Everyone makes mistakes at some point. Some mistakes, however, can have far-reaching consequences. And when it comes to credit, people who make mistakes can lose access to credit cards, have difficulty opening new bank accounts, and damage their credit score with one single mistake. Fortunately, credit can be improved. It is possible to start over and build good credit. The process can take some time, but it is well worth the effort considering all the advantages of having a good credit score. Here are a few steps to take in order to get a fresh start when it comes to credit.
Review Credit Reports
The first step is to order a current credit report from all three major credit reporting agencies. Review the credit report and learn exactly what is listed. Look carefully at blemishes on the credit report that do not make sense or that are clearly wrong. A large number of mistakes occur on credit reports every year. These mistakes will lower the credit score. Dispute any mistakes that are found on the report. Be aggressive about disputing mistakes because it can take some effort to get errors removed.
Never Make Late Payments
The next step is to never make late payments. Late payments have a clear and noticeable impact on credit scores. Consistently late payments can become a serious problem over time that will derail any efforts to start over with credit. Make certain that all utility, credit card, and rent or mortgage payments are made on time. Even a single late payment could undo some of the progress made in starting over.
Reduce Debt
The amount of debt that a person is carrying can negatively affect his or her credit score. This type of debt includes previous loans, old credit card balances and unpaid medical bills that might be sent to collections. Carrying too much debt will harm credit. It is important to pay down any debts quickly. The amount of all debts needs to be less than 20 percent of the monthly income. Ultimately, all debts need to be less than 10 percent of the income. Remember to keep any new debts below this limit, especially if it becomes possible to get a new credit card.
Consider a Secured Credit Card
If it has become impossible to get a standard credit card, then it is time to look for a secured credit card. These are offered by some banks and other institutions. A secured credit card means that a person needs to give the issuing bank a set amount of money to receive the card. The amount will equal the spending limit on the credit card. This reduces risk for banks since they already have the money if the cardholder fails to pay in the future. Secured credit cards will help anyone to build good credit. Use the card regularly for small purchases, and pay more than the minimum amount due every month.
Keep Bank Accounts Open
The status of the bank accounts a person has can affect credit. Try to keep all bank accounts open if possible. If it becomes necessary to start new accounts, then keep them open for as long as possible. Keeping bank accounts open for several months or years will reflect positively on credit reports. Additionally, be certain to always keep some money in the checking account. Open and contribute to a savings account if possible. Never let the balance drop below zero. Negative account balances are reported to credit agencies. Credit can be hurt by maintaining a negative balance for a few days or weeks.
Apply For Unsecured Credit Cards
Start applying for unsecured credit cards after dealing with errors on credit reports, paying down any lingering debts, and starting to rebuild credit with a secured card. Choose a credit card that fits personal spending habits. Although rejection is likely at first, it will become possible to get a new unsecured card in time. Unsecured credit cards are important, because they dramatically affect credit scores. Use the new card regularly and pay at the balance due every month. Manage personal finances and the charges on the card carefully. Keep the total charges far below the card limit.
Take Out and Repay Small Bank Loans
Credit unions and smaller banks often have programs that allow people to take out loans. Taking out and repaying a loan can boost credit. It is usually necessary to have a savings account at the bank. The bank will give the customer an installment loan for any amount up to what is in the savings account. It is then just a matter of repaying the loan in monthly installments. These loans can be very small and manageable at first. Many people just take out the loan and use the money to make the payments. Small bank loans are a good way to build up credit.
Utilize Technology
It is important to find ways to avoid common errors and mistakes that could harm any attempts to make a fresh start. Try to utilize technology whenever possible. It will help to use automatic bill payment features so that the money is instantly withdrawn from bank accounts. This prevents late payments. Use a credit monitoring service to protect against identity theft or mistakes on credit reports. Use online alerts and reminders to always know what is happening with bank accounts, deposits and withdraws. Technology can make a real difference when starting over.
