Americans have a debt problem, as exhibited by the soaring student loan crisis. Before that, the country faced a ballooning credit card loan. All these problems mean that many Americans tend to have poor credit scores.
Your credit score is a number calculated by several firms. This number represents how much of a good investment you are when it comes to loans. Multiple businesses such as banks, realtors and car dealerships rely on this number when making offers.
Approximately 11 percent of all American consumers have poor credit scores. This means that these people will have a harder time securing loans, buying cars at reasonable rates and can even have worse insurance policies. If you belong to this population, you should be trying to improve your credit score.
Check out our case study regarding how can you improve your poor credit scores. Do follow these four effective methods to boost your score and get better rates on loans and insurance policies.
1. Restructure debts
You can have more debts than you know, even in your early twenties. Student debts, car loans and medical bills can pile together unnoticed until a first home buyer’s mortgage broker breaks the bad news. Contrary to popular belief, many financial institutions are flexible when it comes to payment plans. This is because they prefer their clients to actually pay off their loans rather than default on them. One way they can help you manage your debts is through restructuring.
Debt restructuring refers to a system through which a financial organization such as a bank rearranges the conditions of your loan. For example, they may prolong the period of payment or decrease the monthly minimum payments. This can help make your loan payments easier to achieve and raise your credit score.
2. Learn financial details
One way you can end up with atrocious credit scores is because you may not have an idea of how your finances work or even how your credit score is calculated. These types of information are essential to being a functional adult and if you want to have an easier time securing loans.
Financial literacy is an important skill you need to cultivate if you don’t want your credit scores to suffer. Learn as much as you can about concepts such as maintaining your credit score, diversifying your portfolio and increasing your financial assets. Without financial literacy, you run the risk of making poor choices, so you do your best to inform yourself. Take classes, consult with a financial adviser or read blogs dedicated to the subject and expand your knowledge.
3. Control credit use
As unusual as it is to hear, when your credit score is bad, that doesn’t mean you should stop using your credit card and other types of financial lifelines. Not using them can be just as bad to your credit as not paying them. If you want to boost your credit score from poor to fair, aim for an optimal amount of credit utilization.
Credit utilization is a term used to refer to how much of your available credit are you putting to use. According to financial experts, you should aim to only use 30 percent of less of your credit utilization. For example, if you have a credit card limit of $1,000, it’s unwise to simply cease using it altogether. Instead, opt to use only $300 or below each month. This will help keep the credit card active and make credit companies increase your score. Do study about some most common credit card mistakes and how to avoid them.
4. Automate bills payment
Non-payment is the most common reason many people have poor credit scores to begin with. Sometimes it’s because you don’t have the resources to pay your bills. Sometimes you may have simply forgotten to pay your bills. This is especially true if you have lots of incoming bills every month. There are plenty of ways to make payments much easier. By far the best one for improving your credit score is by automating your bills payment.
Using apps on your phone or computer that directly link with your bank account, you can make things easier for yourself and never miss a bill payment. Simply schedule your payments whenever they arrive. However, you should keep an eye on your balance as automatic payments can quickly drain your account if you aren’t careful.
We hope that our financial guidelines of how can you improve your poor credit scores will help you to take better monetary decisions. Do follow the rigorously and you will reap the good benefits.
Your credit score is an integral part of your financial future, and it can shape different aspects of your life. From your first home to your first car and even your health, your credit score is tied closely to them. So nurture your credit score now to make sure you have a bright future.