New Year, New You: Rebuilding Your Credit
New Year, New You: Rebuilding Your Credit
This year has been tight on our budgets with inflation affecting everything from interest rates to the prices at the grocery stores. Most of us have found ourselves and our credit in as tight of a situation as our wallets. As the calendar turns to a new year, it brings a fresh opportunity for a positive change, especially with credit.
Whenever we look at rebuilding credit, we first need to understand what a credit score is and how we get our score.
What is a Credit Score
A credit score works similarly to your final grade in your high school English class. Think back to high school where you turned in papers and tests. Each paper got an individual score that contributed to your overall A, B, C, or D. Just like your high school English grade, your credit score has different segments or elements that are individually weighted and contribute to an overall credit rating. The higher your credit rating, the lower rate you will get on your loan.
Elements of a Credit Score
A credit score is mainly made up of:
Length of credit history
New Credit
Available Credit
Credit Mix
Credit History
Amounts Owed
Credit Score Ranges
Instead of an A, B, C, D grade on your credit, a credit score is a number between 300 and 850, 850 being the highest and best credit a person can have. There are two different official credit scoring companies in the United States that report your official credit number, VantageScore and FICO. FICO and VantageScore will score you a little differently as they weigh parts of the credit score with different importance. Your financial provider can tell you which company they use for pulling credit.
Rebuilding Credit
Now that you know a little more about the elements of a credit score, you’re ready for easy action items on how to rebuild or raise your credit and get better loan rates. Every action item directly affects one of the elements that composes your credit score.
Make on-time payments -The three major credit bureaus (Equifax, Experian, and TransUnion) keep a record of payments on debts categorizing payments and noting when they are on time and late. On-time payments increase your credit score, while late payments bring it down.
Create a payment plan for any delinquent accounts - an account is considered delinquent when a debt is past due. When accounts are delinquent, debtors are frequently contacted by the company or collectors to repay the debt. Delinquent accounts quickly bring down your credit score. Remember to work with the company or collections company, they are trying to benefit both your credit and the company. Ask to create a plan or negotiate a settling amount for the debt. Collectors want to negotiate to close the account.
Pay off any charge-offs - A charge-off is when a company has held a delinquent account for long enough to deem the debt unlikely to be collected by the creditor. A charge-off does not mean you do not have to repay the debt, legally you are still responsible for paying the debt, however, the creditor will no longer contact you to try to collect the debt. A charge-off will very negatively affect your credit score and will maintain it low, even if the rest of your credit health is good. If you have a charge-off, contact your creditor and create a payment plan. When you have negotiated and paid back the debt, contact the three major credit bureaus to make sure that they report the charge-off as paid in full, balance zero.
Limit Credit Inquiries - Limit the times you ask to know your credit score, known as pulling credit. Every time an inquiry is made to your credit score, it lowers your credit rating. An exception is made when shopping for a car or mortgage. You may pull your credit score multiple times when buying a house or car within a 14-to-45-day period. The multiple inquiries will only be reported as one inquiry made to your credit.
Stay below your credit limit on cards and unsecured loans - It’s tempting to max out a credit card or unsecured loan, however using the full amount of credit you’ve been approved for will lower your credit score and raise your loan rate. Experts recommend staying below 30% of your credit limit; for example, someone with a credit card limit of $1,000 should strive to only use their card up to $300 before paying it off. If you are looking for a credit card with a lower rate than what you are paying, Granite offers a low-rate visa card with no annual fee.
What if I Feel Hopeless?
If you feel hopeless with your credit, Granite Credit Union is here to help you rebuild your credit score and your confidence. We understand that life is challenging and forces you into circumstances you could have never foreseen. We are proud to be a credit union who listens and offers solutions to people instead of just looking at credit scores.
If you have been denied a bank account because of bad credit, start by opening a Granite Credit Union Simple Spend Account. Our Simple Spend Account is opened without checking your credit score or credit history. It provides an opportunity to rebuild your financial confidence as you rebuild your credit. The Simple Spend Account comes with a debit card so you can access your funds wherever you are whenever you want.
At Granite, we know life can be hard. That’s why we're always there, in any circumstance, so you can choose to make life happen.
