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Earning credit is a necessary but difficult task. Getting approved for the apartment that you've been eyeing or saving for a mortgage to finally buy the home you’ve been saving up for can be a nightmare without credit.
If you have a low credit score, or no credit at all, it can seem like you’re doomed. You’re not.
There are plenty of easy ways to lower your credit score and get back on track. Bad credit doesn’t have to ruin your prospects. Like any adversity, though, you have to learn from your mistakes and respond accordingly.
Read on to find out 5 easy ways to increase your credit score and financial freedom.
Understand and Accept Your Credit Report
If you’re looking to solve a problem, it’s not wise to hope that it will magically disappear. In order to fix your credit score, you have to first know what’s wrong with it.
You may not even have bad credit. But you can’t improve your credit if you don’t know where you stand.
You’ll want to get your scores from the three big credit companies: Equifax, Transunion, and Experian.
Once you have your credit score, examine it thoroughly. In particular, you’ll be looking for late payments or unpaid bills.
Credit card companies are run by humans. Humans make mistakes. If you see incorrect information on your credit report, you can send a dispute and raise your credit score immediately.
Don’t trust that you’ll have bad credit forever. The hardest step is the first. Once you take it, everything gets easier.
Pay Your Balance on Time (Even If You Can’t Pay all of It)
Once you have your credit report and understand what you’re up against, start chipping away at it. And make sure you’re on time. Even if you only partially pay off your balance, it goes a long way to increasing your score.
Another important concept to keep in mind is that you don’t have to wait to make your payments on the due date. If you have 50 bucks extra in the middle of the month, put it towards your credit card balance.
Lowering your balance decreases your credit utilization percentage (CUP). It also increases the chances that your credit card company will send a lower balance to credit unions.
Since credit card companies only send one balance statement a month, paying two or three times a month increases the chances that your balance will be favorable.
Having a high balance statement will lower your credit score not only because of the balance itself, but also because of your high utilization percentage.
Say you have a maximum credit of $1000. If you have a balance of $300, you are utilizing 30% of your credit. Keeping your percentage under 30 is ideal. You don’t want to exceed 50%.
Instead of going out to dinner for the second time, consider putting that extra cash toward your credit card debt. A little goes a long way.
Increase Your Limit
Lowering your credit utilization percentage is an effective way to increase your credit score. However, you might not have extra cash to pay multiple installments toward your balance.
If this is the case, you can negotiate with your credit card company to increase your limit. Say you have a $500 balance on your card and your maximum is $1000. This means that your utilization percentage is 50%.
If you get your credit line increased to $2000 that decreases your credit utilization percentage by half, to 25%. That can reflect heavily on your overall credit score.
Open a New Account
If your credit card company is being stubborn and doesn’t approve an increase to your max, try opening a new account. This will increase your max credit limit and lower your credit utilization percentage.
Make sure that you only use the new account for purchases you can pay off on time. The last thing you want to do is open a new account, increase your CUP, and your debt.
Negotiate Your Balances
Low credit scores are usually a function of high balances, high credit utilization percentages, and outstanding debts. If you have outstanding debts and have been running from them for years, it may be time to face them.
Negotiating debt is an effective way to raise your credit score. Because of the nature of collections agencies, they are usually happy to settle for less than what you actually owe.
A couple tips to negotiating with creditors:
- Stick to your story- Don’t get frightened by the prospect of speaking to creditors. Be direct. Avoid long winded speech and don’t deviate from the reasons you’re giving them.
- Ask Questions- Knowledge is power. Take notes. Make sure you know all of your options so that you can choose what’s best for you.
- Know what you can afford before you agree to anything. Have a lump sum of money to offer.
- The best time to negotiate delinquent accounts is after five months. Creditors are usually more willing to strike deals because if they don’t, they send the debt to collections and lose money.
- Make sure you get an agreement in writing.
Lowering Your Credit Score is Easier than You’re making It
Because your credit score has so many implications, it can be scary. It’s easy to procrastinate with debt. Avoid putting off taking steps to increase your credit score.
There are plenty of resources out there to aid you along your credit journey. Just because you have bad credit, doesn’t mean you have to live with it.
Make payments on time. Make payments more frequently than they ask. Make sure you’re keeping track of your CUP and you’ll be well on your way.
You don’t have to feel like lowering your credit is an impossibility. Be positive, be consistent and you’ll be enjoying life as a home owner in no time!