If you are looking to buy a house, one of the first things you must do is take necessary steps for improving your credit score. If you fail to do so, you’ll struggle to find a lender who will approve your application for a home loan. Improving the score would be even more essential for you if you have defaulted on your debts.
People might suggest you to seek assistant from a credit repair company. It’s true that these companies can help you to improve your credit rating, but only if you manage to find a trustworthy and reputable firm. You may also take a few steps yourself for making your credit score better; find out what you can do.
1. Pay All Your Bills on Time
We are starting the discussion with this tip as your payment history is the most vital component influencing your credit score. It constitutes as many as 35% of your total credit score. This means the more will be the number of bills you pay on time, the better will be your credit score. If you have a number of bills unpaid, start paying them immediately. Ideally, you should begin with the oldest ones. Getting rid of the oldest bills first is important as the older would be the unpaid bills the worse would be their impact on your credit score.
If you have failed to pay your credit card bill since you became unemployed, the best way of dealing with the problem is by facing it. You’ll never be able to get rid of the situation by denying that you have been a defaulter. However, you can surely request creditors to remove that debt or the account that has entered collection. This can be done easily by writing a letter informing the creditor that you are willing to pay the balance if the creditor is ready to remove the account altogether or tag it as “paid as agreed”. In both cases, there will be significant improvement in your credit score. Here, it must be noted that you should make the final payment only after you manage to get a written copy of the agreement signed by the creditor.
3. Request Credit Line Increases
If you succeed in increasing your credit line, you will see your credit utilization ratio improving notably, which would automatically increase your credit rating. For your information, the term “credit utilization ratio” indicates the percentage of credit limit that has already been used by you. These days, a large number of credit card companies would allow you to request credit line increase without the need of undergoing any inquiry. You should utilize this opportunity. However, don’t hesitate to cancel the application if the credit card issuer plans to drag your credit or asks you to submit additional information. That’s important because your score will be hurt further by a strict credit check.
4. Avoid opening too many accounts at one
Whenever you’ll apply for a credit card (retail or regular), you will force the issuer to check your credit report to find out whether it would be a wise decision to offer credit to you. On most occasions, such hard inquiries would reduce your score even further. If you keep applying for new accounts, your credit report will undergo frequent hard enquiries and it would appear that you are either desperate or are not getting any application approved. Thus, it would be wise if you minimize the frequency at which you submit applications for additional credit.
5. Keep Old Accounts Open
Are you planning to close some of your old cards for creating some space in your wallet? It might not be a wise decision, particularly if you are looking to have a better credit score. Almost 15% of an individual’s credit score gets derived from the duration for which he or she has a credit history. Even a closed account boasting an impressive standing would be there in your credit report for 10 years. However, the moment it will be erased you will see the average age of each of your accounts go down. This change will have a direct negative impact on your credit score.
6. Don’t Miss Paying Your Library Fines and Parking Tickets
This point might surprise you a bit, but it’s true than even unpaid parking tickets and library fines can be reported to collection agencies. If that happens, you will have derogatory remarks on your credit report in spite of not being a loan defaulter.