How to Rebuild & Repair Your Credit

Repairing your credit is a simple concept, yet difficult to do. Understanding how to do it is one thing, actually doing it is another. As of March 2017, national debt in the U.S. was at approximately $19.9 trillion. Debt in the United States is common and actually pretty high in most households. Having debt isn’t necessarily a bad thing, until it has affected your credit score in a negative way. 

Pay Bills On Time

Even one late payment can affect your credit score. Make payments on time. Payment history plays the largest role in determining your credit score. Even if you can only afford to make minimum payments each month, you are saving your credit score by paying EVERYTHING on time. It is not best practice to only make minimum payments, but if minimum is the only option, pay it and pay it on time.

Avoid Opening New Credit Lines and Keep Old Cards Open

If you pay off a card, set it aside to collect dust, but don’t close the account. Having this available balance will help your utilization ratio, even if you don’t plan on using the card again. Closing an account essentially shrinks your available credit and can harm that ratio. It is important to remember, the more credit available to you, the lower your credit utilization.

Additionally, part of your credit score can be determined by longevity. If your credit history is lengthier, lenders have more information to accurately assess your creditworthiness.

Have Someone With Good Credit Authorize You as a User

Believe it or not, another person can add you to their account as an authorized user without even giving access to their account in order to help raise your score. Of course, any changes to credit, bad or good, will affect both users, so there are some risks that come with this option, but it is definitely an option.

Check a Credit Report

Free credit reports can be available through your current credit card company, but are also available through the three major credit-reporting companies; Experian, Equifax, and TransUnion.

The Fair Credit Reporting Act (FCRA) states that U.S. residents may obtain a free company once a year from each company.

When should you check your credit score? Some situations might include:

  • Opening a new credit card
  • Applying for a loan
  • Starting a mortgage
  • Searching for a new job
  • Building/rebuilding your credit
  • Protect against identity theft

Utilization

Generally, a good credit utilization ratio will be 30% or less. This means that you will only want to use 30% of your available credit. If your credit card has a $2,500 limit, then you should keep your balance at or below $750. Utilization plays a significant role in your credit score. Next to payment history, it is probably the second greatest influence on your credit score.

As your credit utilization increases, your credit score can go down. 

Open a New Account but Do Not Spend Your Available Balance

Opening a card and not using it will help your utilization ratio. If no annual fee, the interest may higher, but it is irrelevant if you aren’t charging anything.

The same concept can be practiced when increasing your credit limit. Asking your credit card company to increase your spending limit will allow your utilization rate to go down, but you have to make sure you will not actually use this newly available credit.

Pay Off High-Interest Credit Accounts First

While the easier, more motivating, route may be to pay off the credit card with the smallest balance, it may be more beneficial to pay off the account with the highest interest rate. You’ll make more progress paying off one credit card at a time than trying to spread payments across all cards. It is also important to pay a lump rather than the minimum payment.

Why did your credit score drop? Here are a few reasons, according The Balance:

  1.  An unpaid account was sent to collections.
  2. You made a new application for credit.
  3. Your payment was more than 30 days late.
  4. You made an expensive credit card purchase.
  5. You closed a credit card.
  6. Fraudulent activity

If you think you have been a victim of fraud or identity theft, visit www.identitytheft.gov immediately to report theft and get a recovery plan started.

If you’re ready to get back on track, repair and rebuild your credit, speak with a financial advisor at Missouri Central Credit Union today about repairing your credit.