Credit scores are becoming increasingly relevant to our everyday lives, and espousing the use of credit in favour of cash can actually have a negative impact on your life in ways you give no thought to. If your credit score isn’t top notch then you may be accepted for a mortgage, but could end up paying thousands of dollars more in interest charges than necessary.
If you’ve been guilty of missing credit card payments in the past, had a utility turned off, or even been overdue on your library book returns, it will all be reported as a negative on your credit file. A low credit score can result in higher insurance premiums, higher interest rates on mortgages, loans and credit cards, and may even lose you a job or a rental apartment.
The majority of people could benefit from improving their credit, whilst those with low scores need to repair it. The median credit score is 720 but that is still not good enough for most of the best interest rates. The people with the highest credit scores use their credit cards for purchases but don’t carry a balance on them and never pay interest. If you want to improve your credit it cannot be done overnight but it can be done, and ironically the best way to do it is by using credit.
You can repair your credit yourself without the need to pay an agency to do it for you. Stay clear of agencies offering instant credit repairs, as your credit history is an accurate reflection of your credit history, and only errors or out of date information can be removed. Firstly you should obtain a free copy of each of the reports held by the 3 main credit bureaus, TransUnion, Experian, and Equifax.
You have the right to have erroneous and dated information removed. Bankruptcies will stay on your file for 10 years and negative payment information for 7 years and there is nothing you can do if it is factual. However any mistakes you find such as late payments recorded when they were in fact made on time, or someone else’s information sitting on your file, can be removed.
Revolving credit is better dealt with first, so this means you should look to tackle any areas of your credit card dealings which could do with an overhaul. Simply by ensuring you do not use more than 30% of the available credit can improve your score; even if you’ve paid on time the fact that you may have used credit near to your credit limit impacts on your score. If you have old credit cards sat at the back of a drawer then pull them out and use them occasionally, as the length of your credit history is also a plus If you fail to use your oldest cards they do nothing to help you.
Aim to pay off as many credit card balances as you can: not only will this improve your credit score but it will save you money wasted on interest payments. If your habit is to pay off the minimum payment only then work to increase it by as much as you can until the balance is clear. If you use a secured credit card then ask the lender to hide the unsecured status from the credit bureaus.
Small steps such as these will help you to improve your credit and eventually repair it. It won’t be a quick or instant process but it will benefit you in the long run. Aim for a credit score of above 770 and you could well find yourself eligible for the best available deals when you reach it, and can then start to use credit in a way which reaps rewards.