Your credit score goes a long way in determining the kind of loans you’re getting and the kind of money that you can spend. With a credit score in disrepair, you will likely not have an opportunity to get the best rates when you are searching out an insurance policy or auto loan, and you can find yourself paying thousands of extra dollars on your home loan.
A poor credit score can be created over years of late bill paying and inefficient financial practices, but there are still steps that you can take to repair your credit score if you find it falling below the 760 mark. When your credit is damaged, your already late bills can become even more difficult to pay, but following these steps can help to pull you out of this endless financial cycle.
Severe credit scores can drop below 620, and millions of people around the United States sit below this dangerous level. Even if your score is not this low, you can still take steps to improve your situation, and save some money on interest and insurance at the same time.
The first step in fixing your credit is understanding where you stand, and taking advantage of your ability to obtain a free credit report once ever year. Free reporting websites and companies allow you to get your credit score as quickly as possible, and you can even pay small fees to gain access to your more detailed FICO credit scores. If you find yourself below that important 760 mark, consider some of the following steps:
Get a credit card. If you do not already have one, you are not taking advantage of an easy way to build your credit credibility. With a credit card or two, you do not have to make extravagant purchases or leave large balances on your card. You simply have to make your normal everyday purchases and pay them off on time to help build your score slowly and over time.
When you use your credit cards lightly, you will not rack up big balances that will be reflected on your credit scores when they are reported. It is suggested that you limit your charges to around 30% of your total limit – or even keep the balance on your credit card as low as 10%. Making payments before the statement date will also reduce the amount of money that you owe and reduce the outstanding balance that is reported to the credit bureaus. All of these actions will have a favorable effect on your credit reporting as you continue to build toward the future.
Continue using your old credit cards. Look for your oldest line of credit and dust it out of your wallet. Using the card that you have had the longest will stop these accounts from being closed, and will give you the opportunity to draw on a long history of credit. When these accounts are noticed by credit bureaus, you will be able to prove yourself with a long-standing history of balances, payments and active spending. These methods, and other safe spending habits, will help to keep your credit score in the best shape possible, and will keep your interest and insurance rates as low as you would like them.
Rachel Wink writes about credit score repair and other current personal finance issues affecting many homeowners during this economic downturn.
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