situation. Therefore, know your limitations and be reasonable.
5. Establish new payment terms with your creditors
Defaulting on a credit card or loan, and then ignoring your creditors will not make the debt go away. The credit card company or bank may send your account to collections or seek a judgment. Both moves can damage your credit score, and this negative activity can stay on your report for up to seven years.
To avoid any collection accounts or legal action, always communicate with your creditors. Explain your situation and ask the creditor for a new payment arrangement. Based on your economic situation, the creditor may lower your monthly payment to an affordable amount, or temporarily suspend payments until your finances improve.
Realizing that you have credit issues might keep you awake at night. However, credit problems are not permanent. There are ways to rise above a low credit score. However, you need to be proactive and make wise credit decisions.