Having a good credit score is important for an individual in our economy. The higher your credit score the better rates you are going to obtain on loans, which will save you money over the course of repaying the loan. Thus, a solid credit history can have a significant impact on your quality of life, how much money you pay on loans as well as determine whether you can get loans at all.
Here are 5 Proven Strategies to Improve Bad Credit Scores:
#1) Review and Monitor Your Credit History
Under the Fair Credit Reporting Act, each major credit agency is required to provide you with one free annual credit report. Annualcreditreport.com is the site to visit in order to obtain your free credit report. In trying to increase your credit score, you must review your credit history and the various accounts that are affecting it. You will find that there may be incorrect reporting errors on your credit that are pulling your credit down. In the event of an error, you must contact the credit bureau as each of the major agencies, Experian, Equifax and Transunion, have a dispute procedure and must respond with findings after you dispute the item. In the event the credit agency cannot provide evidence of the debt, it is legally required to remove the item. Experian, Equifax and Transunion are required by Federal Law to provide the free report each year and the annualcreditreport.com site is supported by them.
#2) Get a Secured Credit Card
Obtaining a secured credit card can be a great strategy for rebuilding credit scores. Many of our clients obtain a secured credit card out of bankruptcy to start rebuilding their credit. You do want to establish credit if you have none or raise it up if it is low. With a secured credit card, you are required to put down cash held by the credit card company and then that becomes your credit limit or a little more. By way of example, you put down $500 on the secured card and $750 is the maximum amount you can spend for the month. An excellent strategy is to then to make charges, pay half off one month and in full the next month. Consistently do this each month and your scores will start to increase.
#3) Pay Down Unsecured Debt
Paying down unsecured credit card debt first is a fast way to start increasing your scores. This will have the biggest positive impact ahead of even paying secured debts on time. However, be mindful that if you do have a mortgage that you are in danger of falling behind on, it may be time to not worry about the credit card debt or your scores and instead focus on paying that mortgage ahead of the credit cards. This is because a mortgage company or bank with a mortgage can foreclose on your house faster than a credit card company, which would have to obtain a judgment before it could take legal action against an asset such as a house. If you are facing these difficult issues you should contact an attorney to discuss options.
A good guideline is getting your credit card balances down to below 10 to 30 percent of the credit limit on each card and that should help improve your score. For credit score purposes, prioritize paying down the credit cards closest to their respective limits instead of the cards that have the highest interest rates.
#4) Do Not Cancel Credit Cards
Cancelling your credit cards can actually lower your credit score. Even if you are not using a credit card, if you keep older accounts open and paid in full, it shows creditors that you have a long history of good credit. Closed accounts still show up on your credit report and may affect the lenders decision in extending you credit.
#5) Make Sure to Pay Bills on Time
Be diligent about making timely payments. One of the biggest negative impacts on your credit score is making late payments. Being organized and making sure payments are on time will help keep your credit scores high. Today, there are numerous personal finance tools to keep track of money and alert you when bills are due. Setting automatic bill pay through your checking account is a way to save you time and to make sure your payments are on time.
What to do if Debt is Out of Control
Unfortunately, there are times where life takes a wrong turn leaving you in financial despair. According to Experian a credit score of under 579 is in the poor range. If your credit becomes overwhelming and there is not a reasonable likelihood you will recover on outstanding credit card debt or mortgage debt, then bankruptcy may be an option. Although the bankruptcy affects your credit negatively, if your scores are so low already, bankruptcy is a good strategy to clear out debt and then start rebuilding your credit. Many times, filing the bankruptcy and then rebuilding your credit is a faster option to get you back on the road to higher credit scores then trying to get on top of overwhelming debt.
For example, if you have about $40,000 in credit card debt, are paying high interest rates on that debt, have a poor credit score below 600 and it will take years based on your present income to pay that debt, then bankruptcy may be the quickest way to bring the scores up quicker. In this example, you could potentially file the bankruptcy, wipe the debt out, start with a clean slate, and within a year to two years have a higher credit score than when you started. Bottom line, if the scores are so low any way and there is no reasonable chance of bringing them up soon, then bankruptcy could be your better option.
The two most used Chapters in bankruptcy are Chapter 13 and Chapter 7. Chapter 13 lasts on your credit reports for up to 7 years and Chapter 7 for up to 10 years after the bankruptcy filing. However, even if they are on your credit reports for that length of time, you can still build your scores back up to respectable levels long before the bankruptcy is removed from your credit. Under the Fair Credit Reporting Act, federal law requires credit agencies to remove the bankruptcy reporting after those time frames have passed.
Contact a bankruptcy attorney in our office to discuss whether bankruptcy may be the better option and other strategies toward rebuilding credit scores.
Whether you need to completely eliminate your debt through Chapter 7 bankruptcy, or need to reorganize your credit payments through Chapter 13 or Chapter 11, we are well qualified as a full-service bankruptcy law firm for people in these and other New Jersey counties: Passaic County, Hudson County, Essex County, Bergen County, Morris County, and Sussex County. Call us today at 973-870-0434 or toll free 888-412-5091.