Building or restoring good credit isn’t hard to do, but it can take some time to raise your score to a desirable level. The time this takes will depend on your situation and the efforts you’re taking to boost your credit rating. This process can take longer if you’re making some of the common mistakes listed here.
Making a Late Payment
You might not think one late payment will make much of a difference, but that’s not true when it comes to your credit rating. A payment that’s just one day late can result in a negative hit on your credit report, even if an on-time payment wouldn’t normally be reported on your credit report. Your payment history is the primary way your credit score is determined, which is why a late payment can be so devastating. To avoid sabotaging your credit building efforts, set up automatic payments, or schedule reminders in your phone.
Failing to Pay Off Credit Card Debt
It may seem like you’re saving money by paying the minimum balance each month, but you’re actually hurting your financial situation. When you pay the minimum balance, you’re trapping yourself in a cycle of making interest-only payments. This means you’ll never pay down that debt, and you’ll continue carrying a large amount of debt over a longer period of time. Your household budget should allow for you to pay more than the minimum balance on at least one credit card every month, so you can start decreasing your debts.
Refusing to Get Credit Cards
You may think you’re ahead of the game by not having any credit cards, but that can also hinder your efforts to build credit. Having and using a credit card is one of the best ways to establish or restore credit because it helps you build up a consistent credit use and repayment history. If you’re nervous about opening an account, you can find something like an Omaha credit card that suits your needs. There are many types of credit cards available today with each one offering different benefits, so take your time to choose the best card for your situation.
Having Too Much Credit
While having a credit card or two is important for rebuilding credit, you don’t want to take things too far and get too much credit. Having too much available credit can be tempting and, before you realize it, you’ll have charged more than you intended. Even if you have no trouble paying off that debt over a period of time, that debt can hurt your credit score while it remains on your cards.
In addition to your repayment history, your credit score will be determined by your debt to credit ratio. Simply, the debt to credit ratio involves comparing how much you owe against your total available credit. For instance, suppose you have three credit cards with a $500 limit on each card. If you charge a total of $1,300 with $200 of available credit remaining, this would leave you with a poor debt to credit ratio. Your goal should be to limit the credit you use, so you have more available credit than debt.
Failing to Review Your Annual Credit Report
You can get a free credit report each year from the three main credit reporting bureaus, but most people don’t take advantage of this opportunity. Those bureaus are Equifax, Experian, and TransUnion. You should get your free report from each agency every year, so you can compare them together and identify errors. A credit reporting error can include charges that have been paid, charges that should have been dismissed as a part of a bankruptcy, or charges that are the result of identity theft. You should dispute these errors immediately. Getting a disputed charge removed will help improve your credit score and ensure your credit profile is accurate.
While building or rebuilding your credit score will take time, following these suggestions can help you boost your score a little faster. In general, using your credit cards as credit-building tools and repaying what you owe are the best things you can do to create a strong credit history. Once you’re able to do this, you’ll find it easier to get approved for the important things in life, such as loans for buying a new home or a new car.