Repairing Your Credit
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Your credit score affects almost everything in your life that involves money: How much you pay for housing and cars, doctor, dentist and optometrist visits, hospital stays, insurance, college loans, credit card interest, and even your ability to retire.
It can also affect your ability to get a phone and whether you must pay a security deposit to set up basic utilities. Some jobs won’t even hire you if you have a poor credit score. It also affects your ability to refinance loans, how much you’re allowed to borrow, and whether you’re able to retire.
A low score can make almost everything more expensive for you, so it’s important that you understand who creates your credit score, what they base it on, and what you can do to make it better. To start with, there are 3 main credit bureaus that determine your credit score: Equifax, Experian, and TransUnion. You can see your credit score on their websites.
Almost every company that you deal with in your life has access to this information. They use it to determine what you have access to, how much everything costs you, how much your payments are, and how much interest you pay.
When it comes to credit scores, 300 to 579 is considered a poor score, 580 to 669 is fair, 670 to 739 is good, 740 to 799 is very good, and 800 and above is excellent. The higher your score, the less you pay, and the more you have access to.
How much you currently owe and your payment history make up more than half of your credit score, and matter more than how long you’ve had credit or whether you have mostly old or new loans.
There are 7 main steps to getting a higher credit score. The first one is to find out what your score is at each credit bureau and check their records for errors. Each bureau has hundreds of millions of records, so mistakes happen. If you find that any of the information is wrong or out of date, let them know right away.
By law, each credit bureau will share this information with you and can’t charge you for it unless you ask for it multiple times per year. They may offer additional services to monitor your credit score and provide you with reports and so on for a fee, but you don’t need any of that.
The 2nd and 3rd steps have to do with credit cards. If you already have a credit card or two – or more – pay down the balance as much as you can every month. If you just pay the minimum, or even less, it drives down your credit score. If you don’t have any, get one and only one. Pay it off every month. This proves that you pay on time and pay down your debt load, which can improve your score.
Something that you may not know about your credit score is that something negative that happened to you, like defaulting on a loan or a bankruptcy, only count against you and your credit score for a limited period. This can be anywhere from 3 to 10 years. So, if you continue to pay on time and avoid mistakes, bad events are eventually erased, and you have a clean slate again. You just have to wait it out and avoid major purchases that you’re not positive you can pay on time.
That’s a key point: While you’re working on improving your credit score, don’t take on more debts if you can avoid it. They will only drive your score even lower. Put off major purchases until your credit score improves.
There are some credit myths you should watch out for, too. For example, many folks think that closing an account that’s paid in full is a good idea. But if it’s an account that you paid regularly and it was over a long period of time, keeping it open shows that you are dependable, which can positively affect your score.
Another myth is that checking your own credit score will make it worse. This isn’t true. Checking your credit score yourself is what’s known as a ‘soft pull’, which doesn’t affect your score. However, if you fill out a credit application, it’s a ‘hard pull’, and more than one hard pull in a relatively short period of time can drive your score down.
Some folks believe that how you did in school and whether you graduated or went to college affects your score. This one’s false, too. Your school history isn’t a part of your credit score. Another false idea is that bankruptcy wipes your credit history clean. It doesn’t. While it may get you out of paying some or all of your debts, a bankruptcy stays on your credit record for up to 10 years and should only be considered as a last resort.
If you are close to maxing out a credit card, that can have a negative effect on your credit score. It’s always best to keep the lowest balance you can and pay more than the minimum amount every month, and pay it on time. If you receive a bill late or believe it’s incorrect, contact the company right away and talk with them about it before it’s overdue. Otherwise – even if you disagree with it – it will show up on your credit report.
Something that won’t show up on your credit report is if you pay cash for everything. Without any credit history, potential lenders can’t tell if you’re a good risk or a bad one. The secret is to not take on more debt than you can easily afford to pay off, and to pay every debt right on time. Having multiple credit credits and using one to pay off another doesn’t make the debt go away. It just moves it around, and the credit agencies can easily see that.
Here’s another common myth: If you have a poor credit score and your spouse has a good score, you can get a loan based on the best credit score. If you are applying for the debt together – for example, buying a car – both of your credit scores are considered, and the lower score may determine your interest rate.
You can find out more about what is or isn’t true about applying for credit by checking the websites of the 3 main credit reporting agencies. They have more tips to improve your credit, too.