Managing & ReEstablishing Credit
Maintaining your credit is hard work, but the results are well worth it. The reward of having good credit can help you get a job, a place to live and even determine your interest rates on loans and the cost of your insurance premiums. Your credit score is not based on how much money you make, but how you manage that money. Basically managing and re-establishing your credit will help you achieve your goals.
To effectively manage your credit you need to know what’s in your credit report. Your credit report is a record of your credit activities. It lists any loans or credit cards, when they were opened, the limits and balances and how regularly payments were made. The report also shows any action that has been taken due to unpaid bills; such as collections or judgments. Your credit score is the outcome of the activities that appear on your credit report. The credit score is a number between 300-850 (higher is better) that represents the creditworthiness of a person. Knowing how to manage your credit can help you stay on track and meet your future goals.
Pay bills on time. Always make sure your minimum payment posts to your account no later than the due date. Keep track of your bills and set up bill payment reminders with M3TM (My Money Manager). Also setting up automatic payments from your savings or checking account would ensure your payments are on time. Making your payments on time is one of the biggest contributing factors to your credit score!
Keep Credit Card Balances Low. High outstanding balances can weigh down your credit score. If you are carrying large balances, work out a plan and keep your balances at least under 50% of your total credit limit on each account.
Keep your credit cards, but manage them responsibly. Keeping your credit cards will help improve your credit score, as long as you manage them responsibly. It will not help your score to close cards or loan accounts immediately after paying them off. This actually may hurt your score if they are positively contributing to your length of credit history. A higher average age for all accounts can help your score.
Pay off debt, Rather than move it around. When it comes to the amount of debt you have, the most effective way to improve your score is simply by paying down the amount you owe. Unfortunately, consolidating your balances onto one, or multiple cards every year really doesn’t help improve your score in the long run.
Don’t open multiple accounts too quickly, especially with a short credit history. Opening multiple accounts in a short period of time is considered a risk by reporting agencies. If you open 3 new accounts with a $10,000 credit line, you are allowing yourself the opportunity to gain $30,000 worth of debt instantly. New accounts will also lower the average age of your existing accounts, which can also negatively impact your score.
Check your credit report for inaccuracies. Pay close attention to payments you’ve made and accounts that have been paid off or closed. Watch out for items you’ve paid that may still be showing as discrepancies on your report. You may need to file a dispute. To receive a free credit report every year, visit www.annualcreditreport.com or call 1-877-322-8228.
If you're having difficulty making payments, be proactive. Call your creditors and try negotiating to keep your accounts current and from being reported as delinquent. Ask about special programs they may offer, ask for reduced monthly payments, or even changing a due date may help to balance out your monthly bills. Being proactive will help you in maintaining your good credit.
The steps in Managing Your Credit still apply, however, if your credit is in need of repair you may need to focus on your budget. Contact your creditors and develop a debt reduction and payment plan that will get you on the road to re-establishing good credit. There are no quick fixes to improve your creditworthiness because it’s based on information obtained over time. By improving your credit behaviors going forward, you can improve your credit, but it will take time.
Review your credit report. Obtain a copy of your credit report from all three credit bureaus: Equifax, TransUnion and Experian. Each credit bureau may be reporting a little differently. Creditors do not have to report to all three credit bureaus, they may only report to the one in which they subscribe. Part of the repair process is disputing inaccurate information. You can order your free credit report from each credit bureau once a year by visiting www.annualcreditreport.com or calling 877-322-8228.
- Equifax 800-685-1111
- TransUnion 800-888-4213
- Experian 800-397-3742
Reduce your debt. Reducing your debt is the first step in repairing your credit.
- First, stop using your credit. Creating more debt will only make it harder to get control of your finances. With your current statements make a list of your accounts, balances and how much interest you are being charged. Then using M3TM (My Money Manager) review your budget and come up with a payment plan. Use most of your available budget towards the highest interest card first, while maintaining the minimum payments on your other cards. Once that card is paid off, move on to the next highest and so on. Also if you have any collection items, set up payment arrangements to make sure all accounts are paid in full.
- Since closing accounts can negatively impact your credit score, slowly close unwanted or unneeded credit accounts over a period of time to reduce your amount of available credit. If possible close out your newest credit accounts first so you do not lose your longer credit histories. Verify your closed accounts are reported as “closed by consumer”.
- Rebuild your credit. A positive payment history will help you re-establish your credit. To accomplish this obtaining a new loan and making timely payments over a period of time may be necessary. This usually requires a type of secured loan which is guaranteed by a deposit and has minimal risk for the lender so it’s usually easier to obtain when you do not have positive credit. This type of loan gives you the opportunity to develop a new positive payment history and rebuild your credit over time. The lender may require you to have a qualified co-signer. This is a person who is willing to make the payments and pay for the debt if you do not. Contact a TCU Representative for more information.
- Don’t hesitate to ask for assistance from your creditors or a qualified credit counseling service. The sooner you begin to manage your credit and make timely payments, the sooner you will see the results.
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