Many consumers simply don’t realize just how important their credit rating is – a good (or bad) credit rating can directly impact your ability to get many different types of loans (house, automobile, student), cause your interest rate to skyrocket, or even lower your chances of getting that killer job or that fantastic apartment. As creditors, bankers, employers, and landlords are increasingly looking to minimize their exposure to bad debt, they are relying on a person’s credit rating to make their decisions.
Lenders are the biggest proponent of credit scores. Your three digit credit score can determine many things: whether you get denied or accepted for a loan, your applicable interest rates, terms, down payment requirements, and special offers. A bad credit score might disqualify you from meeting minimum eligibility requirements, common when applying for 0% car loans. A good credit score might qualify you for the best payment terms and lowest interest rates, since creditors view you as not likely to default. Unfortunately, that’s the way it works in the real world: those that can afford it get charged the lowest rates, and those that can’t afford it get gouged.
However, if your credit score is terrible you are not helpless. You have the power to repair your credit rating, you just need some direction. The first thing you need to do is get a copy of your credit report. While you can pay for your credit report from several third party agencies, by law the three main credit reporting bureaus (Experian, TransUnion, Equifax) are required to provide to you one copy of your credit report every twelve months. Simply go to AnnualCreditReport.com for more information. Now, after you receive your credit reports, follow these steps to begin the rebuilding process:
1. Look over your reports for inaccurate information
First off, check for inaccurate information. Your credit card might list accounts that are not yours, accounts that you’ve long paid off, or old balances from companies who have been taken over by larger companies. You should definitely not be penalized for mistakes caused by the credit reporting agency, and you may (or may not) be surprised to know just how often mistakes can occur. Look over your report for inaccuracies first, and if they are move on to the next step.
2. First, pay off past-due accounts
The biggest red-flag on your credit cards is past due accounts. To would-be lenders and creditors, this immediately lets them know that the person is not capable of managing all their finances. Your first step should be attacking these past-due accounts and bringing them current. If you need to, you can attempt to settle with the creditor for a lower amount than you owe, however settling does negatively impact your credit score so you should keep that in mind.
3. Don’t be over your credit limit
The next red-flag is credit cards that are over the credit limit. If you have any credit cards over their credit limit, pay down the balance until it is below the credit limit. The ratio of debt to available credit is one of the factors that impact your credit score, so being over the limit will severely damage your score. Attack your balance aggressively to improve your ratio.
4. Get new credit
No creditor wants to be the first to issue a troubled borrower new credit. One of your first goals after paying down your balances and any past-due accounts should be establishing new credit. This doesn’t mean that you need to go out and apply for a car loan. Getting new credit could be as simple as getting another cell phone line. However, if your credit rating is severely damaged, you might need to look into getting a “credit repair” credit card. These are so named because you aren’t actually supposed to use them. They carry interest rates upwards of 30-40%, however they’ll issue credit to just about anyone. Lines will be low, most likely below $500, but hey credit is credit.
If you have taken all these steps, you should just continue to pay down your credit card debt and wait. Your credit score is not something that can be repaired overnight, and an excellent credit rating can take several years to build. Repairing your credit isn’t impossible – it just takes a game plan, some dedication, and time. Follow these instructions and you’ll be well on your way to repairing your credit.