Having a good credit score is important if you want to get a bank loan, a credit card, buy a house, or even save money on your car insurance. Sometimes employers even check credit scores before hiring an applicant, which makes good credit important for getting a job.
The challenge with having bad credit is that you can’t make it disappear overnight. It can take 7-10 years for certain things to be removed from your credit report, and actively repairing your credit requires some effort. If your goal is to improve your credit report, try the following tips.
1. Start by removing inaccurate information
The first thing you need to do is get a copy of your credit report and review it to make sure everything is accurate. You would be surprised to learn how many people find either outdated or inaccurate information on their credit report. According to the data, one out of every five Americans finds at least one error on their credit report. Worse, one out of every 10 have errors that will impact their credit score.
If you happen to have a serious error on your credit report, it can prevent you from getting a loan and might even increase your interest rates on loans you are able to get. Your first point of recourse is to contact the major credit bureaus to request removal of the inaccurate information. By law, they are required to remove anything they can’t verify as accurate. However, that doesn’t always happen. Many people get their valid requests ignored and even rejected.
When that happens, your next course of action should be to contact an FCRA lawyer to get inaccuracies removed. The Fair Credit Reporting Act requires consumer reporting agencies to collect and maintain accurate, complete, and up-to-date information.
Reports aren’t always perfect, but reporting agencies have a legal obligation to correct inaccuracies so don’t let them slide.
2. Use a credit-building company
Some entities, referred to as neo-banks, have programs to help people build better credit with special secured credit cards. One of the most popular options is a credit-building card through a company called Chime. The company will give you a secured credit card with a limit based on your income, and they will report all on-time payments to the three major credit bureaus.
However, you can’t add funds on your own. You are required to authorize a portion of your paychecks to be deposited directly into your Chime account. This means you can’t use their services if you don’t receive regular paychecks from an employer. If you’re a freelancer getting paid through PayPal or Payoneer, for example, you won’t qualify.
3. Get a secured credit card through your bank
A secured credit card issued by your bank should be an option for you, even if you don’t get regular paychecks from a job. By going through your existing bank, it won’t be too hard to get approved. They will base your credit limit on your income, but even people who don’t make much money can usually get a secured card with a lower limit. Limits often start at $300.
The way a secured credit card works is pretty simple. Say you’re approved for a card with a $500 limit. You’ll give your bank $500 up front as collateral. Then, you’ll use your secured card for purchases and pay the bill at the end of each billing cycle, which is typically monthly. Make your payments are made on time and in full so you don’t carry a balance. Secured cards tend to carry interest rates of up to 24.99%, which is much higher than unsecured cards.
4. Pay all bills on time and in full
Your payment history makes up 35% of your FICO score, which means it’s the single largest factor in determining your credit health. Whether you have a secured card or not, it’s crucial that you pay all of your bills on time and in full. It’s not just about avoiding high interest fees – partial and late payments will look bad on your credit report.
5. Keep a low card balance
Credit utilization ratio is another major component in determining your FICO score. At 30% of your overall score, it’s crucial that you maintain a low balance on any credit cards you have by not maxing out your card and paying off your balance each month in full.
You can repair your credit with a little effort
Having good credit makes it easier to get loans and credit cards, but it will also help you get approved for renting a home. If any of these things are important to you, start repairing your credit now and you’ll be fast on your way to having better credit.