Credit repair is not a piece of cake but there are things you can do to bounce back from your past credit mistakes.
Here are some credit repair tips to improve your credit score.
Understand how credit score works
The first tip to repairing your credit is understanding what your credit score actually is. When financial institutions evaluate your creditworthiness they usually pull a credit score to decide whether or not they have to extend you credit. Although the actual credit score differs depending on the credit bureau there are key credit-influencing factors commonly used in calculating your credit score.
- Your open credit card utilisation rate or the percentage of your available credit compared with how much you have used up in a given period.
Let’s say, you have 5 open credit cards, each with $500 credit balance and $1000 credit limits. The credit bureau will take your total credit card balances and divide it by the total credit card limits, resulting in a utilization rate of 50% for that period.
- Your percentage of timely payments. How often you make payments on time. Remember that missing one or two payments could have a significant effect on your score.
- Age of credit: What is the average age of your credit cards and debts? A lengthy credit history provides lenders with more information to assess your creditworthiness. It also gives them a snapshot of your ability to manage your credit. So, if you’re thinking about closing your oldest credit card account—think again. Doing so may shorten the average length of your open credit lines and lower your score.
- Credit mix: Your credit mix is the total of your number of credits. These may include credit cards, mortgages, lines of credit and auto loans. A good mix of timely paid credit accounts will lead to a better credit score.
Don’t apply for too much new credit at the same time
Each time that you apply for new credit, your credit file will be analysed. For every report that is accessed, your credit report is noted with an inquiry. Every transaction on your credit report may decrease your credit score by 5 points. So if you already have bad credit AND you’re looking for new credit, schedule credit applications over time. Don’t overdo it within a specified period.
Pay your bills at the right time
Did you know that your payment history accounts for 35% of your credit score? A missed bill payment has a tremendous effect on your credit score. Missed payments also influence your interest rate and late fee accrual. A key tip in credit repair is to manage your bills at the right time. One of the best ways to do this is to set up automatic payments. Of course, you need to be wary that bills will be coming out automatically. Budgeting will help you keep track of these payments. Paying your bills at the right time will show lenders that you are proactive and responsible with your finances.
Use your credit cards wisely
Credit cards are easily accessible. It is important to limit your spendings with credit cards. Set limits, budget and monitor everything that you purchase. Remember that ‘credit utilization’ accounts for 30 to 35 percent of your overall credit score. If you find that your credit card debt has spiraled out of control, there are loan types that can help. A debt consolidation loan, for example, can help you pay off any existing debts. By consolidation your debt into one place, you are simplifying your debt by making it easier to manage your payments. In saying so, you will still have the payments to make which will mean that you have to continue budgeting wisely.
Understand your limits
It has never been easier to purchase something. The iconic allows you to pay for an item of clothing or a shoe and have it at your door within 3 hours. Uber eats now means that you can have food delivered to your doorstep within as little as 10 minutes. Zip pay is enabling individuals to book a laser hair removal appointment and pay for it later. With all these emerging technologies, consumers are spending more. Technology has made consumer spending convenient and appealing. This has come with a problem. We are putting ourselves in debt and impacting our credit score. It is important to know your limit. Taking on too much debt or applying for another credit card may push you over the line. Evaluate your financial situation. Assess your spending capabilities and question whether you can comfortably afford whatever you are thinking of buying.
Use a credit repair tool
These help to remove inaccurate, outdated and damaging information off your credit file. It is not impossible to find material errors on your credit report. Check your credit report regularly to ensure accuracy and remove entries that lower your score. Credit repair means fixing your bad credit. Dispute the errors on your credit report with each of the credit bureaus. File a formal dispute with a detailed explanation of the error and supporting documentation. If they decide that your claim is valid, your credit file score will improve shortly. Clean Credits DIY credit repair tips can help you identify errors and inaccuracies on your credit file.
Credit repair is not a lonely process
Clean Credit has helped thousands of Australians repair their credit rating. We have assisted customers with defaults, black marks, and court judgments across Austalia. You are not the only person who has made past credit mistakes. Yes, they may have cost you higher security deposits and interests on loans, but what is important is that you start working towards fixing those mistakes. With responsible budgeting and a clear mindset; you can quickly take control of your finances and improve your credit score.