Sometimes people find themselves in situations where, through no fault of their own, their credit rating has taken some massive hits. There are a number of ways that this could happen, and what is important is not what caused the poor credit score, but what you can do in order to fix it.
It may seem counter intuitive but one of the best ways to repair your credit is through intelligent and conservative use of a credit card. The difficult thing about credit is that it is something you need to have in order to get more of. Therefore in order to improve your credit rating you must obtain credit.
Most people, no matter how bad their credit, can obtain at least a small line of credit, even if it is in the form of a secured line of credit, meaning the individual pays some money up front so that the card company is secured in case of a failure to pay. Once you obtain your credit card there are some simple guidelines to followto boost your credit rating.
- Pay on Time
The thing that helps your credit score the most is a record of consistent on time payments. Paying on time shows that you can be trusted to follow your credit agreement and makes you a more attractive candidate for credit issuers. A failure to pay on time shows creditors that you are a greater financial risk and therefore you are less likely to receive favorable terms or approval when applying for credit.
- Pay in Full
Pay your credit card in full each month. Do not leave a balance. This does two things for you. First it prevents you from accruing more debt which likely is what caused any initial credit problems. Second, by keeping a lower ratio of your available credit to credit used your score will improve, as this shows that you are making wise financial decisions. If you are unable to pay off the entire balance keep it as low as possible. The ratio of credit available to credit used is the second most important factor when determining your credit score.
- Keep Accounts Open
The length of time that you have an open account is the third most important factor for credit scoring. Companies like to see that a customer can be counted on to provide consistent and reliable business for them, and the amount of time that an account is open is a good indicator of that. This means that you should leave accounts open even if the balance in them is zero.
Additionally, Every time you open a new account it brings the average age of the accounts down, which can lower your score by a surprising amount. This means that you should not bounce from card to card, using it during a promotional period and then closing the account. Another reason for this is that each time you apply for credit it generates a credit check when the creditor checks your history to determine if they should lend you money and at what price. These checks can lower your score a little each time, building up to a serious hit.
Another implication of this is that you should think and plan very carefully about what card you go with. Because it is against your interest to close the account you should make sure that the terms are as favorable as possible. This means picking a credit card based on what terms and conditions will apply after the promotional or honey moon period ends, rather than choosing it based on which card has the best introductory situation.
As you can see, there are a number of ways that you can use credit cards to boost the three most important aspects of your credit score, history of on time payments, credit available to credit used ratio, and length of credit history. Credit repair may seem like an impossible situation. But with discipline and by following the steps outlined in this guide it is possible to use credit cards in order to repair your credit score. The most important thing to remember is that it takes much longer to repair credit than it does to ruin it, so follow these steps and do not give up. Good credit can be achieved.