Believe it or not, your credit score says a lot about you. It confirms your financial stability and your ability to keep your word. Most importantly, it signifies if you’re economically responsible and able to be trusted for future financial endeavours. It is a good idea to get your free credit report and see what information they have on you.
The inability to pay loans and bills in a timely manner usually causes damage to your credit score. Regardless of the reasons behind your low score, most sources that are beneficial to your welfare and mobility find ratings that are substantially low unacceptable. Poor credit scores ultimately make or break your chances of qualifying for loans, car purchases, or property investments. They also increase your interest rates on credit cards, and may even hinder your chances of securing employment.
10 Ways to Improve Your Credit Rating
The most trustworthy people are sometimes unable to avoid financial hardships that hurt their good standing with credit bureaus, especially during global economic downturns. Fortunately, there are ways to repair credit scores. Take a look at some steps that may be useful to better your chances at financial security.
1. Report Discrepancies
Credit bureaus aren’t above making mistakes. You should monitor your credit report regularly to check for errors that drop your score lower than it actually should be. The kind of miscalculations that you should look for include, but aren’t limited to, old lawsuits that have already been judged, obsolete bankruptcies, spousal debts, duplicate listings, unauthorized hard inquiries, old demerits, and wrongful tax liens.
After you check your free reports at Annual Credit Report.com, you can dispute inaccurate entries on your report by filling out a special form on the website.
2. Limit Credit Applications
It’s important to only apply for credit when you absolutely need it. You should examine the fine print (i.e., interest rates and fees) of new credit endeavors before agreeing to the terms to avoid being overcharged and committing to something that you’ll regret later. Shopping for the best rates and loans is undoubtedly essential to restoring and maintaining a healthy score.
3. Make Payment Arrangements with Your Creditors
Despite common beliefs, creditors aren’t completely unremitting; they’re concerned with getting the money you owe them in a timely fashion so that they can stay in business. You should try to negotiate with your creditors to avoid having late payment history added to your credit report. More than likely, they’ll be willing to work with you after you’ve voiced your circumstances and your willingness to cooperate.
4. Stay Away from Excess Inquiries
An inquiry is the act of someone checking your credit history. Each time a new source, such as a retail stores or banking institution, makes an inquiry, it lowers your credit score. Hard inquiries are performed by businesses to see if you qualify for their product or service, whereas soft inquiries are made for other purposes, such as employment matters. Credit checks, particularly soft inquiries, can remain on your credit report for up to two years. Multiple inquiries within a short time frame can drastically worsen your score unless they’re made while you’re looking for a car or house, as several inquiries on your report for one of these purposes will only count as a single inquiry. However, the multitude of similar credit checks must be within a 30- to 45-day period.
5. Keep Inactive Accounts Open
Whether you’re active with a creditor or not, bureaus will keep your credit history in good standing the longer your account remains unclosed. If you have credit cards that you no longer use, it’s best to hide them or cut them up and dispose of them rather than close the old accounts. Keep in mind that you want to avoid having more than a handful of unused accounts open at one time.
6. Get Rid of Your Ex-Spouse’s Accounts
Divorce can cause a rift between two people in several ways, particularly a financial disaster if the couple decides to combine their accounts for record-keeping purposes. After separating from your partner and the divorce is final, it’s important to remove the other person’s name and information from your existing accounts and pay off joint accounts that you intend to close. Still, remember that getting a legal divorce doesn’t make you or your ex-spouse exempt from paying your debts, and you should discuss who will be responsible for successfully fulfilling each financial obligation.
7. Don’t File for Bankruptcy
Avoid filing for bankruptcy at all costs, as it completely destroys your rating and can take years to re-establish good credit. Although it may sound like the most feasible option after enduring economic difficulties, you should consider the amount of time it’ll take to rebuild your credit, as well as the likelihood of being rejected for loans and other credit features. It’s best to meet with a personal financial consultant to cover other possibilities before making this drastic leap.
8. Maintain Low Credit Card Balances
The advantage of using credit cards over cash or checks is noticeable. However, it’s crucial that keep your balances on your open accounts low to avoid getting bad marks on your credit score. According to Entreprenuer.com, the general rule is to not let your balance exceed more than 35 percent of your entire credit limit.
9. Don’t Transfer all Your Credit Card Balances to One Card
Consolidating your credit card balances to a single card may help you avoid sky-rocketing interest rates, but it can also wreck your rating. Alternatives include refinancing options or paying off debts on several low-interest credit cards.
10. Pay Bills in a Timely Manner
The best way to improve your credit rating is to pay creditors on time. This strategy will not only help boost your score, but will shed past debts quicker and maintain a good relationship with current creditors.
Enhancing Your Knowledge of the Credit Process
Although it benefits most individuals to have a general understanding of their credit rating and how it’s affected, those with a keen interest in learning more behind-the-scenes knowledge should consider a career in finance or accounting. Aspiring professionals in these industries can receive higher education in multiple ways, such as obtaining a finance degree online or enrolling in an online accounting degree program that suits their needs and interests.