5 Steps to bring your credit score back from the dead


Are you being haunted by a low credit score? We know how our credit score is a huge part of our financial picture. Having bad credit can cost you money (not qualifying for a particular job) and missed opportunities (paying higher interest rates, higher insurance premiums, and not being able to qualify for loans).  If your credit score has become something that sabotages your financial goals at every turn, fear not. It doesn’t take magic to bring your credit score back to life: just some good old fashioned time and effort that involves clean up of what’s out there and careful movement going forward.

The first thing you should do

Take a good, honest look at your monthly budget. Are your debts far outweighing your income? Can you pay off your debt within a reasonable amount of time without stress, anxiety, lack of sleep, lack of necessities due to working more than 1 job? Before you worry about bringing that credit score up, get your budget into a workable position. If you work on your credit but your income can’t sustain your debt level, you won’t get very far.  We offer free consultations regarding the options that bankruptcy brings to the table.  Bankruptcy can clean the slate and help you to rebuild so much faster.  Typically your score takes a 30-50 point hit when you file, but the clean up and rebuild is so much faster.  You can recover that and build in 12-18 months rather than killing yourself for up to seven years trying to out live the negative items reported.  If your income to debt ratio is under control, then dive right in and get that credit score up!

Things That Hurt Your Credit Score

There are a variety of factors that can drag your credit score down. Keep this in mind- it’s all about “what have you done for me lately” when your information is scored.

Here are the main causes:

  • Late payments. Even one late payment can affect your score for up to 2 years. It is reported for up to seven years. Your ability to pay on time carries the greatest weight, so having late payments can do significant damage. The more missed payments you have, the longer it takes for your credit score to recover.

  • Carrying a high balance. Just because you have a high limit on your credit card doesn’t mean you should max it out. Using more than 30% of your available credit will cause your score to drop, because it’s a sign to creditors that you may be relying too much on non-cash funds to cover expenses.

  • Lack of credit history. It takes money to make money.- it takes credit to build credit. If you haven’t established a long credit history, creditors don’t have much to go on when evaluating your creditworthiness, which drives your score down.  Be smart about how you begin building your record. (Read on)

  • Applying for credit too often.  You know all those store credit card offers that come with an extra 50% off your purchase if you sign up today – but hear me – opening up a bunch of new credit card accounts (which creates too many hard inquiries) signals you may be a risky borrower, and those hard inquiries stay on your credit file for two years.  Having one or two major credit cards that will work anywhere (not just limited to a certain store) is much more valuable.

  • Lack of credit mix. It may seem odd, but a lack of different types of credit will also lead to a lower score. For example, if you have only have credit cards and don’t have some form of secured loan (auto loan, mortgage, or student loans), it’s likely hurting your score.  You want to build a history of mixed credit – credit card, mortgage, auto, student loan, signature loan.

Factors that Affect Your FICO Score


How to Build Back Your Credit Score

The good news is, anyone can repair their credit score over time. Keyword: time. It won’t happen overnight, but by following some simple steps, your score should rise within 12-18 months

1. Pay on time, every time. Paying your bills when they’re due should be your first priority. Set up automatic payments whenever possible.

2. Pay off any overdue amounts. Next, work to get all of your accounts in good standing. Pay off anything that is past due as soon as possible to prevent it from further damaging your score. Note: if your debt is overwhelming, as we discussed earlier, have a consultation with us to discuss options to eliminating that debt.

3. Reduce your debt. If your credit card are maxed out (balance is over 30% of the total), pay down that debt as much as possible. Once you get it to the 30% mark, you should see a boost to your score, and the more that credit utilization ratio goes down, the more your score will go up. Bottom line – credit card(s) with $0 balance / low balance shows you are good at managing credit (your not risky).

4. Review and clean up your credit report. You’re entitled to receive one free credit report each year at www.annualcreditreport.com, and you should review it to ensure there are no errors that are hurting your credit score. If you do spot errors, dispute them – in writing! We have a credit rebuilding package that we provide all our clients with the “how-to” details.

5. Don’t apply for new credit. Until you get your score back to a healthier place, it’s best not to take on new debt, for several reasons:

  • It’ll mean another hard inquiry, which will knock your score down a bit.

  • It may increase your debt obligation, which can make it harder to pay off existing debt and sabotage your efforts to boost your score.

  • It will increase your debt-to-income ratio (DTI). If you’re working to improve your credit so you can apply for a mortgage, your DTI should be about 43% or less.*

  • You run the risk of not qualifying and being denied credit, or having to settle for less desirable terms and interest, which costs you more in the long run.

What If Your Credit Score Is Nonexistent?

Your credit score is dead because, well, you don’t have one. This is normal when you’re just getting started establishing credit history. It takes credit to build credit. To do this, you can either apply for a secured credit card (in which you put down a security deposit as collateral), become an authorized user on someone else’s account, or have someone co-sign on a loan. Once you’ve been extended credit, follow the tips above diligently to build your score and keep it high.

Easing Back In

At what point is your credit score high enough so that you can start using credit again? That depends on what you need credit for – a home? a car? or just a better score for lower insurance rates, better interest rate, etc) Start by seeing what range you’re in. You don’t want to be below the Good range.

FICO Score Ranges:

  • Exceptional: 800-850

  • Very Good: 740-799

  • Good: 670-739

  • Fair: 580-669

  • Very Poor: 300-579

Start small. Don’t run out and apply for everything you find. And don’t believe those letters from the credit card companies you get in the mail that say you are “pre-approved”.  That does not mean “approved”. Only that they would like for you to apply.  Only apply for what you need when you have built that awesome credit score (with great power comes great responsibility)! Keep your balances low (credit cards) and make all of your payments on time.

Then you will be creating a history of consistent payments, which takes time, but it’s what will help you continue to build – and keep –  a strong credit score.

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