Poor or mediocre credit history can have wide-ranging consequences including higher interest rates on credit products and fewer loan options. It can also make it harder to find housing and acquire utilities and may even impact your career opportunities in some cases.
The good news is that you can get help and start improving your credit now. Credit repair experts can assist you today. Start with a free credit evaluation to see where you stand.
If your credit is less than ideal, there are multiple ways to fix it. Here's how:
Check your credit report and credit score
Your credit report contains personal information, credit account history, credit inquiries and public records going back 10 years in most cases. You might gain a better understanding of your credit picture and see what lenders see by reviewing your credit report from the three major credit bureaus—Equifax, Experian and TransUnion. You can get a free copy of your credit report online, too.
Unfortunately, your report may contain errors and even fraudulent information. According to a Consumer Reports study in 2021, 34% of consumers found errors in their credit reports, often relating to personal information. Similarly, another 2021 Consumer Reports study found that 57% of survey respondents who disputed credit report errors were able to get them removed.
Carefully comb through your credit report looking for incorrect information and unauthorized accounts that could be dragging down your. If you spot errors, you may be able to get them removed for free by disputing the information with the credit bureau and the business that supplied that information to them.
It's also wise tomonthly to know where your credit stands. You can often find your credit score for free on your account's online dashboard or through a credit scoring website.
Not sure what your credit score is? Or how to improve it? Credit repair experts can help you restore your score right now.
Improve the debt-to-income ratio
Debt-to-income ratio (DTI) is a snapshot showing how much of your gross monthly income goes towards your monthly bills and other debts. A high DTI can make it challenging to get approved for loans.
You can calculate your debt-to-income ratio by dividing the total amount of your debt by the income you earn each month and expressing it as a percentage. So if you earn $5,000 and your monthly debts amount to $2,000, your DTI is 40% (2,000/5,000=0.4). Generally, lenders look for a DTI that's 36% or lower. Consider these steps to lower your DTI:
- Pay off existing debt to lower your debt burden.
- Increase your income through a pay raise, overtime, or a new side hustle.
- Don't apply for new credit, as any money you charge or borrow can negatively affect your DTI.
Pay down debt
Paying off outstanding debts is an effective way to lower your credit utilization ratio and improve your credit. Credit utilization ratio is the amount of credit you're using compared to your total available credit, and it makes up 30% of your credit score. Experts recommend keeping your credit utilization ratio below 30%, but the lower, the better.
Additionally, some credit scoring models take into account your debt and how many different accounts you have. If you have debt spread across many accounts, paying off some of your accounts may positively affect your credit.
Paying off debt can seem overwhelming, but following a debt repayment strategy, like the debt snowball or debt avalanche methods, may help you stay on track. Both strategies have their advantages and disadvantages, so choose the method that works best for you.
The debt snowball method focuses on paying off your smallest debts first before proceeding to more significant ones. You may prefer this method if quick wins will motivate you to continue your efforts towards tackling your larger debts.
On the other hand, the debt avalanche method directs your payments to pay off debts with the highest interest rate first. You'll save money in interest charges over time by prioritizing your payments in this manner.
Pay bills on time
Paying your bills on time is one of the best moves you can make to. That's because your payment history accounts for a whopping 35% of your credit score, the highest ranking factor. Conversely, even one missed payment can harm your credit score for up to seven years.
Setting up automated payments for as many bills as possible can help to ensure you never miss a due date. You won't be able to automate all of your payments, so have a system for paying bills that require manual involvement. For example, you might aim to pay those bills as soon as your statement posts or bill arrives. Another approach is to set aside regular time to pay your bills on a weekly or bi-weekly basis.
Reminders are also helpful to help keep track of due dates. You may be able to set up reminders through your creditors or create alerts on your smartphone or a personal finance app.
Be careful about applying for new credit
Applying for credit can make sense if it leaves you in a better financial position than before you apply. For example, you may wish to take out awith a 0% APR introductory period to avoid interest charges while paying down your debt.
Still, it's wise to limit your applications for credit cards, personal loans, and other credit products, as they can negatively impact your credit in the following ways:
- Hard inquiries: When you apply for credit, lenders typically perform a "hard inquiry" of your credit report to review how well you manage your credit. A hard inquiry can cause a temporary dip in your credit score, typically fewer than five points. According to FICO, these hard inquiries stay on your credit report for two years, but their impact only lasts 12 months. In some instances, like when you check your credit score or a lender considers you for a preapproved offer, the credit check is a "soft inquiry" that has no effect on your credit score.
- Average age of accounts: The length of your credit history makes up 15% of your FICO Score. That includes the age of your oldest open credit account and the average age of all your accounts. When you open up a new account, it may drop the average age and potentially harm your credit score.
Since everyone's credit history is unique, it's hard to predict how long it will take to fix your credit. If there's negative information in your credit report, it could take longer to rebound. However, some of the actions detailed above can have an almost immediate impact, such as lowering your debt-to-income ratio, paying down debt and disputing incorrect information on your credit report. What's important is to stay the course, take consistent action to improve your credit and monitor your progress over time.
Ready to get started? Rebuild your credit today by working with a credit repair expert.
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