Ways to Jump-Start Your Credit Repair
Carrying credit card debt is extremely stressful. It can hurt your credit
score, affect your ability to procure loans, and, in extreme cases, even drive
you into bankruptcy. Unfortunately, having a lot of credit card debt is a
reality for many Americans.
According to NerdWallet's 2016 American Household Credit Card Debt Study,
the average household in the United States that carries credit card debt has
$16,748 worth of credit card debt and pays $1,292 in credit card interest per
year.
Thus, it's not surprising that many people's credit scores could use
improvement. The following 10 methods can help you jump-start your credit
repair process and reclaim your financial freedom.
1. Know What Makes up a Credit Score
Your credit score is based upon your credit history, with a particular
emphasis on your payment behavior. In order to improve your credit score, it's
critical to understand how it's calculated:
Payment history, 35%
Amounts owed, 30%
Length of credit history, 15%
Credit mix in use, 10%
New credit, 10%
1. Know What Makes up a Credit Score
Your credit score is based upon your credit history, with a particular
emphasis on your payment behavior. In order to improve your credit score, it's
critical to understand how it's calculated:
Payment history, 35%
Amounts owed, 30%
Credit mix in use, 10%
New credit, 10%
3. Set up Payment Reminders
Since payment history makes up the largest percentage of your credit score,
it's important to maintain good payment habits. Chances are that every creditcard bill you have is due on a different day of the month. This can become
confusing and cause you to miss payments, which in turn damages your creditscore. Utilize the reminders available from your banks and card issuers to help
ensure you pay on time, every time.
You also may want to consider setting up automatic payments that will take
your payment out of your bank account every month. Then be sure the money is in
your account at that time to pay at least the minimum amount due. While it's
better to pay more than the minimum due, an automated minimum payment delivered
on time will keep your account in good standing.
You may have heard that you can let debts go into collections and then
negotiate with agencies. However, this practice will leave a derogatory mark on
your credit score, and can take seven or more years to be erased from your
report. Coming back from that mark is tough and will affect your ability to get
loans during that time.
The amount of debt you have relative to the amount of credit you have
available is part of the "amounts owed" calculation. If you are not
able to manage your credit card debt on your own, it may be time to get help.
Rather than risking additional damage to your credit score, you may want to
speak with a reputable credit counselor.
A credit counselor can educate you on best practices for credit cards and
show you how to avoid getting into more debt. He or she can also assist you in
exploring debt consolidation options so you can pay your cards off in one
monthly payment with a lower interest rate.
7. Do Not Close Existing Accounts
When determining your credit score, the credit bureaus look at how long
you've had all of your credit cards. If you close accounts, especially ones
that you have been responsible with, this is going to have a negative impact on
your credit score.
8. Do Not Irresponsibly Open New Accounts
Taking on new credit cards in order to move your debts around may not
reflect well on your credit score. Applying for new credit means a hard inquiry
is made, your score temporarily may fall, and your plan could end up
backfiring. Lenders could think you are desperate or not as creditworthy as you
actually are.
9. Utilize Different Types of Credit
If you need to do a major home repair, it may be better to take out a loan
than to apply for another credit card. It is considered healthier for your
credit score for you to have a mix of loans and credit cards rather than to
just carry credit card debt.
10. Try a Balance Transfer Card
Paying down debt is great for you and your credit score. If you can trust
yourself to pay a new bill, look into getting a balance transfer card. This
strategy works best for responsible individuals whose current interest rates
are too high. You can sign up for the card, pay a small fee to transfer your
debt, and have a 0% APR for a set period of time — in some cases, up to 18
months. The key to this strategy, however, is to pay off the debt during the 0%
APR period.
Depending on your situation, repairing your credit may take months or
years, but it can be done. Create a plan and stick with it, and you'll soon
have better credit — and less anxiety.
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