Credit scores are very important, as they are a contributing factor when you are trying to purchase a home or rent one, purchase an automobile and try to get a loan. Thousands of people find themselves in debt and as a result, they have a low credit score. There are a few ways that you can improve this score but you first have to be aware of the determining factors of a credit score.
Payment and credit history, types of credit in use and outstanding debt are just a few factors that influence your credit rating. Payment history involves loans such as mortgages and car loans. If there are any judgments or bankruptcy present on file, it will appear in your payment history. Credit history refers to how long you have been building credit and how many open accounts are in your possession.
The amount of credit and outstanding debt is also viewed and taken into consideration. The amount of credit will reflect upon the number of bank accounts you currently own, which accounts for 10% of your overall score. Your line of credit will include bank, travel, entertainment and department store cards. Outstanding debt is what demolishes a person’s credit rating. With your outstanding debts, on every account that your name appears on, will be taken into consideration. here, the amount you owe per account will be considered as well as your credit limit, if it is applicable and how close you are to achieving that specific limit.
To improve your score, get a free credit report online. This report will provide you with the names and numbers of the companies that are owed as well as the account balance. In order to repair your score, you will have to contact each company is set up a payment plan if you are not able to pay the remaining balance in full. In many cases, the company will settle for a substantially low price instead of you paying the amount that is owed.
Setting a budget will probably be the most difficult part in this entire situation but it must done. You will not have to use your entire paycheck for two to three months in order to raise your credit score. You will be able to pay as little as $10 per month in order to start repaying the companies and get your score back on track. Most companies are willing to cooperate with you and set a flexible payment schedule so that you are still able to manage other bills.
Most of the time, if your account balance has been outstanding for a certain number of days, the entire account, including the balance, will be turned over to a collection agency. You will still be able to set payment arrangements and get your accounts paid off.
Once you have gotten your debt to a manageable point, be sure to pay all of your bills on time and only purchase items that you need. It is also important that you keep in mind that paying off creditors will not remove the issue or its details from your credit report. Once you have things under control you can look into credit cards for bad credit, and start to rebuild your credit score through the use of additional credit.
Credit cards are a dime a dozen, but their rates and features differ drastically. Before you ever start using a new card be sure and do a credit card comparison. Look at the details like the rates, points, rewards, and fees. Often even people with outstanding credit scores have uncompetitive rates. It pays to shop-around.