(Newswire.net — August 19, 2020) — The purpose of a credit score is for lenders to determine if you are the right candidate to extend credit. However, a poor credit score will label you as a credit risk and will make it very challenging to get a loan. Even if you are offered credit, you will likely pay higher charges compared to someone with a good credit score. Depending on the scoring system, credit scores can range from 300 to 850 points. The higher the number of points, the better your credit score. However, it is up to the lender to decide upon the bar for a good credit score. The good news is that even if you have a bad score, it does not have to follow you around for the rest of your life.
Mistakes That Hurt Your Credit Score
You want to ensure that you avoid some common credit mistakes that are described below.
- Late-Payments
Your payment history makes more than 1/3 of your credit score. So, if you want a good credit score, make sure you pay your bills on time.
- Not paying At All
This is much worse than being late. With each passing month, you are one month closer to having your account charged off.
- Defaulting on a Loan
A default shows that you have not fulfilled your end of the loan contract which says you chose not to pay back the money. This really cannot make anyone trust you.
- Filing Bankruptcy
Bankruptcy will devastate your credit score, and it should be your last resort.
- Getting a Judgment
A judgment shows that you not only avoided paying your bills, but the court also had to get involved and force you to pay the debt. Befriend your utility bills as you can significantly reduce them by making your lifestyle more energy-efficient and just learning more about your electricity consumption. With so many providers out there for each service area, Eversource rates can vary greatly. By getting the one that suits your needs best, you can trim your electricity bill by several hundreds of dollars on an annual basis.
- Maxed Out Credit Cards
This is perhaps the most damaging thing you can do as this means your credit utilization is already 100 per cent. It will help if you keep your debt low.
- Closing a Card That Still Has a Balance
When you close a credit card that still has a balance, your credit limit drops to $0, but your balance remains the same. This makes it look as if you maxed out your credit card.
- Closing Old Credit Cards
Available credit and account history factor in your credit rating, even if you pay off a credit card, you are usually better off keeping that card open.
- Applying for Several Loans Within a Short Period
Credit inquiries account for 10 per cent of your credit score, so try to keep them to a minimum.
Tips for Rebuilding Your Credit Score
It likely took years to damage your credit; therefore, rebuilding it will also take time. The first step is to stop making the most common mistakes described above as you need to stop doing whatever you got a poor credit score in the first place.
- Order a credit report
You can order one a year from Experian, Equifax, and TransUnion. Because you can order one from each credit bureau a year, you can order one every four months. While the credit report is free, a credit score can come with an additional cost. However, there are many money management apps, credit cards, and credit monitoring sites that offer consumer credit scores free of charge.
- Hunt for errors
You can file a dispute and send to one of the above three credit bureaus.
- Stick to Your Repayment Plan
Sit down and solve your total debts. Account for fees and interest rates. Please choose whether you will tackle lowest balances or attack highest interest rates first, make the best payoff strategy and stick to it.
Conclusion – it will take time before stars can realign
Perceive time as your friend as your adverse history will lose its value over time until it eventually falls off of your credit reports. Financial health does not come overnight or in a month, but all you need to do is keep in mind that you are making a long-term investment in yourself. Just do one thing a day, and you will improve your finances over time.