For many adults, hearing the words “credit score” can create feelings of anxiousness and worry.
Credit scores are at the foundation of societal systems determining how people attain fundamental assets like homes or cars. Similar to every hierarchical system, there is a scale on which people “rank” that either deems them reliable and trustworthy, or as a liability to credit bureaus.
No matter where you stand on the credit score scale, it’s important to understand that it never has to be permanent and with the right mix of strategies, you can easily build credit repair in Hamilton!
Understanding Your Credit Score
If you’ve never checked your credit before, you can request to receive a credit breakdown report from reputable credit bureaus or your personal bank. Upon receiving your score, you’ll see that you were scored a three digit number. These three digit credit scores generally range from 300-850 with five ranking categories:
1. Poor: 300-559
2. Fair: 560-659
3. Good: 660-724
4. Very Good: 725-759
5. Excellent: 760+
Obviously, we recommend that everyone aim to achieve a credit status of “excellent” as there usually will be no or very few barriers to loan or credit applications. If you have a score below the excellent range and depending on where specifically you rank, it may be difficult to receive the green light on future loan applications. Before taking steps toward credit repair in Hamilton, it’s crucial to understand how credit scores are calculated. Therefore, you can focus on the areas where you didn’t do so well and target credit repair strategies towards that credit score criteria.
How Credit Scores are Calculated
The approximate breakdown of how credit scores are calculated is as follows:
1. Payment History (35%)
2. Amount owed (30%)
3. Length of History (15%)
4. New Credit (10%)
5. Types of Credit Used (10%)
Nationally, credit scores are calculated on the same base of five criteria. Credit scores may differ between bureaus through how much weight is added to each category. For example, Equifax allocates 35% of a credit score to payment history, whereas other credit bureaus may only designate 30% to payment history.
Once you have an understanding of the five components involved in your score, you can then see where you are lacking and work towards credit repair in Hamilton! We’ve outlined 10 ways to rebuild credit that covers all five credit score variables.
10 Ways To Repair Your Credit
1. Pay Off Debt As Quickly As Possible
This may seem like a fairly simple rule, but it can be very effective. Try to analyze your credit balance patterns , and set a target goal. Hopefully, you’ll be able to clearly identify where you’re spending the most. If possible, trim down non-essential costs and use the money saved to pay off outstanding debts you may owe creditors. The faster you pay off debts, the sooner you can re-establish a status as “reliable” with credit institutions and ultimately earn a higher credit score.
2. Make Regular Payments
We understand that this is an easy concept to grasp theoretically, but making payments on time can get increasingly difficult when there are a lot of moving parts on a day-to-day basis.
It’s crucial to put emphasis on sticking to a routine calendar as you will be less likely to make a late payment or forget all together. Lenders will be pleased, and you’ll save yourself some stress in the long term once you begin paying your bills on time. The goal is for lenders to observe that you are trustworthy of maintaining large amounts of credit. Another important point to note is that this rule doesn’t solely apply to paying your credit card on time, it involves every form of credit: cell phone bills, utilities, rent/mortgage, cable and more.
Follow this rule of thumb: if you owe any amount of money, pay it on time. Missed or late payments can negatively impact credit scores, so it’s better to avoid it.
3. Create Online Payment Schedules
Now that we’ve established the importance of paying debts on time, one easy solution for avoiding late payments is to program automatic bill payments!
The internet has many useful resources, including some incredible finance tools. Unlike generations before us, we no longer are required to walk into a bank branch to pay off credit bills. Instead, there are an enormous number of online banking platforms available through different bank institutions. With these apps, websites and widgets, you can easily create a payment system online. You’ll have no excuse to miss payments if they are automatically deducted from your phone. Furthermore, with online platforms you’ll be able to manually move money while on the go.
4. Maintain Low Credit Card Balances
Keep your credit card balances reasonably low is a general rule of thumb that most financial advisors recommend. If possible, try to keep your credit balance to 25% of your total limit. For example, If you have a $5000 limit, it’s best to keep your balance at around the $1250 mark.
