Bad credit or no credit can cost you a lot of money and headaches, when trying to get a new auto loan. Just because you have damaged credit doesn’t meant you have to stay that way. Sometimes it may seem like you will never recover, but here are some things you can do to improve your credit situation.
1. Check Your Credit Report Yearly
You can always get your credit checked free once a year. If you know exactly what’s on your credit you can work towards improving the areas that are damaged. You don’t want to have any surprises when you need your credit to be there for you. This can also tell you just how badly your credit is being affected by a known issue, as well. check out Annualcreditreport.com
2. Don’t Max Out Your Credit Cards.
The closer you are to having your credit cards completely full the lower your credit will go. This is called “Credit Utilization”. If you have maxed out credit cards it shows the credit companies that you can’t afford the lifestyle you’re living. In an effort to stop you from getting loans you can’t afford, they’ll lower your credit. Use your extra income to pay down balances and watch your credit increase!
3. Pay Delinquent Bills.
If you get behind on payments it will significantly decrease your score and the further behind you get the more it hurts you. On-time payments account for over 30% of your credit score. The best thing you can do is get all your accounts current. You can also work with your credit card company, to see if they have any hardship programs, to help you get there quicker.
4. Don’t Apply for New Credit Cards.
If you’re trying to improve your credit situation applying for new cards is not a good idea. Just applying for more hurts your credit, as well. a “Hard Inquiry” can stay on your credit for years. Opening new accounts also decreases your average account age and drops your score.
5. Don’t Cancel Your Credit Cards.
Once you pay off a credit card you may think closing down that card is the best option, to remove the temptation of using that card again. You’d be better off to hide that card away and keep your account open, for a couple reason. 1. The longer your accounts stay open the better average account age you’ll have, the longer you have accounts open the better your credit will get. 2. Once you close that card down the card company will likely stop reporting your available credit and your utilization will increase, hurting your credit.
6. Pay off debt.
30% of your credit score is based on how much debt you have. Paying off debt will increase your score fairly quick. You may need to make a change to your budget or find a way to bring in extra income to pay it down faster. You will be happy you did it, in the long run.
There are many ways to improve credit. Here is a great graphic and a few more ideas.