It’s a fact of modern life: Credit scores matter. Having good credit makes it easier to secure loans, credit cards, and other opportunities. Unfortunately, a job loss, health crisis, or miscalculation can send your finances spiraling in the wrong direction. Fortunately, low credit isn’t a life sentence. It won’t happen overnight, but if you put these tips for rebuilding credit to good use, your credit score will climb.
Tips for Rebuilding Credit
What credit score should you aim for? According to U.S. News & World Report, a score of 580 to 669 is generally considered fair. Meanwhile, a score of 670 to 739 is considered good. While you won’t get offered the best interest rates, you should be able to secure a loan without too much trouble. Who gets the best interest rates? Those go to borrowers with scores of 740 to 799, which are considered very good, or 800 or more, which are considered exceptional. What can you do if you want to improve your credit score?
Check Your Credit Reports
WalletHub suggests that any attempt to improve your credit score should start with an evaluation of your credit reports. After all, reviewing these reports may help you figure out exactly where your financial problems are so that you can fine-tune your strategy for restoring your credit score. It’s also a chance to check your credit reports for errors or signs of fraud. If you see anything that seems wrong, you can dispute it. Errors can drag down your credit score, so having them corrected can be a relatively quick way to bring your score up. Meanwhile, dealing with fraud can be stressful, but catching it allows you to take steps to protect yourself from further activity. In fact, it’s generally a good idea to check your credit reports periodically to keep an eye out for errors or fraudulent activity.
Pay on Time
Different factors go into calculating your credit score, but your payment history is one of the most influential, according to NerdWallet. That means paying what you owe in a timely fashion whenever possible is essential if you want to rebuild your credit. If you can only manage to make the minimum payment, that’s okay. The important thing is that you make the payment on or before the date that it’s due. Late payments will stay on your credit report for up to seven years, so it will take time to recover from this misstep, but if you keep paying on time, you’ll see results.
Get a Secured Card
If your credit is poor, attempts to open new lines of credit may be denied. How can you prove that you can use credit wisely? As Magnify Money reports, getting a secured credit card is one option. With a secured credit card, you put down a specific sum as a deposit. The amount of your deposit will be your credit limit. Ideally, you should make small purchases and pay them off promptly each month. The goal is to build a payment history and establish that you can use credit responsibly so that you can graduate to a traditional credit card. If you prefer loans to credit cards, secured loans are also available.
Be Mindful of Credit Utilization
Credit utilization refers to how much of your available credit you’re using. It’s a measure of responsibility. As Credit.com explains, lenders prefer to work with people who limit themselves to using between 10 and 30 percent of their credit limit, so if you have $10,000 in available credit, you should aim to use no more than $3,000 of it at any given time.
Be Careful with New Credit
No list of tips for rebuilding credit would be complete without a warning to be careful with new credit. As your efforts start to pay off, don’t get carried away with adding new credit to your wallet. As Experian points out, adding new lines of credit can be a double-edged sword. It’s good because it can boost your credit utilization ratio. However, each application is a hard inquiry on your credit report, and too many of those can cause your credit score to dip briefly. In addition, adding too many new credit cards in a short period can make lenders nervous and raise concerns that you might behave irresponsibly.
Are you rebuilding your credit in order to purchase a house? Whether you have questions about credit scores, home loans, or refinancing, you can count on the mortgage experts at PrimeLending: Manhattan to be ready with user-friendly answers. Contact us today.