If you’re an adult over the age of eighteen, chances are you’ve heard of credit scores. You might not be entirely sure how it works, or what exactly it is, but you know that it can have a huge impact on your financial life. Maybe you’ve been turned down for a loan on a new house, or just can’t meet the minimum financing requirements for that snazzy new car you’ve been wanting for so long.
Yes, credit scores can be confusing and even downright frustrating at times. The feeling of being denied a loan or financing plan can cause you to fall into a deep pit of despair, as you look back on those ill advised credit card purchases with chagrin. If this sounds like you, don’t worry; there’s still hope! With a little smart financial maneuvering, you can be back on track to having great credit score in no time.
Now don’t get us wrong: this won’t be a walk in the park. A credit score is an easy thing to ruin, but a challenging thing to rebuild. It’ll take a lot of hard work, and more than a little discipline, determination and self denial. If you want that fancy car, that new house or that sleek new phone, you’re going to need a good credit score, and that is going to require a lot of effort on your part.
If you’re ready to build your credit, you’ve come to the right place. In this article, we’re going to give you some great starting points to begin your journey towards a better credit score. These might not be the answer to all your credit score woes, but they’ll certainly help you get closer to being on the right track. Let’s get into it!
Get a handle on your spending
For those of you who have done a bit of research, this one will come as no surprise. For those of you who haven’t, let us be the first to tell you: unchecked spending is the death of good credit scores. If you can’t get a handle on your spending, you’re unlikely to ever have a good credit score.
Fortunately, this doesn’t have to be as difficult as you might think. The first thing you’ll want to do if you’re suffering from low credit is get on a budget. Figure out how much money you earn each month, and then figure out how much you’re spending. If the amount you spend each month is more than you earn, chances are the difference is hurting your credit score.
To remedy this, cut out as much unnecessary spending as possible. Video streaming services like Netflix, Hulu and Amazon Prime Video are convenient, but you’ll find that these services can take a sizable chunk out of your monthly income over time. Oftentimes, cutting certain things out of your monthly routine can even lead to a healthier lifestyle overall.
Things such as quitting smoking and heavy alcohol consumption can lead not only to an improvement in your credit score, but a healthier lifestyle as well. Fast food is another thing that can be eliminated in favor of cooking at home, which will leave you with a noticeable improvement in fitness and general quality of life.
Pay off debt
If you spent liberally in your younger years or are currently a heavy spender, chances are you’ve racked up some debt. Credit card debt, bank loans and payday loans are all among the many types of debt you can accrue over time, and these are proven, credit killers. If you want to build up your credit score, paying off debt is a must.
Now, to do this, you’re going to have to cut back on spending using the previously detailed methods. Obviously, to pay off debt you’re going to need disposable income, and the only way to get this is by reducing the amount of money you spend on a monthly basis. Regardless how you cut spending, paying off debt is sure to improve your credit.
Once you’ve paid off your credit card debt (the most common type of debt, and the most devastating to your credit score), you’ll want to keep the utilization ratios on your credit cards low. Figure out how much you spend each month across all your credit cards, and endeavor to keep your utilization ratio below 30%. This will lead to a marked improvement in your credit score.
Pay your bills on time
Another crucial step towards improving your credit score is paying your bills in full, on time. This is one of the biggest factors contributing to your overall credit score, and improving in this area is sure to lead to a positive change in your credit score. Much like the previous entry on this list, paying your bills on time ultimately comes down to proper money management.
On a month to month basis, bill payment should take precedence over everything else. Phone bills, utility bills, internet bills and any other type of recurring monthly payments are a huge factor in determining your credit score, and thus should be prioritized above every other expense. If you want to improve your credit score, pay your bills on time.
Don’t close old credit cards
This one might seem a bit counterintuitive, but it’s always a good idea to avoid closing credit cards you don’t use. Why? Two words: utilization ratios. As detailed above, your utilization ratio is calculated across all of your active credit cards, and having minimal monthly expenditures on an old card will help you keep your utilization ratios down.
Avoid opening new credit cards
Every time you apply for a new credit card, an inquiry into your credit is made. These inquiries, known as hard inquiries, stay on your record for two years, and having too many of them can negatively impact your credit in a number of different ways. In short, don’t apply for new credit cards; simply find ways to cut back on spending, or if absolutely necessary use your existing credit cards.
How long does it take to rebuild your credit?
The amount of time it will take to rebuild your credit score will vary, depending on how severely damaged your score is, and how you accrued the damages. Delinquencies (missing credit card payments for two consecutive months) stay on your record for seven years, while inquiries such as those acquired by applying for new credit cards only last two years.
It may take years, but by following the steps listed above, you can feasibly repair a great deal of damage to your credit. Sure, it will take a whole lot of discipline and hard work, but it’s very doable. If you’re willing to make the necessary sacrifices, you will likely be able to repair your credit in seven years or less.
Conclusion
If you are in despair because of your bad credit situation, there’s light at the end of the tunnel. You can climb out of the hole. As we’ve reiterated time and time again, this is something that will take a lot of work, but it is doable. With perseverance and a can-do attitude, you can get out from under the burden you placed on yourself with unwise financial decisions. Keep it up; you’ve got this!
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