Having bad credit negatively affects your life in a number of ways. Whether you are trying to qualify for a mortgage, want to refinance a loan or are shopping around for credit cards, the higher your score is, the better off you will be.
Bad credit can be repaired. Unfortunately, however, there are no quick fixes. In fact, any organization that promises to help you raise yours fast is more likely to get you into even hotter water. Repairing credit takes time, but you can do it more efficiently by understanding which factors impact your score and how you can improve them.
Steps to Take Now to Start Improving Your Credit
Although it takes time to repair credit, there are things that you can do right now to get the ball rolling. First, check your credit reports from all three credit reporting agencies: TransUnion, Experian and Equifax. You are entitled to one free copy of each per year by law, and you can request your copies by visiting www.annualcreditreport.com. Check them for errors right away, and file disputes for any that you find.
Additionally, stop using credit cards and start focusing on reducing your existing debt. Use your report to determine which accounts have the highest interest rates, and focus on paying them down first; keep make minimum payments on the others. Take care to pay all of your bills on time, and set up payment reminders or automatic payments if necessary.
Factors that Affect Your Credit Score and How to Improve Them
There may be no quick fixes for repairing credit, but you’ll achieve your goals more quickly by taking a strategic approach to the situation. For best results, focus on improving the factors that have the biggest impact on your FICO score:
- Payment History – Payment history is the most significant factor affecting your credit score. It is estimated to account for approximately 35 percent of your score, so it is crucial to get on track with it right away. First, pay all of your accounts on time; set up automatic payments and payment reminders if necessary. Next, catch up on and stay current with past-due accounts and missed payments. Keep in mind that even if you pay off a collection account, it won’t drop off of your report for seven years. Finally, if you are truly struggling to make your minimum payments, contact your creditors or sign up for credit counseling services.
- Credit Utilization – The amount that you owe versus the amount of credit that you have access to has a huge impact on your score too. It is estimated to account for approximately 30 percent of your FICO score. First, pay off accounts rather than moving balances around; owing the same amount across fewer accounts could actually hurt your credit standing more. Keep balances on revolving credit accounts like credit cards low. If you have unused cards or pay any off, do not close them, as your available credit will drop and utilization will increase. Finally, don’t open new accounts just to increase your available credit, as it can backfire.
- Types of Credit – Your score will be better when you have a mix of different types of credit. However, closing an account doesn’t make it go away. Only apply for and open accounts that you actually need. It is okay and even good to have credit cards, but make sure to use and manage them carefully.
- History Length – The longer your credit history is, the better your score will be. Although this factor doesn’t weigh as heavily as others, it still plays a role in determining your current FICO score. Therefore, even if you pay off old credit cards and other accounts, do not close them. Maintain them so that your credit report shows your history stretching back a decent amount of time. While trying to repair credit, people often try opening several new accounts to start establishing a better track record. However, this can backfire because the more newer accounts that you have, the lower the average age of your accounts will be.
- New Credit – Contrary to what many people think, requesting and checking your personal credit report does not negatively impact your credit score in any way. In fact, it is the only way to get a handle on your current credit situation so that you can start repairing it. Additionally, when seeking a new loan, it is okay to make several inquiries. Just make sure that they are all requested within a brief period of time and that they are for the same type of loan. Finally, opening new credit cards and other accounts can be a good way to re-establish credit, but it is essential to manage them responsibly. This means that you should always pay your bills on time and avoid utilizing too much of your available credit.
As eager as you may be to re-establish your FICO score, repairing credit takes time. By focusing your efforts on improving the factors that are outlined above, you should be able to get where you need to be more quickly. As long as you stay the course and are consistent about paying accounts on time and otherwise managing your credit from here on out, your score will slowly but surely improve.