People often underestimate the importance of having a good credit score. This is especially true of young people, as credit can be very confusing, even if you’ve been dealing with it for years upon years.
The fact is, your credit score is crucially important to your future, as it has a direct effect over whether or not you are eligible for a credit card, loan or mortgage among many other financial entities. Therefore, it is of the utmost importance that one keeps up with his or her credit score at all times. Unfortunately, some of us have learned this lesson the hard way and are already dealing with the terrible reality of having bad credit.
There are, however, many ways to repair your credit score, which will be outlined below. First, it is important to nail down the factors that negatively affect your credit score.
Factors that can affect your Credit Score negatively
There are many factors that can have negative effects on your credit score. Perhaps the worst factor of all is having numerous late payments on your record. Even a single late payment can have a temporary negative effect, but numerous late payments can be detrimental. This is why it is important to make your payments on time, even if you feel as if you can’t swing it.
Another factor that negatively affects your credit score is having a high balance-to-limit ratio. For instance, if you owe more than you have left in available credit, your score may go down. It is considered best to keep your balance-to-limit ratio under 30%, as this tells lenders that you are relatively responsible with your credit. This applies specifically to revolving credit, such as that gained from credit cards.
One mistake that people often make is signing up for numerous credit cards in a short period of time, as this can have a very negative effect on your credit score. Each time you apply for a credit card, your credit report is pulled, which is known as a “hard inquiry.” Having too many hard inquiries on your credit report – especially in a short period of time – indicates to lenders that you may be desperate for credit and will knock your score down.
Finally, one of the worst things you can do for your credit is cancel a pre-existing card, especially if it is your oldest one. It is important that lenders see that you have maintained credit responsibly for a number of years, and canceling a card (especially your oldest) will directly affect this.
The best thing you can do if you are done using a card is pay it off in full, cut it up and leave the account open.
There are of course other factors that can affect your score negatively (such as bankruptcy), but these are the main issues that most people most often find themselves dealing with.
So, what can you do to repair it?
Repairing your credit can be difficult, but it is by no means impossible, as there are many small things you can do that will help your score. First, do not apply for any credit card offers for at least one year.
This will reduce the amount of hard inquiries on your report and will likely bring your credit score up. Second, be sure to obtain a copy of your report and go through it with a fine-toothed comb. You may find that there are errors, which you can dispute in hopes of having them wiped off of your credit report, hence bringing your score up.
The rest is common sense. Pay all of your bills on time no matter what, don’t spend money (credit) that you don’t have, and pay off those high balances as quickly as possible. All this and more will lead to improvement for your credit score, and will act as your first step towards financial freedom.
