Know in advance: it won’t be easy. Improving credit scores are not immediate, and will require a hefty length of time to fix. This is because lenders, institutions, and issuers evaluate your past years’ behavior and actions, taking your entire credit history into account.
Not everyone has great credit, and there’s no shame in that. Of course, life happens, and there are circumstances some people genuinely cannot avoid. It’s a tragic credit scenario that’s happened to many people.
A typical business scenario is in the construction industry where surety bond come into play when contract price exceeds $100k.
“A surety (insurance company) bond is necessary to make sure that business owners (principal) performing the task follow specific requirements as laid in contract by the oblige (entity).”
Surety will weigh the risks of “taking you on” depending on your credit score – and decide whether or not your credit is worth the hassle of issuing you a bond or not. So, your credit score will determine the fate of your business.
If your credit score is above 750… congratulations! You have excellent credit. Any account below 650 is generally considered to be less-than-appealing to issuers and lenders.
At the lower end of the spectrum, people around the 300-600 mark aren’t doing so well. Where do you fall?
Below are several ways to help you increase your credit score so you can get back in your lender’s good graces.
1. Check Your Score
Not knowing what is happening on your credit reports is like not knowing what you spend your money on. It is simply bad practice, and spells disaster for your bottom line. Be sure to check for free annual credit reports every few months or so and stay up to date.
Something to keep in mind when you’re reviewing your scores is to see how much revolving credit you have, versus how much you actually use. The lower the percentage – the better your credit rating.
Please be sure to see if your credit card issuer accepts multiple payments over the course of a month. Certain issuers report the balance on your statement to the bureau. So, if you pay full balances every month, only one balance will be actually reported.
2. Keep Calm And Relax
No matter how annoying it may be to see negative information every time you get your credit reports, keep in mind that this information often has less impact on your credit scores over time.
Negative information on your reports have less impact on your credit scores the more time passes. Barrett Burns, CEO of VantageScore, states that just because information stays for seven years, doesn’t mean that information is relevant each year.
For example, let’s suggest you miss a payment (which probably happened – it’s sometimes impossible to keep up to date in today’s world). Your score may drop, but will take around a year and a half for you to recover fully – falling far short of the “7 Year Fear”.
In fact, it’s generally wiser to focus on your good debt (that is, debt that you’ve handled well and paid). Focus on your good payments, it will outweigh your bad scores. Keep in mind that bad scores are, well, bad, but they are not a doomsday scenario that many people make them out to be.
Credit card expert John Ulzheimer suggests keeping old debt and good accounts on for as long as they are possibly allowed. The takeaway: do not close old accounts, whether you have a good or bad score.
3. Don’t Open Too Many Accounts
Opening new accounts rapidly destroys your credit. This is because newer accounts lower your average account’s age – widening the overall effect of your scores. Not to mention that it looks risky to credit card issuers (to them, they think you’re a scam artist for opening up new accounts).
Plus, new accounts—in all likelihood—won’t raise your credit score.
4. Don’t Close Unused Accounts
Regardless of your good debt, bad debt, and credit score, closing accounts won’t remove your bad debt. We can equate this to asking your high school to remove your grades from report cards.
Closed accounts still show up on your overall credit report, and do more harm than good, as it shows issuers that you’re unreliable.
Closing unused credit cards accounts is an ineffective strategy for raising your scores. It simply won’t. In fact, many people have had their credit scores lowered by doing exactly that.
5. Go Fully Automatic
One way of doing this is by setting up auto-payment, or payment reminders so that you never miss them. Similar to setting up automatic payment for bills to be withdrawn from your bank account on certain dates.
I personally have a hard time remembering important matters such as these, even in my daily life. I cannot stress enough how important weekend reminders (even daily reminders) via Google Calendar are.
If you’re wary of going fully automatic, build a schedule for yourself using task management software such as Trello or Asana. I recommend Trello, as it’s an intuitive and easy-to-use system for managing tasks and to-do lists. It fits my on-the-go needs and lets me adjust my schedule accordingly.
6. Don’t Be A Risk
For whatever reason, whatsoever, do not risk damaging your score. This means trying your hardest not to miss any payment, or suddenly paying in smaller amounts, or infrequently charging more. Maintain a good score by being consistent with your payment dates and payment amounts.
However, taking cash advances might make your card issuer wary without hurting your score. Know this: charging businesses to your card that give second doubt to your money-handling abilities also paint you as a suspicious client.
Dave Jones, former president of the Association of Independent Consumer Credit Counseling Agencies (AICCCA) warns that you do not, under any circumstance, give the impression that you’re a risk. As with anything in life.
Managing your bad credit scores isn’t as troublesome as many people make it out to be. All it requires is a determination and will to make your payments, consistently, as you agreed you would; not presenting yourself as a risk; adamantly refusing the temptation to open several accounts or close old ones; keeping your sanity as you handle your credit score.
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