What NOT to Do To Increase Your Credit Score
A bad credit record can cause multiple problems. With a low credit rating, you diminish your chances of being approved for new credit or loans. If you are approved, you are liable to face extremely high interest rates.
A bad credit history can also prevent you from being approved for a cell phone contract or from renting an apartment; there are also some jobs that require you to have a good credit record. The good news is that you can improve your credit rating, but it is going to be a slow and tedious process. There is a strategy to credit repair, and if you take incorrect actions, you can actually lower your credit score. Here are some tips on what NOT to do when trying to repair your credit history.
1. Apply for Multiple Accounts
Despite the fact that new credit plays an important role in keeping your account active, applying for too many accounts, particularly in a short time span, can affect you negatively. Every credit application made places a hard inquiry on your file, and having multiple hard inquiries can lower your score from this risky behavior.
2. Co-sign a Loan
Unless this is your son or daughter, or other close family member, and you are okay with potentially ruining your credit score for their benefit, do not become a co-signer. Even if you are confident that the individual will be able to make payments on a loan agreement, it is best to refrain from becoming a co-signer. When you vouch for someone else’s loan, the following occurs:
- Their account is placed on your credit file.
- In certain instances, it increases your credit utilization ratio.
- If the individual is unable to pay, you will have to take responsibility for the debt.
- If no payment is made, your credit will suffer.
Improving your credit is and should be an individual process; you can reduce the risk of further damaging your account by simply saying “NO.”
The bottom line is this. Repairing your credit can prove very challenging; the amount of time that it takes for you to recover is dependent upon the severity of the damage. However, you shouldn’t allow your current situation to have a negative effect on your long term future. Ensure your financial security by taking a proactive position.
3. Maximize your Credit Limit
When you max out your credit, your credit utilization ratio is affected. In fact, you don’t want your credit utilization ratio to be anywhere near 100%. If your ratio is high, it implies that you are a risk, and this will have a negative effect on your credit score.
To be safe, you should aim for a 25% or lower ratio. For example if your credit card limit is $5,000, make sure that you keep a balance of $1,250 or less.
4. Close your Old Accounts
Age is a virtue in the credit scoring world. While you may think that it makes sense to close any accounts that you are not using, this can actually damage your credit score as it will increase your credit utilization ratio.
For example, you might have two credit card accounts and both of them have a $10,000 limit. You don’t use one of the cards and it has a zero balance. The other card has a balance of $3,200. Since you don’t use the card with the zero balance, you choose to close the account meaning that you lose $10,000 in available credit which will raise your utilization score from 16% to 32%. This spike in your credit utilization will lead to a lower credit score. Keep your accounts current and active to assist in improving your credit score.
5. Spend without a Budget
Credit repair begins with budgeting! By creating a budget you are able to identify:
- Saving and spending habits
- Your overall progress
- Areas that need to be improved
The above three points can hurt or help your credit depending on how they are monitored. In order to create an effective budget, you will need to keep track of your monthly expenses. Check out our guide on how to budget effectively.
6. Ignore your Credit Report
A study conducted by the Federal Trade Commission discovered that one out of five consumers had at least one inaccuracy on their credit reports. Even the smallest mistake can have a negative effect on your credit score.
People who know their FICO scores are at an advantage when it comes to obtaining the best credit terms for them. Rather than searching for ways on how to fix your credit report, take an active role and review your credit score on a regular basis.
7. Miss Payments
When you are trying to rebuild your credit, missing a payment is going to have a negative effect on your credit score, and when you are in the rebuilding stage you can’t afford to have such blemishes on your record.
If you can’t afford to pay off the full balance, make sure that you at least make the minimum payment. If you are unable to make a payment at all, call your creditor to make alternative arrangements. Your credit card company would prefer to make an affordable payment plan with you than mark your debt as uncollectable.
Try and Find a Quick Credit Repair Fix
Debt is like being overweight: you didn’t gain it over a short period of time and you won’t lose it over a short period of time. There are several companies offering a quick fix. Don’t fall for it! Ask yourself this simple question: “What can they do to improve your credit rating that you can’t do for yourself?”
On the other hand, if you do hire a credit repair company to assist you and they fail to deliver what they have promised, you can sue them. Legally, such companies are not permitted to charge you any fees until they have been successful in their claims. If you have made an advance payment and been cheated out of your money, you are permitted to sue them in federal court. You can either take this action alone or join with others to form a class action lawsuit. However, it’s best to prevent it from ever getting to that state. View our top reviewed credit repair companies here.
While it is essential to avoid the above information when rebuilding your credit, the worst thing that you can do is to leave your credit as it is. Rebuilding your credit history is not an easy assignment, but don’t give up. Stick to your goal, be disciplined and allow positive momentum to assist you on your quest towards excellent credit.