Tips to Improve Bad Credit
Improving bad credit after a foreclosure, bankruptcy or short sale can have a positive impact on future endeavors. Many people who experience credit problems turn to a debt lawyer for legal assistance and ways to improve bad credit.
Improving Bad Credit
Bad credit can impact many aspects of a person’s life including buying a new house or car, getting a credit card and getting a job. Mending bad credit requires dedication and patience, as it doesn’t happen overnight. It often requires a change in habits and lifestyle, as well as a boost in credit scores.
Check Credit Reports
Improving credit begins with checking credit reports from the three major credit bureaus, Equifax, Experian and Trans Union. Federal Trade Commission studies show that one in four consumers’ credit reports have errors that affect credit scores. Incorrect addresses, wrong or outdated personal information and duplicate information can have a negative impact. Standards for the length of time negative information can stay on a person’s credit report are set by the Fair Credit Reporting Act. It allows missed or late payments to remain for seven years, and bankruptcies to remain for 10 years. Foreclosures and short sales may also have a negative impact.
Lower Credit Utilization
Credit utilization ratio, an important factor in credit scores, is determined by dividing total credit balances by total credit limits. A debt lawyer commonly sees people with low credit scores. Credit utilization ratio can be improved by:
- Paying Down Debt – Paying on debt more than once a month and keeping balances low can have a positive impact on credit scores.
- Obtaining Higher Credit Limits – A higher credit limit lowers the credit utilization ratio, as long as spending doesn’t increase. With credit cards, the card issuer may increase credit limits with an on-time payment history.
Control Credit Applications
When a person applies for new credit, a credit inquiry can have a negative impact, yet more credit can have a positive impact.
- Avoid new credit applications and canceling old accounts. Having balances on many accounts reflects negatively on credit, but having more available credit is a positive.
- Consider a personal loan to pay down debt. A personal loan adds installment credit rather than revolving credit to a credit report and typically carries a lower interest rate.
- Cluster loan applications in a short time frame. Credit bureaus often consider tightly grouped inquiries as one, which limits the negative impact on credit scores.