After months and months of house hunting online and making frequent trips to different cities, your heart suddenly stops from disbelief, “There it is…” You have found it—a two-story Victorian modeled home with your favorite Light blue exterior color, matched with a creamy, White lining that is perfect for your small family. You enthusiastically rush into your car to make the 30-minute trip to see this jackpot. As you take your first step into the house, your heart skips another beat, “The interior is even more breathtaking than the outside of the house!”— Red oak floors, plantation shutters, ideal amount of rooms for the family, and a finished basement.
As you are basking in satisfaction, you look at the price of the house and begin to grow leery. Your financial situation has drastically improved, however, due to some previous unfortunate events and failure to repair your credit, your score has failed to follow the path of your finances and remained low. “Will any lender be willing to give me a loan for this house?”
You are eventually turned down by multiple lenders and lose out on the sale of this home. “Why did I make those financial mistakes before?! Now I’ll never be able to get a loan!”
Stop right there.
Everybody deserves a second chance when it comes to a credit score! These helpful tips could assist you on your road to recovering your credit and experiencing a better life:
Is This YOUR Credit Report?
I’m sure you are familiar with the longest current running sitcom on TV: The Simpsons. As we travel back through history, we take a brief stop in the year 1990 when the second episode of the Simpsons aired, called Bart the Genius. Simply put, Bart is the definition of a scalawag. He is a rascal that is always stirring up trouble at school and never studies. In this particular episode, Bart and his classmates are in the midst of taking a big test and, expectantly, Bart is stumped on every single question. He suddenly sees the smartest kid in the class, Martin Prince, finishing up his test, so he swiftly bubbles in random answers and follows him up to the front of the classroom to turn in the test. The teacher is luckily away, so he takes advantage of the moment and stealthily switches their names on the two tests. Later, Bart is heralded a genius and Martin is left speechless from his test result.
Likewise, is there a Bart Simpson ruining your credit score? According to studies from the Federal Trade Commission, "More than one in five consumers have a 'potentially material error' in their credit file that makes them look riskier than they are."
You are entitled one free credit report every 12 months from each of the three major credit bureaus: Equifax, Experian and TransUnion. As you evaluate your report, here is a helpful set of common errors to look for published by the Consumer Financial Protection Bureau. Additionally, you can also monitor your FICO credit score for free by using resources such as Experian.com to track when your credit score increases or decreases. Go and take advantage of this opportunity!
How long have you taken to try and decode this abbreviation? 5 minutes? 10 minutes? (…Give up?! Are you sure?)
Pay Your Bills On Time
Clever, right?! We have heard this phrase countless times in our lives, so it’s about time to try and make it sound slightly more digestible.
This phrase is constantly repeated because of how important it is—paying your bills on time plays the largest factor in influencing and changing your credit score because it will determine if you have a negative or positive payment history.
As an example, let’s once again take a trip down memory lane. This time, though, we are going to take a field trip back to grade school. Unless you had a really cool teacher, every assignment had to be turned in on time. If you failed to meet the assignment deadline, you were penalized by either getting a few points docked off or just a big, fat, ugly ZERO. The only way to make up those points were to complete extra credit assignments or other projects your teacher came up with. If you failed to turn in the assignment on time or complete any extra credit, your final grade undeniably would be affected.
Similarly, if you pay your bills late, your final grade (score) will be affected. The extra credit assignments to make up for your failure to pay your bill on time is to start paying all of your bills on time going forward so you have a positive payment history.
According to an article from equifax.com, “A consumer with a 680 FICO Score and two late payments (a 90-day delinquency on a credit card account from two years ago and a 30-day delinquency on an auto loan from a year ago) would experience a 60- to 80-point drop after being hit with another 30-day delinquency.”
Go P.Y.B.O.T crazy! Try to do everything you can to make your payments on time!
Do Not “Push It to the Limit”
Let’s take a quick 3-minute break to have a listen to a classic song by Paul Engemann that appeared in the 1983 motion picture Scarface titled Scarface (Push It to the Limit).
Are you finished air drumming and bobbing your head to the rhythm and beat of this masterpiece?
Contrary to the song’s title of “pushing it to the limit,” you probably do not want to do that with your credit cards. According to VantageScore, it is best to keep your credit utilization below 30% for each card. Lenders will use your utilization as one of the most important factors in determining your creditworthiness because, along with payment history, accounts for 30% of what influences your credit score.
Perhaps you could start making multiple smaller payments during the month to keep your balances below the 30% threshold? Setting up an alert on your smartphone as a reminder of your cycle due date approaching? Whatever method you choose, it’s a good idea to make sure you aren’t maxing out any of your credit cards so your score doesn’t take a major dip.
Mend Those Relationships with Late Payments
We have all experienced those dreaded arguments with our spouse/boyfriend/girlfriend which lead to awkwardness, resentment and grudges. Maybe you know you are right and your partner is just too stubborn to accept the truth? Does this lead you to hold onto a grudge until they apologize? Do you ignore them completely until they do what you want? Whether you choose to admit it or not, staying angry is tiring and uncomfortable; no matter what you do, those feelings are not going away. The phrase, “The only person a grudge hurts is yourself” rings utterly true here because when everything is finally hashed out, you realize you wasted so much time being angry. It could have taken a simple, “I’m sorry” from you for all the trouble to go away, allowing you to move forward living happily.
The same principle can be applied to your relationship with your late payments and collection accounts. If you hold a grudge towards your late payments or try to ignore them by attempting to close an account, the payments will still always be there and hurt you until you choose to apologize to them (pay them off).
Credit.com states the importance of paying off your late payments by saying, “Delinquent payments can remain on a credit report for up to seven years from the date of the missed or late payment that the credit bureau reported.”
Go make those annoying late payments a priority so you can fully enjoy life again!
Go Improve Your Credit Score!
As you make payments on time with your auto loan, your credit history can improve, and, likewise, can play a role in improving your credit score.
When your credit score improves, you may finally be able to purchase that perfect home or car you have been waiting for AND qualify for much better rates which will save you lots of money!
Start today by monitoring your credit report for any mistakes, paying your bills in a timely manner, limiting your credit balance, and taking care of your late payments – this will help you stay on the road to improving your credit score!