Establishing high credit card balances may be perceived by lenders as you being irresponsible with your personal finances. If an individual has a $2000 credit limit and are spending $1999 monthly, it doesn’t resemble a healthy credit available to credit spent ratio–and that’s precisely what credit bureaus use to determine scores. It’s important to seriously take this into consideration as amounts owed account for approximately 30% of your credit score.
5. Utilize Available Credit
These days, people rarely use a debit card or even have cash on them. It’s a rare occurrence for a reason.
Upping credit card usage frequency (while regularly paying it off, of course) demonstrates your ability to utilize credit responsibly. This is another effective method in rebuilding your credit, and having finance management portrayed on your accounts is what lenders love to see. Although we highly recommend this process to build credit, we also want to caution those attempting to rebuild credit to not get tempted and spend beyond your means. It’s important to keep in mind of what you can afford so that you will be able to pay it off in full! For example, rather than spending the three dollars you were going to use for a morning coffee, use your credit card to pay for it instead.
An additional motivator to increase credit card frequency is that almost all credit card companies offer some kind of incentive or rewards program. These incentives can definitely be advantageous if you strategically use credit cards to your advantage. Always keep in mind that credit card companies only offer incentives to rack up, and make a profit off of interest rates. If you play it smart, you can actually benefit from it! For example, some credit cards offer rewards based on a points system and others offer cash back rewards of up to 2% . With some credit cards you could earn free flights.
Using credit cards as your primary form of payments can definitely make a positive impact on your finances all around.
6. Negotiate with your Credit Lenders
Have you heard of the saying, “If you never try, you’ll never know”? It’s difficult to dispute your missing of a payment when it is tracked by creditors, but you can try to reach a mutual agreement or negotiate to erase any accounts and debts that were collected. If you contact creditors and offer to pay off your balance, and if they agree (make sure to get the agreement in writing!), you may be able to get it re-reported under “paid as agreed” or even removed from your account.
If you want to take one overarching takeaway from all of our tips so far, it’s that credit functions as a vital aspect of modern society. Credit affects many aspects of our lives, and we should always strive to keep it healthy.
7. Keep Old Credit Cards
As soon as people breach the legal age of 18, the majority of them apply for their first credit card. By doing so, they can immediately work towards building good credit
If you still have that first account you opened, don’t close it just yet! Keeping old debts for credit reports have been proven to be effective and easy ways to improve or retain an individual’s credit score. When it comes to credit, credit providers appreciate longevity– the further back your history goes of responsibility using a credit card, the better. If a person were to regularly pay off their credit card bills month by month for 5 years, it would certainly impact their credit score positively.
8. Establish A Healthy Credit Mix
Have you ever entered a restaurant to see a buffet with a myriad of menu items? Well, it’s quite similar to the concept of having a “healthy” credit mix. There are some lenders out there who will want to see a borrowing set, consisting of different mixes of credit. Credit accounts (that are paid on-time), student loans, credit cards, home loans,and car loans make one’s credit health and finances look well rounded.
9. Analyze New Credit Card Applications
Remember, for every instance that you submit an application for a new loan, credit card, or refinancing, it will be subject to a “hard check” or “hard inquiry”. If you have one too many hard checks in a short amount of time, you could set off an alarm or red flag. As a result, lenders may be hesitant to accept applications. This is not to say that you should turn away from applying for new cards entirely! We suggest spreading your applications and limiting the amount of applications you send to avoid creating any red flags on your account.
10. Top Up Your Credit Limit
Similar to the ideology behind using credit cards more often, one may additionally request for credit institutions to increase available credit limits. However, just because you may acquire access to additional funds, it shouldn’t motivate you to spend more money outside of your budget. Instead, you should spend carefully within your new expanded limit to prove that you can spend responsibly and not misuse the credit. If you utilize your credit correctly, it can build credit in your favour, moving you from the red and into the green. Furthermore, after you do earn a better credit score, you may actually be able to utilize more of you new credit limit due to the interest savings.
If you need assistance working towards credit repair in Hamilton, contact Bad Credit Car Loans Hamilton today and we’ll guide you through the car loan process, step by step while building your credit back. We prioritize all of our clients’ needs and guarantee that one of dedicated staff members will fight hard for you to get the lowest possible rates!