It is crucial to build your credit. Some people don’t realize how a good credit rating affects their lives significantly. A credit file is not only a matter of concern for a lender. Good credit makes life less costly, and financial situations much more manageable. With a good credit score, an auto loan or mortgage is approved with the best interest rates and terms. When they check your credit and see good ratings, you usually pay less for more in insurance, and utility companies start a service with little deposit after they check your credit report.
Though you cannot undo financial missteps and erase negative items in your credit report, your credit going forward can be improved by rebuilding a positive credit history today.
Credit Score Influencers
As you rebuild credit, know the factors influencing credit scores. Common credit scoring factors are:
- Total debt, including loans, credit cards, loans, and collections
- Payment history record, including on-time payments, late payments, or missed payments
- Credit utilization ratio, which compares total credit available vis a vis how much of it is being used
- Mix, which refers to the credit account types being used
- Age, or how old the credit accounts in question are
- Public records of civil judgments or bankruptcies
- Hard inquiries or recent applications for credit
Credit Score Catalysts
Change credit behaviors to update credit scores positively. Take these steps to rebuild credit, slowly but surely:
- Pay your bills on-time and bring current your past-due accounts. You may set-up payment reminders to ensure on-time payments
- Check your available credit. Creditors spot maxed-out credit accounts, so be mindful of credit card limits. Try to reduce your credit utilization ratio by paying credit card debt and keeping card balances at zero.
- Try to open a secured account, like a secured credit card, to build a credit history. The amount deposited becomes collateral for the percentage of the cash that you will be borrowing. Credit bureaus can see your secured credit account and good payment history.
- Ask for help from friends and family who can make you an authorized user of their credit account, open a joint bank account, or be a cosigner for a loan.
- Be mindful of new credit. Applying for or opening credit card accounts affect credit scores and will translate to hard inquiries. Several credit card applications are also red flags for lenders. Generally, lenders need to be sure you’re not overextending your means financially before giving you additional credit.
- Pay your debt and get help from credit counseling organizations when needed. You may try credit counseling. A credit counselor helps create a financial plan to manage debts. A debt management plan can also help in eliminating debt. Following a payment schedule for unsecured debts could even make creditors waive fees or lower interest rates. You may also want to consider debt consolidation. A debt consolidation loan can help you pay back what you owe more conveniently.
How long will rebuilding your credit take?
It’s not easy to re-establish good payment history when negative information appears on your credit reports for quite some time, as below:
- For late payments, seven years after the account went delinquent and eventually brought current (If the debt was moved to collections because payments were not brought current, the first missed payment will be the original delinquency date)
- For Chapter 7, a bankruptcy that discharges the debt, ten years after the date of filing.
- For Chapter 13 bankruptcy, where a bankrupt person repays debt through renegotiated terms, seven years from the date of filing
- For civil court judgments, seven years from the date of filing
- For paid tax liens, seven years from the date of filing (Ten years if unpaid)
- For hard inquiries, after two years (Over time, their impact diminishes)
Mitigate these by making on-time payments moving forward along with other steps you can take to improve your credit score. Show that, as a borrower, you can responsibly repay a creditor on time.
Get the right people who can help with improving your credit standing. Know more about how to build credit and get more information on repairing your credit history by giving us a call right now at Northwest Debt Relief Law Firm.