Bad credit or no credit history makes it harder for you to obtain loans. And even if a lender approves your loan application, a bad credit history often results in a higher interest rate and monthly payment. But fortunately, there are ways to quickly improve a low credit score and obtain the best rate on auto loans, mortgage loans and other types of loans. Regardless of whether you've experienced a foreclosure, bankruptcy or repossession, you can increase a low score and establish a good credit history.
New Lines of Credit
If you don't have a line of credit due to bankruptcy or no credit history, opening a new line of credit can help improve your credit score. There are many ways to obtain a new line of credit. Contact your local bank and inquire about secured credit cards. These cards are purposed to help people with bad credit and no credit history and require a security deposit. Even so, approvals are guaranteed. Also, many auto lenders feature bad credit auto loans designed to help applicants with bad credit to restore their credit.
Timely Payments
Skipping a payment or making late payments reduces your credit score. Making on-time payments (every month) adds points to your FICO score, and this is a surefire way to maintain a decent credit rating. Pay attention to due dates; and if necessary, enroll in an automatic billpay program to avoid late payments.
Debt-to-Income Ratio
Regardless of whether you pay your bills on time each month, having a high debt-to-income ratio can decrease your credit score. If possible, pay off your credit card balances every month. If this isn't possible, keep credit card balances below 25% of your credit limit. Therefore, if your credit limit is $1,000, do not exceed $250. Requesting an interest rate reduction and doubling or tripling your monthly payments can help you pay off your debts sooner.
Check Your Credit Report
Order a copy of your credit report once or twice a year to check for inaccurate remarks and unfamiliar accounts. Credit report errors can reduce your FICO score and make it difficult for you to obtain a home loan or auto loan. Request a copy of your report from Annual Credit Report (see Resources), and thoroughly examine the report for errors. Contact the original creditor and the credit bureaus to report any errors.
Credit Piggybacking
Ask someone with a good credit history (spouse, sibling or parent) to put your name on one of their accounts. Often referred to as piggybacking, adding your name to someone's credit account is another way to quickly improve your credit score. In turn, you benefit every time they make a payment or pay off the account. Although you're not the primary account holder, the credit account will appear on your credit report. Your score will increase as long as this person maintains a good payment history with the creditor.
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