If you have a poor credit score, you are probably paying more than you need to for things like loan interest and insurance. If this is the case, improving your credit score can save you a lot of money. Even if you have an average credit score, you may still want a better one since better credit means you pay even less for loans and insurance. Fortunately, your credit score can be repaired; however, it is important to note that the credit repair process is not usually fast and will take effort and patience on your part. Beware of quick fixes as these may cause trouble in the long run.
Important First Steps to Credit Repair
While it may take awhile for you to see a benefit, you can start implementing the steps right away.
Get Your Credit Report
Request your free copy and look for errors. Your score is calculated based on the data in your credit report; therefore, an error in it could affect your credit. Dispute any errors you find with the credit bureau that provided the report.
Sign up for a Credit Card
If your score is not good enough to qualify you for a regular credit card, get a secured one. Make sure to get one that reports to the three main credit bureaus.
Use Credit Sparingly
Having a big balance will hurt your credit score even if you pay your monthly bills in full. The portion of the credit extended to you that you utilize is what will be reported to the credit bureaus, it can have a dramatic effect on your score.
Make Your Payments on Time
You can do this with an automatic payments service provided by your bank. Some banks offer payment reminders as a part of their services, you can sign up for those. This is an important step since paying late can dramatically affect your credit score.
Pay Down Your Debt
This is not going to be easy, but will be rewarding in the end. You will have to adjust your budget to this task, making sure that you put most of your repayment money toward the loans with the highest interest.
Do Not Try to Get Rid of Old Paid Debt
Contrary to what you may think, not all debt is bad. Debt that you have actually paid in full can help your credit rather than hurt it. Do not try to have this removed from your credit report. It shows that you do have a track record of repaying your debts.
Your credit score is a way for lending institutions and other entities to evaluate your money management tendencies and thus determine how worthy you are of credit. It is another way of calculating how likely you are to repay a loan or pay your bills on time, as opposed to your likelihood of defaulting. Good credit shows that you have a good track record which makes you more trustworthy. In the long run, the best way to build your credit score and the trust of lenders is to develop good financial habits.