A good credit history opens the door to several financing opportunities. Not only is it easier to qualify for loans, it’s easier to get a low-rate loan. If you know the importance of an excellent credit history, you may come to the realization that your credit needs work.
The good news, however, is there are ways to reverse the situation and take back control of your credit. Here are a few tips to get your credit life on track.
- Don’t be afraid to use credit
If you have a low credit score and a terrible relationship with your creditors, you may feel it’s smarter to cast off credit forever. However, you have to use credit to rebuild your credit history. So instead of being afraid of credit, learn better ways to manage your credit history. A low credit score isn’t necessarily permanent. If you use credit responsibly by paying your bills on time and keeping your debt low, your credit score will shape up.
- Automate your finances
Your payment history makes up 35% of your credit score. So if you pay your credit cards, loans and other bills late, you’ll drive down your FICO credit score. To take back control of your credit, the first thing you need to do is start paying all your bills on time. You might have success by automating your bills. This can work if you typically forget due dates. Set reminders on your phone or tablet, or sign up for automatic bill pay through your bank. With bill pay, funds are automatically deducted from your bank account and sent to creditors on or before the due dates.
- Don’t share credit accounts
It doesn’t matter if it’s a spouse, sibling or child, sharing credit accounts can make it harder to take back control of your credit. Sharing an account can involve cosigning or applying for a credit card with another person, or adding someone as an authorized user to your credit card. In either case, the actions of another person can potentially cause further damage to your credit rating. If the other person uses credit responsibly, sharing a credit account can be beneficial—but there are no guarantees. If the other person has a spending problem or doesn’t pay bills on time, you might be held responsible for their actions, and their poor credit habits can hinder your progress.
- Charge only what you can afford
Some people have credit problems because they overcharge or over-borrow and cannot afford their monthly debt payments. You can’t do anything about debt you have, except pay it off. You can, however, resolve to make smarter credit decisions going forward and limit your number of new accounts. Develop a debt elimination strategy to pay down balances, which can also help your credit score. You can negotiate a lower interest rate with your creditors and reduce spending to create disposable cash for paying down balances. If you use a credit card, only charge what you can afford to pay off within a month.
- Know what’s on your credit report
Don’t assume that your credit report is accurate. Creditors can make mistakes when reporting information. Additionally, someone can open an account in your name without permission. This fraudulent information can appear on your credit report and lower your score. Visit annualcreditreport.com and order your free credit reports every 12 months.