9 Simple Steps Towards A Better Credit Score
Life happens. Lose your job? Miss a few credit card payments? Filed for bankruptcy? If so, chances are your credit score isn’t where it should be and that could end up costing you big bucks, now and in the future. But don’t fret! Read on to learn more about what you can do to get your credit score back into the green.
Why Do Credit Scores Matter?
Your credit score comes into play whenever you’re applying for a loan or a line of credit. Thinking of getting a new phone or renting that dream place, maybe applying for a new job? You guessed it, your credit score matters here too. Your credit score is used by lenders to determine whether or not they will offer you credit or a loan. Your score also helps establish the terms of the offer, for example the interest rate or down payment. A bad credit score can mean you’ll pay more on your car loan or be required to pay a deposit on utilities. The takeaway? It matters.
What's Good Credit? What's Bad Credit?
There’s no need to study to get a good credit score but practicing healthy purchasing and budgeting is essential in building a better score. A good credit score is generally around 700 or above while an excellent credit score is typically 800 or above. The average credit scores range between 600 and 750. Where does your score rank?
Here's How to Start Rebuilding:
1. Check Your Credit Score
Did you know that you’re entitled to a free credit report from each of the credit bureaus once a year? Take advantage of the free reports by visiting AnnualCreditReport.com (the official site used by Equifax, Experian and TransUnion and is authorized by Federal Law). Once you have your reports, check them all for errors and fraudulent accounts. Letting the bureaus know about errors can help bring your score up and remove what shouldn’t be there. Need help writing up a note to dispute an error? Click here for a free template provided by the Federal Trade Commission.
If you’re a Hughes member and you’re unsure what to look for in a credit report, Hughes has got you covered. At no cost to you, Hughes can analyze your credit report to detect fraud and advise on any credit score enhancement opportunities
2. Pay Off Old Debt
Your payment history accounts for about 35% of your credit score, which means if you have some unpaid debt, it’s time to start tackling it. If you find yourself unable to pay all of it at once, contact your creditors and try to work out a payment plan.
3. Pay Your New Bills on Time
Your goal here is to establish a trustworthy pattern of being able to pay your bills, which includes non-credit bills like utility and rent payments. Missing and late payments will be reported to the credit bureaus. If remembering is a problem, try setting up automatic withdrawals to help you avoid being late. Hughes make paying your bills easy with online bill pay, which gives you the "set it and forget" peace of mind.
4. Avoid Closing Credit Card Accounts
Closing your credit card to avoid spending might seem like a good idea but it can actually negatively affect your credit score. Having a long credit history improves your credit score; so if possible, try to keep your older accounts open to prove your reliability.
5. Lower Your Debt to Available Credit Ratio
Credit utilization makes up about 30% of your credit score. Credit utilization basically means the amount of debt you have versus your available credit. For example, if you have a credit card with a limit of $10,000 and you’ve used $7,500, you’re at 75% utilization. Maxing out your credit can negatively affect your credit score, so aim to keep your usage down to 30% or less.
6. Use a Secured Credit Card
A secured credit card is one of the quickest ways to rebuild a positive payment history. A secured credit card requires you to make a monetary pledge into a linked savings account as collateral. “A secured credit card reports to all three credit bureaus just like a regular credit card would. It’s not classified as a secured credit card so paying regularly and on time can make a big difference in your score,” says Hughes business representative, Dani Durnal. Stop by a Hughes branch near you and talk to one of our friendly Member Service Representatives today and ask about our secured credit card options!
7. Obtain an Installment Loan
Having a mix of credit accounts also affects your credit score. There are two types of accounts: revolving and installment. A revolving credit account is like a credit card, where you’re given a certain limit. Revolving accounts can typically lower your score while an installment account can potentially raise your score. An installment loan is like an auto loan or mortgage loan that comes with a fixed term. Think about what you can manage. Start with a small installment loan. Having an installment loan adds diversity to your account types and can help boost your credit score.
Hughes offers a one low rate on auto loans. When Hughes gives you a rate, it’s not “as low as.” We don’t switch interest rates based on your credit score, just one low rate for all approved applicants.
8. Practice Good Financial Habits
Patience is key when rebuilding your credit. It can take 2-3 months or longer before you see an improvement in your credit score. In the meantime, make sure you’re living within your means and building up an emergency fund. Again, life happens and this time, you want to be prepared so you don’t fall deeper into debt.
9. Avoid Credit Repair Scams
You’ve probably seen the late night commercials from companies promising to fix your credit and fast. Sounds too good to be true, right? It is. These companies typically collect social security numbers and sell them, putting you at an even higher risk for bad credit and fraud. They’ll often provide you with what they call a CPN (credit profile number) but these are not substitutes for your social security number and using a number other than your own can possibly result in fines or even prison time.
Just like losing weight, there’s no shortcut to the perfect credit score. Fixing your credit will take time but stick with it! You’ll find it was all worth it when you’re saving hundreds or thousands later on.