First Steps to Take to Repair Your Credit
Are you not thrilled with your credit? Don’t be afraid – you’re not alone. According to data released by Experian – one of the credit agencies verify credit reports – the average score for younger millennials is only 652. And while that’s not a great score – it’s more ‘fair’ – if you’re on the lower end of the spectrum it can be easy to fall into despair.
But even if in the case you don’t have a credit score, there are steps you can take today to help repair your score. Taking a few simple steps can put you on the path to repaired credit.
Establish a Credit History
For many, the first realization that you may need to repair your credit score is when you find you don’t have one. You can pay all your utilities on time for years – but until you begin paying a bill that reports to one of the major credit bureaus, you might as well not exist. The best way to establish some credit history is to take out a credit card.
If you’re thinking “But don’t most people get in trouble with credit cards?” then yes, you’re right – credit card debt can be troublesome for many. But so long as you practice good habits with a credit card, it can be a friend to both you and your credit score. Now, you will have an account that is reported on to the credit bureaus.
Make Timely Payments
You’re building a history now – let’s make sure it’s a positive history. That means making all of your bill payments on time.
Timely payments are critical and will make up the bulk of your score. Never forget to pay a bill on time – particularly a credit card or vehicle payment. Anything reported on to the credit bureaus is a high priority. Set reminders in your phone as to when bills are due. Better yet, take out an app that helps record when payments are due for you. Mint is a great app for that purpose and includes other personal budget functions you may find useful. Prism is another app that assists in bill tracking – bills can be made through the app or scheduled later.
Pay Down Your Debt
Another factor that determines your credit score is how much credit you are currently using. If you are floating credit balances from month to month, that may be an indication that you’re struggling financially, meaning you are given a lower score.
To improve your score, you’re going to want to keep your credit utilization – around thirty percent. Credit utilization describes how much credit you’re actively using. Let’s say you have one credit card, with a $1,000 limit. You currently have a credit balance of $500. That would give you a credit utilization of 50 percent, and to improve your score you’d want to have $200 of that balance paid off as soon as you can.
That might seem simple if you only have one outstanding credit card, but what if you have more than one? In that case, you’re going to want to pay off the credit balances with the highest interest rate first. Make minimum payments on all the others while paying as much as you can on the highest interest rate balance – and continue on until it’s paid off and you can begin paying on the next outstanding debt.
Don’t Close Out Your Accounts
If you’ve been working at paying down several credit cards, it can be tempting to close those accounts once you’ve done so. We understand why that’s tempting – but remember, having unutilized credit can be a good thing from your credit score’s perspective. So long as you don’t run those credit cards, your zero balances can help improve your overall score. Want to cut up those cards? Knock yourself out. Just keep that online login live.
There’s no reason to be overwhelmed in regards to your credit. It won’t happen overnight, but if you dedicate some time you will begin to see improvements to your score. As these improvements continue, don’t forget that you’re using them to build something. A better credit score will save you thousands of dollars in financing over the life of a mortgage loan – and it will improve your financial confidence, too.