Author: Alex Delaney

Bad Credit?  Low Credit Score?

Your credit score determines whether you can get a loan with a high-interest rate, or a low-interest rate, or whether you can access credit at all.  It takes time to build a good credit history but starting now will put you in a better position in the upcoming years. Conversely, it takes no time at all to make your credit rate take a nosedive and bad credit can stay on your report for 7 years, some as long as 10 years.

A credit score of 800 or higher is an exceptional score that will command great interest rates.  740 to 799 is considered very good. 670 to 739 is good, but you won’t get as great a deal. 580 to 669 is fair, and anything lower is a poor rating.  If you can strive for a credit score of 740, you will improve your opportunities to access reasonable credit at a good interest rate.

There are credit repair agencies who will, for a fee, help you improve your credit.  But be aware, there are just as many credit repair companies who are looking for a way to separate you from your hard-earned money.  If they make promises that are too good to be true or offer options that seem shady, they are likely running a scam.

However, you don’t need to pay a credit repair company to improve your credit.  If you have patience, and perseverance, you can handle this yourself by following the below guidelines.  Keep in mind, this is not an overnight fix. But if you start using these strategies now, you will put yourself in a better position in the near future, gaining access to lower interest rates and better credit opportunities.

Do It Yourself Repairs

Strategies to improve credit legally are quite simple:

1) Live within your means.  I know this sounds difficult.  But going into debt is putting your future at risk. Why buy something now that won’t hold its value before you get it paid off?

2) Pay all bills on time.  There are few shortcuts to good credit but a good payment history goes a long way in improving your credit score.

3) Create a budget using your standard income and stick to it. If you have an unreliable source of income, sock that in the bank, or pay off high-interest credit.  Don’t count on it for normal living expenses.

4) Check your credit report regularly and dispute inaccuracies and errors. But be discriminate. If you dispute all items, you won’t be taken seriously. Only dispute those items for which you can show an inaccuracy.

5) Contact old creditors and make payment arrangements for past debt.  As these are paid off, make sure your creditor informs the credit bureaus.  Follow up by checking your credit report to make sure the debt shows as paid.

6) If you have a good history with a creditor but missed a payment, call them up. Remind them of your good history, and request that the missed payment (once it has been made) not be reported to the credit bureaus.  Many creditors consider this a normal part of their business relationship. But you have to ask, and you have to have a good history with them.

7)  When applying for credit, be aware that a hard credit inquiry deducts points from your credit score and these can add up.  Limit the amount of points deducted by bundling your credit applications, such as rental applications, mortgage or car loans, within a two week period.  This way they count as one inquiry. Keep this tip in mind when considering the next three options.

8) Apply for a secure credit card, use it judiciously and pay the bill on time every month.  Any credit left unused helps your credit score.

9) Consider a department store credit card, usually a small line of credit. But be sure to pay the balance off every month as the interest rate on these cards is usually high.

10) Check out small loans, but read the small print and pay attention to the interest rate. If this might create more debt without the benefit of raising your credit score, skip this tip.

11) Do not cancel old credit cards when you get them paid off.  The older the credit, the more trustworthy you look on paper and the higher your credit score.  Use the card once a year or so, then pay it off and file it away until next year.

12) If you are disciplined enough to keep balances low or paid off, ask for a credit increase from your credit card company.  The debt to credit ratio will improve your credit utilization ratio or the amount you have access to versus the amount of credit you actually use.  But don’t let this become a trap that creates more debt.

13) Never file bankruptcy if you can avoid it.  Bankruptcies can stay on your credit report for up to 10 years.  If this is unavoidable, immediately apply for a secure credit card so you can start rebuilding your credit.

Good credit opens doors.  Bad credit shuts them in your face.  And credit ratings in between determine how much you pay to borrow money.  Take, for example, two families trying to purchase a house. The first family has a credit score of 780.  They can walk into any bank and get a pre-approval for a loan with an interest rate at 4.17% making their payment $975 a month and costing $150,833 in interest over the life of the loan.  The second family has a credit score of 650. They will struggle to get a pre-approval from anyone and their interest rate, if they can get it, will be 5.213%, costing them $1,100 a month for the same house.  They will pay $220,584 in interest over the life of the loan, or $69,751 more than the family with the higher credit score.

To improve your future, and the future of your family, start building your credit score now, so when you decide to make that special purchase, you are ready and so is your credit score.