The Step-By-Step Guide to Improving Your Credit Score
Your credit score is used to determine your worthiness of credit in the eyes of banks and credit lenders.
This can have a huge impact on your interest rates and ability to obtain a line of credit in the first place.
While there are some great options for short term loans for bad credit, for the most part, your credit is going to impact your ability to get a loan too. This could be a setback in anything from getting student loans to buying a car or house.
If your credit is less than perfect, don’t just wait around and hope that it gets better. Here are the steps you need to take to improve your credit score.
1. Know what a credit score is
There are a lot of misunderstandings surrounding credit.
More than half of adults think their credit score can be found on a standard credit report — it can’t, by the way.
According to Nasdaq, “Your credit report is a compilation of credit-related information; your credit score is a three-digit number distilled from the report data.”
Meaning that checking your credit score isn’t as simple as just looking over your credit card statement every month.
2. Know what your credit score is
It’s all too easy to put off looking at your credit score, especially if you know your spending habits are less than perfect.
There are lots of options for checking your credit score that range from free one time services to those that require you to pay a fee or sign up for an account.
While researching the best option for you takes time and a bit of patience, it’s worth it, in the end, to know where you stand.
3. Dispute any errors you find in credit reports
Your credit reports include important personal information about you, run-ins with the law, and fanatical stability. This information can be sold by credit reporting agencies and used to evaluate your worthiness for everything from employment to insurance.
If you find mistakes on your credit reports, they could potentially keep that dream house out of reach or make that new line of credit impossible to obtain.
Be sure to report any mistakes to the Federal Trade Commission so corrections can be made.
4. Focus on collection accounts first
Now it’s time to get the money rolling and start chipping away at those unpaid bills and debts.
First, focus your attention on any bills that are in collections.
If a bill makes it to collections, it’s going to have a negative impact on your credit score, but you can reverse this to a certain extent by paying it off.
5. Pay off debts closest to your credit limit
It’s a common misconception that simply paying on time is good enough to earn you a good credit score.
Unfortunately, it’s more complicated than that.
Having a balance that’s near your credit limit can negatively impact your credit score.
Whenever possible, keep your balance around 35% of your limit.
6. Set a budget and stick to it
Budgeting is key to getting yourself out of a bad credit slump and staying out.
Set a budget that accounts for all monthly expenses and allows you to make payments toward debts and credit balances on a regular basis and, if at all possible, ahead of schedule.
If you don’t know where to start, look at bank statements and credits card reports from the last few months to see where you’re spending your money and where you can cut back.
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