CREDIT. Everyone wants good credit, but everyone hates credit. According to NerdWallet, “the average U.S. household with debt carries $15,310 in credit card debt and $132,086 in total debt.” Of course, paying your debts on time helps your credit grow stronger, but we know that bad stuff happens, even to the best of us. Bad credit can keep us from buying things that we really need, like cars, and homes. Bad credit can linger in the background of our lives for years as a dark cloud. So what can you do about it? The good news is, it is not too difficult to rebuild credit, fairly quickly.
1. Dispute Credit Errors
The first thing you can do to improve your credit rating is to get a copy of your credit report. You are authorized by federal law to get a free credit score report from all three of the major credit reporting companies. Once you have that credit report in hand, go through the report and look for erroneous entries. Mistakes do happen, and they are easy enough to dispute. The Federal Trade Commission even has a sample letter to help you draft your report. Simply file with the reporting company and the information provider, and the entry should be corrected quickly. It is important to check your credit score regularly, so take advantage of these free tools.
2. Pay Down Your Balances
How much credit you can get is often dictated by how much credit you have, and how much you are actually using. Credit agencies want to see you using 30% or less of your available credit. The good news here is that you do not have to pay off your balances completely, just pay them down. Having a long history of paying your debts on time reflects better on your credit report than a one-time lump sum payment.
3. Increase Your Credit
While it sounds funny, getting more credit can help you get more credit. Remember where we said that you want to be using less than 30% of your available credit? According to the folks at Bankrate.com, “credit-limit increases don't hurt your credit score. In fact, they could even help your credit score.” On one hand, paying the money to have fewer debts helps, but raising the ceiling also adds a cushion. If you are looking to increase your score quickly, having that higher upper limit can help, but remember that opening more credit cards will cancel out the short term benefit.
Revolving debt can make things much easier when emergencies happen. If your refrigerator breaks, your car breaks down, or any other common disaster, that piece of plastic can save your bacon. However, this little piece of plastic comes with a great deal of responsibility. Paying your bills on time and keeping the balance under 30% of the full credit limit will keep your score high. Once you have botched your credit, it is easy to think that you are ruined, but by starting today, you can make serious improvements in your credit score in a relatively short amount of time. Keep an eye out for errors, open your credit window, and you will be ready to use that credit when you need to make those big purchases!