A credit score is a numerical rating between 300-900, which measures one’s likelihood to repay debts. Having a high-score indicates to banks and companies that the borrower is very likely to make their payments on time. A low score implies unreliability, and makes lenders question the borrower’s ability to pay back loans. A low score could have serious adverse effects: higher mortgage rates, downright refusals for loans, and companies such as utilities, phone, and internet providers may be less inclined to offer favourable contracts. Even employers can assess credit scores when considering a contract! If you have a bad credit score, you should prioritize fixing it as soon as possible.
In this post, we’ll break down what goes into your credit score, what a good credit score is, and some tips for improving your credit score.
What Affects your Credit Score?
A credit score can be harmed any time there is a delay in payment of a person’s bills. Since financial systems are computerised, even small delays can have adverse effects on your credit score. Apart from payment history, the most common causes for poor credit scores are exceeding credit card limits, being a victim of fraud or identity theft, bankruptcy, and cancelling/closing bank accounts.
A low credit score may not be the result of low economic status. People often let their score fall due to a lack of organisation, which causes them to miss important bills. Small business owners also tend to have a hard time keeping their credit scored high, due to unreliable revenue, which can result in late payments of bills.
Maxing out credit cards is another common way you can damage your credit score. It is a good rule of thumb to avoid exceeding half of your credit card limit, as approaching the credit limit may adversely affect your credit score, even if you pay your bills on time.
How Can I Fix my Score?
To successfully improve your credit score, the most important thing is to show lenders that you are a reliable borrower, able to pay back your debts in a timely manner. However, this is often far easier said than done – especially as a low score is often the result of financial hardship. Professionals at Credit Fix can help you develop a plan to improve our credit in the most effective and time-efficient way possible.
In general terms, these are the steps one can take to improve a credit score:
Pay your Debts!
This seems self-explanatory, but the first thing to do is begin a trend of consistent payments, moving towards paying off the outstanding debts that you may have accumulated. Even if you have a long history of financial mistakes, or missed deadlines, you can still improve your credit by implementing healthy financial practices.
It is usually a good idea to automate payments for all your bills, when possible. This means that your phone bill (as an example) will be linked to your bank account and will automatically be payed. This mitigates the possibility of missing a payment due to tardiness, or simply because you were busy, which could adversely affect your credit score. Automation is a great way to make sure that your score isn’t damaged by unnecessary late payments.
Get a Secured Credit Card and Keep Good Balance!
Monthly payments on a credit card are a good way to show lenders that you are a reliable borrower. As mentioned above, it is a good idea to limit your use of your credit card to half its limit. If your credit limit is $10000, you should not exceed $5000, at any time. If your credit score is poor, you should not get a credit card from the bank. Rather, keep a secured card in good balance for at least 12 months.
Get a Normal Credit Card.
By this stage, you will have at least a year of timely payments on a secured credit card. It is time to get a normal credit card from your bank. But remember – it is important to utilise the card responsibly, never approaching the maximum limit.
Having built responsible financial practices, you should keep an eye on your account at equifax/transunion, to make sure that everything is satisfactory and that there are no mistakes.
After bankruptcy, it should take at least two years to improve your credit to the point where you are ready to acquire a bank issued credit card. If you follow the above steps, you should slowly and surely improve your credit score. Professionals at Credit Fix can help expedite the process, as their expertise of the complex parameters and their values help them understand the practical steps that can be taken to achieve desired results efficiently. If you have any queries, we would be happy to assist you.