It's smart to repair your credit if you plan on buying a home or financing a car. Credit repair doesn't happen overnight. But with a plan and consistently good credit choices, you can raise your low score. The benefits of a good credit rating include quick loan approvals and lower interest rates on loans.
Bill Payments
Repairing credit and maintaining a good credit rating involves more than paying your creditors and lenders on time. Paying utilities such as electric, rent and cell phone bills also plays a role in good credit. These creditors do not regularly report to the credit bureaus. However, if you default on these bills and don't pay off balances, these creditors can send your account to collections or place a judgment on your credit report. Pay everyone from credit card companies to utility companies on time to improve credit.
Debt Reduction
Avoid huge credit card debts and overwhelming loan payments. Don't apply for credit just for the sake of acquiring additional material possessions. Attempt to pay for items with cash, and if you do use credit, pay off balances in full once you receive the statement balance in the mail. Debts make up 30 percent of credit scoring. Repair credit and quickly add points to your score by paying off credit cards and loans.
Credit Report
Asking creditors to update your credit file and remove mistakes on their part can help repair your credit. Lenders check credit reports before giving mortgage loans and auto loans. Serious errors such as collection accounts, late payments and bankruptcies can ruin your chances of approval. Get your report from Annual Credit Report each year and before applying for credit. Check for accuracy and dispute any errors.
Loan Application
Applying for credit unnecessarily can hurt your score because inquiries reduce your rating. But if you have few credit accounts or if you recently filed a bankruptcy to wipe out your debts, applying for a new credit card or taking out a small personal loan can help repair your bad score. Secured credit cards are easier to acquire with a low score or no credit history because they require collateral (security deposit); and some banks will approve you for a personal loan after a bankruptcy as long as you have collateral (car title, home equity other personal property) to secure the loan. Paying these new accounts on time each month slowly fixes a bad credit rating.
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