Do you keep promising yourself that you’ll fix your credit one day? If so, now is a great time!
Here are some steps to take to help you start repairing your credit so that you can unlock the benefits available to people with top-flight credit.
Step 1: Determine Your Credit Score
The first step to lifting your credit score is to find out what it is right now. A credit score signifies your current credit status. It is determined by one of the three credit reporting agencies: Equifax, TransUnion, and Experian. The credit agencies focus on factors such as the following data when assigning a credit score:
- Total debt
- Type of debt (ex. Credit card, mortgage)
- Payment history
- Debt age
When you apply for credit, your lender will ask one of the credit reporting agencies for a credit report on you, the credit reporting agency examines your credit history and attaches a credit score, also known as a FICO score, to the report. FICO scores range from 300-850. Lenders reward borrowers with scores above 750 with their most favorable loan terms. Borrowers saddled with a credit score below 600 may find it challenging to qualify for a conventional loan.
Find out what your current credit score is by requesting a copy of your credit report from one of the credit reporting agencies. Credit scores are also sometimes included on your monthly credit card statement. Sometimes your financial institution offers a free credit score service.
Step 2: Improve Your Credit Score
Is your credit score a little low? Don’t worry; a fantastic feature of a credit score is that it represents a moment in time. You can improve your credit score. Here are several ways to guarantee a better credit rating:
Pay More on Credit Card Balances
It’s so easy to use a credit card to make a purchase. Indeed, we are so good at it that the credit card debt in the United States is over one trillion dollars. As hard as it may be to pay down your credit card debt, it’s worth it to improve your credit score.
Your goal is to keep credit card debt at no more than 30% of the credit limit. Since credit card companies send your credit to the credit reporting agencies every month, you’ll start seeing an improvement as soon as you reduce your credit card balances.
Pay Bills on Time
Have you ever skipped a payment? Missed payments will crush your credit score. Plan to pay your bills on time.
No More Credit
Unless you are one of the scarce people who suffers from not enough credit, the chances are that you have multiple lines of available credit. In general, possessing several different lines of credit is positive. However, avoiding taking out any more credit can help heal your financial footing. In other words, hold off on financing a new car until you’ve taken care of your credit challenges.
Manage Overall Debt
One thing that people with high credit scores have in common is a low percentage of overall debt compared to their income. To manage your debt, it’s a good idea to tackle the high-interest items in your budget first. Then, use the freed up funds to pay down the rest of your debt until you reach a debt level that you can comfortably sustain.
Fix Credit Report Errors
Did you know that many credit reports contain mistakes that result in lower credit scores? When you receive a copy of your credit report to check your credit score, scrutinize all of the credit information. Some of the most common errors include information on the wrong person, mistakenly listing a closed account as open, and missing recent payment data. Immediately notify the credit reporting agency of any mistakes.
Step 3: Talk to a Lender
A reputable licensed lender can help you locate a loan to consolidate your debt into one monthly payment over the course of two to five years. A single payment on a personal loan often has a much lower interest rate than those attached to a high-interest credit card.
Experts recommend debt consolidation loans if you can comfortably pay the monthly payment on the loan and you have a plan for handling your finances. A personal debt consolidation loan doesn’t help you improve your credit if you continue to spend more than you make each month.
As a homeowner, you can also consider taking out a home equity loan to reduce your debt. This type of loan involves a lender loaning the homeowner an amount of money that is 80-90% of the value of the house, minus whatever the owner owes on the home. For example, if 80% of the appraised value of your house is $160,000 and you still have a mortgage of $140,000, the maximum amount of money that you can receive in a home equity loan is $20,000. A home equity loan usually has a decent interest rate with fixed payments over a set period.
Homes for Heroes affiliate lending specialists are experts in finding financing options that best fit your financial situation. As an added benefit, firefighters, law enforcement, military (active, reserve and veterans), healthcare workers, EMS and teachers receive discounted lending fees. Let us connect you to a Homes for Heroes affiliate lending specialist who can answer your questions and find a home loan that best fits your needs and wants.
Lastly, congratulations on embracing the challenge to improve your credit. Your hard work will pay off in optimal credit opportunities as you build your life.