First, make sure you understand how credit works. Your overall credit is measured by several factors; the two most important are how much credit you use and how well you pay your bills. But there are other considerations—how long you’ve had credit, for example. Creditors also want to know how you handle different types of credit—installment loans such as mortgages and car loans, and revolving accounts like credit cards. They also look at your history of applying for credit. If you’ve recently applied for multiple credit accounts, it will count against you, so only apply for the credit you absolutely need.
The only way to know if your credit is good or bad is to check. But don’t just look at your score; look more closely at your full credit report. Use AnnualCreditReport.com, the only authorized website that allows you to get a free report every 12 months from each of the three major credit bureaus—Equifax, Experian and TransUnion.
Review each of the reports carefully to make sure there are no errors or outdated information. If you find something that’s incorrect, take time to change it with each credit bureau.
Late payments hurt good credit; on-time payment history counts for about one-third of most credit scores. We know life gets busy. To avoid missed payment deadlines, set calendar reminders on your phone and consider paying your bills at the same time every week—Wednesday night, for example. Consider making online payments to avoid the ‘I can’t find a stamp’ excuse. And if you know you’re going to be late paying a bill; call your creditor to see if you can work out an alternate payment plan.
How much credit you’re using is also important; the less you use, the better your score will be. Keep low balances on credit cards and pay them off as soon as you can. If you only pay the minimum amount of what you owe each month, your credit score will not improve. Start by paying $50 or $100 more than minimum each month for credit cards, your mortgage and car loans.
Set a budget, stick to it and consider different strategies. For example, try using your credit card just every other week, limit your credit card use to just gas and groceries and pay cash for everything else, or limit your dining out for a month or two and use the money you save to pay down your credit card balance. Implement a one-month waiting period before making major new purchases; consider fixing that car and driving it one more year instead of buying a new one.
Many people face financial challenges that have impacted their credit, but bad credit can be fixed. Don’t be tempted to respond to ads promoting credit repair; you can do this without paying for it. But it takes time to fix poor credit so the sooner you start, the faster you’ll benefit.
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