Credit is almost essential nowadays. You may need good credit to get a student loan or a vehicle loan. A home loan also requires excellent credit.
You may even have difficulty obtaining a credit card if you already have a poor credit history. That poor credit can stall many of your major life plans if you let it.
However, there are techniques you can use to try and improve your credit situation. Here are 9 ways to try and repair your credit.
1. Understand Your Credit Score
There is a certain scale used to calculate credit scores. If you want to improve your credit score, you must first understand that score.
Know exactly what your current credit score means and how many points away from a good credit score you are. Then, you can create a plan to help you get your credit score back on track.
Here is an overview what each credit score usually means to lenders, banks, and other financial institutions:
- A score of 629 points or less means you have poor credit.
- The range of 630 to 689 points is considered fair credit.
- Good credit is represented by a score of 690 to 719 points.
- The benchmark for excellent credit is a score of at least 720 points.
2. Pay Your Bills in a Timely Manner
Late bill payments can cause your credit score to plummet. However, the reverse is also true.
When you make repeated timely bill payments, your credit is likely to improve over time. The exact amount of time that may take is unpredictable.
It depends on factors like:
- Frequency of past late payments
- How late each payment was
- How recently the most recent late payment occurred
Generally, it takes longer to recover from multiple late bill payments, even if you establish a recent history of prompt payments. A single late bill payment may not change your credit score much, if at all.
You may also find it easier to repair your credit with timely bill payments after missing one when the missed payment was made within 30 days after the due date.
3. Take Advantage of Good Credit Utilization
Credit utilization is how much you use the credit lines you have.
As an example, let’s say you have a credit card with a $5,000 limit and a balance of $2,500. That is 50 percent credit utilization of that credit card.
Credit bureaus look at your complete credit utilization across all lines of credit you have when determining your credit score. You should try and maintain credit utilization of 30 percent or less on each credit card you have to get the greatest credit score benefit.
You can do so by using the following techniques:
- Only using credit cards for emergencies
- Paying down existing high credit card balances as quickly as possible
- Requesting increased credit limits to lower usage percentages
4. Request Credit Repair Help from a Trusted Loved One
A loved one with good credit may be able to help you repair yours faster. He or she only needs to add you to his or her existing credit card as an authorized user.
Then, the credit card account (which is already in good standing) would show up on your credit report soon after.
For the best results, do not actually use your loved one’s account to make your own purchases. Otherwise, you may find yourself in debt to your loved one and negatively impacting his or her credit score along with your own.
5. Diversify Your Credit, But Do it Slowly
A diverse credit history can help you improve your credit score.
Credit diversity means having several types of credit lines open at once, not just credit cards. For example, a home mortgage, car loan, and credit card all maintained and paid on time on a regular basis shows credit bureaus your credit diversity.
If you do not have credit diversity right now, work toward achieving that goal eventually, but do not open too many lines of credit right away. Starting many new lines of credit at once can cause your credit score to drop instead of improving.
6. Do Not Let Old Credit Card Accounts Close
There is a term in credit repair called “credit age” that refers to the average length of time your credit accounts have been open. An older credit age provides more potential for an improved credit score.
Avoid shortening your credit age unnecessarily by keeping older credit card accounts active on a limited basis. Spend lesser amounts on them and pay them off immediately to avoid account closures for inactivity.
7. Open New Credit Card Accounts Cautiously
It might seem sensible to open new credit card accounts when you want to start establishing a positive credit history. However, each credit card for which you apply triggers a credit check.
Repeated credit checks in a brief time span can cause credit score deductions of up to five points per check. Additional point loss can also occur because opening new accounts reduces your average credit age.
Only apply for a new credit card if you feel you need an extra line of credit for a specific purpose.
8. Watch for Credit Errors
Another issue to watch out for when trying to repair your credit is any type of credit error.
Credit errors can manifest in several ways. For instance, you might spot one when you do a free annual credit report check through a major credit bureau.
You also might find an error on a specific statement from a lender, such as your bank or credit card company. As soon as you find an error, report it to the credit bureaus and your lender.
If you get it corrected quickly, it may not adversely affect your credit.
9. Avoid Hiring Credit Repair Companies
Credit repair company employees are trained to help you identify and dispute errors on your credit report. However, you can usually do that yourself by simply paying attention to your bills and credit reports.
Often, you can get errors resolved faster without involving an intermediary from such an agency. When you avoid hiring a credit repair company, you can also save money.
You can put that money toward paying down your debts and improving your credit score.