How to Repair Credit Score
Financial institutions use a scoring system, known as credit score, to determine if you are credit worthy. If your credit score is good, chances are you will get your loan faster and with less hassle. If you credit score is weak, then you will soon find out your loan applications being rejected. If your credit score is already tarnished, then how do you repair your credit score? Here are some tips.
Pay Your Bills On Time
When you fail to pay your credit card payments or your other debt installments on time, these will be recorded. Frequent late payments indicates a weakness in your debt commitment. If you’re a lender, wouldn’t you get annoyed if a borrower is always late in repayment?
Therefore, it the first step in repairing your credit score is to pay promptly. Even if you could not afford to settle your entire credit card balance, at least pay the minimum required amount before the due date.
By paying on time, you demonstrate your maturity and responsibility in managing your financial commitments.
Reduce Your Consumer Debts
High credit card balances, personal loans and other “revolving credit” affect the available amount you can borrow against your credit limit. If you are already burdened with debt and a significant portion of your income is commited towards repaying your existing debts, then financial institutions will be reluctant to give you additional loans.
Make an effort to pay down or better yet pay off your existing consumer debts. This will significantly improve your debt service ratio and hence, improve your credit score.
Do Not Close Old, Paid-Off Accounts
You might be thinking that canceling an old unused credit card could improve your credit score. Don’t. Canceling your old accounts will weaken your credit score.
By closing your old accounts, you shorten the length of your credit history. This could make you seem less credit worthy.
Closing old accounts will reduce the overall credit limit available to you, hence making your existing debts seem larger as a proportion to your available credit limit.
Do Not Open Too Many Accounts Rapidly
Opening too many accounts rapidly makes you seem more like a credit risk. Usually a person’s income will grow gradually. And credit limits should follow the same pattern as well. If you open too many accounts in a short time, and if you max out all these new credit lines available to you, then you might not be able to service your debt because your debt is growing faster than your ability to repay.
Opening too many new accounts will also lower your average account age.
Get Help From Credit Counselor
If you have problems managing your debt, then consider getting help from a credit counselor. Work out a plan to manage your debt. This won’t improve your credit score but if start to always pay your bills promptly, then over time your credit score will improve.