|
Nowadays, most people understand the importance of one’s credit score. When it comes to securing a mortgage, purchasing a new car or even applying for insurance, you credit score plays a pretty significant role.
However, what if your credit score is not as stellar as you would like? Maybe you missed a couple credit card payments, or perhaps you allowed a loan to default.
Whatever your circumstances, you are probably finding out very quickly that your low credit score can be quite a road block. Fortunately, there are some steps you can take to help repair your credit score.
Your Credit Score: Taking a Hit
Before fixing your credit score, you first should understand how your credit score is determined and what types of events can cause it to take a dive.
A credit score is essentially a three-digit number, ranging from 300 to 850. One’s credit ranking is typically broken down as follows:
- 730+: Excellent Credit
- 700-729: Good Credit
- 670-699: Fair Credit
- 585-669: High-Risk Credit
- Below 585: Bad Credit
For those with high-risk or bad credit scores, credit options are significantly limited or might not be available at all.
There are several ways in which you can hurt your credit score, including:
- Missing a monthly payment, which can reduce your score by as much as 35 points;
- Filing for bankruptcy, which can reduce your score by as much as 200 points; and
- Maxing out your credit cards, which can reduce your score from 20 to 120 points.
Improving Your Credit Score
While there are several steps you can take to improve your credit score, here are five of the most-recommend actions you can take to help your score rebound:
Step 1: Make all of your current loan and credit card payments on time.
As noted above, missing a credit card payment can negatively impact your credit – so can paying your bills late. For this reason, taking the necessary steps to ensure that you do not miss any due dates is essential in repairing a low credit score.
Step 2: Keep unused credit cards open.
The first thing many people do when faced with mounting debt is cut up their credit cards. While this might be a good way to prevent the urge to spend, it is important to note that keeping the actual account open is best, especially if you have had the account for some time.
Closing all of your credit card accounts actually can do more harm than good – by closing your oldest accounts, you are in effect decreasing the length of your credit history, which brings your credit score down. The longer your credit history, the better your credit score will be.
Step 3: Focus on paying off your “revolving” debt first.
Some debt – like a school loan or mortgage – is considered to be “good” debt, which does not hurt your credit score. However, there are many forms of debt that can negatively impact your credit. One of the types of “bad” debt is revolving debt, which typically consists of credit card debt. Because this form of debt can actually bring your credit score down, it is best to focus on paying off this debt first before tackling other debts, like your college loan.
Step 4: Avoid applying for new credit.
Each time you apply for a loan or credit card, a credit inquiry appears on your credit report. Unless you are shopping for a car or a mortgage, an individual credit inquiry could decrease your credit score by about five points. A five-point hit might not hurt if you happen to have a good credit score, but if you are trying to increase your credit score, it is best to avoid any actions that might cause the number to drop.
Step 5: Contact a credit restoration company.
Some people might find that their credit score has been damaged so badly that they need assistance in repairing it. A credit restoration company can help consumers maneuver through the credit bureaus and collection agencies as they work to fix their credit scores.
|
