If you are someone that is grappling with no credit or poor credit, it is important to know that improving your credit history is a must – even though it may seem like a challenging endeavor. In this brief guide, we will outline some basic and not-so-basic strategies for going from bad credit or no credit to good credit. Continue reading to learn more.
1. Get Your Free Credit Report
The first step to recovering from bad or no credit is to get your free credit report. This will outline all of the loans that you have, all of the credit cards that you have had, how long those accounts have been open, and how much is still owed. It will also include information about loans and credit cards that you have defaulted on, court judgments that have been placed against you, and any debt collections that have been utilized in an attempt to collect a debt from you.
You may obtain this free report from AnnualCreditReport.com. Once you receive yours from the three reporting bureaus, you should review all of the information on it, including your credit score. The three reporting agencies are TransUnion, Experian, and Equifax. These agencies use the information contained within your report with them to generate a specific credit score. This score is typically used by lenders, potential employers, and landlords to determine your creditworthiness.
You must evaluate the credit reports from all reporting agencies to make certain that all of the information on your report is correct. If an error is present, it could have a detrimental impact on your quality of life. If you see an error, you have the right to dispute that error and any other inaccuracies that you stumble upon. If left on your report, it could impact your ability to do just about everything – get a job, rent or buy a home, get approved for a loan, buy a vehicle, or even open a checking or a savings account.
2. Improve Credit History
The next step to going from poor or no credit to good credit is to improve your credit history. This is a step that involves many additional steps. Below, we will outline these:
- First, always make certain that you pay your bills on time. This will strengthen your credit score. Many banks offer online bill pay services that you may use to set up automatic payments. This type of service may be used to pay loans, credit cards, utility bills, mortgage, rent, and bills that are similar in nature.
- If you have current debt – such as loans and credit card bills – you should pay down those balances and make sure they are not at their limits. If you allow the balances to go towards the limits or over the limits, it could quickly negatively impact your credit score. You should pay off the dent with the lowest balance first and then pay the next debt with the lowest balance after and so on and so forth. Many elect to pay off the debt that has the highest interest rate first. This will allow you to have your money pay down the actual debt first and not just the interest.
- The third bit of advice that is productive is helping paying down your credit is to keep your credit card accounts open and active even if you have paid off the balance. This will help increase the amount of time that you have a credit history. By having a longer credit history, you will have a better credit score.
- You should always avoid submitting many applications for credit at once. This pings the credit reporting agencies and will have a negative impact on your overall credit score.
- If – for some reason – you have issues paying your creditor, you should contact them right away. There may be some sort of solution that they are able to offer before the missed payment affects your credit score. It is always better to reach out to a creditor than to try to ignore them.
3. Don’t Fall for Credit Repair Scams
There are many credit repair companies out there that are scamming consumers. They provide a promise that they can remove the accounts from your credit report that are resulting in a bad credit score in a fast manner. It must be understood that no solution for bad credit is quick and fast. It took time to cause bad credit and it will take a while to fix the bad credit. There are companies out there that do offer solid credit repair services. One such example is Green Path.
4. Keep Balance Utilization Down
If you are trying to improve your credit score, it is important that you keep your credit card balances down. It is best to keep utilization below 30%. For maximum scoring benefits, keep your utilization down to 9% or lower. You may keep it lower by paying the balance that you carry on it earlier than the closing date of the associated statement. You may also make several payments a month, or request your line of credit to be increased. Additionally, you can keep cards opened that you are not using. All of the free space opened on each balance will play a role in averaging your utilization.
- To help boost your credit score, you should place paying on time a priority. This accounts for approximately 35% of your total FICO score. You may set up reminders in order to pay your bills on time or set up the payments on automatic payment. This way, you will never forget to pay any of your creditors.
- Diversify Credit Products – If you have an interest in improving your credit score, you should diversify the credit products that you have. For example, if you have a mortgage, a car payment, an installment loan, and credit cards, that variety will actually improve your credit score.
- Another way to boost up your credit score is to become an authorized user. If you have a family member that has a credit history that includes a good payment history, becoming an authorized user on that account could help you experience a boost to your own credit score.
What Does the Credit Score Mean?
A credit score is a numeric value from 300-850. It represents the risk that you pose to lenders. It also helps in predicting just how likely you are to repay the debt that they extend to you on time. Higher scores – those above 700 – indicate that you are low risk. This type of score results in ease in getting approved for loans, the best of the best when it comes to interest rates, and even higher limits being given on credit. The credit score is calculated by the payment history, the credit age, and the level of debt that is currently displayed/present in the credit report.
What Do the Numbers of a Credit Score Mean?
As mentioned previously, the credit score goes from 300 to 850. The following outlines what each group of numbers mean as it pertains to your credit report:
- 300-649 – This is high risk and the person with this score will have issues getting credit.
- 650-699 – This is average credit and the person with this score will often find that they have higher interest rates IF they get approved for any type of credit.
- 700-749 – This is considered to be good credit. In most instances, the person seeking credit products will be approved.
- 750-850 – This is considered to be excellent credit and the person with these scores are easily approved and usually get the best rates.
What Factors Influence the Credit Score and What Percentage Do They Influence?
While we have touched on factors that impact the credit score through this guide, in this section, we are going to pinpoint those factors exactly and put the percentage at which they influence, too. These are as follows:
- Amount Owed – 30% If you lower the amount used on your credit card or decrease your debt to limit rate, your score will increase.
- Credit Mix – 10% It is ideal to have a mx of credit products on your credit report – such as loans and credit cards.
- Length of Credit History – 15% If you have a longer credit history, it indicates that you have a lot more experience with credit.
- New Credit – 10% if you have a lot of inquiries on your report in a short amount of time, it can hurt your credit report.
- Payment History – 35% If you have a good payment history, it will contribute to a good credit score.
Why Does a Good Credit Score Matter?
Lenders, landlord, insurance companies, utility companies, employers, and more may use your score to determine eligibility and if you are eligible for a credit product, they will be able to determine the rates that they will have you pay. Your credit report must be accurate and reflect in a positive manner on your in order for you to maintain a healthy financial reputation. If you would like assistance with your finances, visit us here at Somerville Bank today at one of our many locations: https://somervillebank.net/locations/
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