Your credit score plays a vital role in determining whether you’re eligible for all kinds of loans, including auto loans. It also plays an important role in the interest rate the lender charges you. If you have a low credit score, you’re more likely to be refused for a loan, or you may have a much higher interest rate.
If have applied for an auto loan and have been refused a loan, or have been offered a loan with very high interest rates, you should strongly consider increasing your credit score. The first step is to understand your credit and the factors which go into calculating your credit score.We highly recommend getting a free credit report that’ll show you a bird’s eye view of your credit situation. This will help you figure out what exactly is hurting your credit, and where you could potentially improve. For example, if your credit report shows that you routinely pay bills late, you should work on paying bills on time.
Some Ways to Repair Your Credit Quickly
These tips apply if you don’t have any major past financial issues hurting your credit, such as a foreclosure or a bankruptcy. Those issues can cause major damage to your credit score for multiple years.
Decrease Your Credit Utilization Ratio
This refers to the ratio of the amount of credit you use as compared to the total amount available. It’s wise to keep the ratio below 30%, and the people with the best credit scores keep it below 10%. So that means reducing spending on your credit cards significantly. Another option is to ask for a credit increase, but you need to make sure you don’t increase your spending as well. Reducing your credit utilization ratio is known to be one of the fastest ways to improve your credit. Make sure you don’t stopping your credit cards completely, as a small balanced owed is better for your credit score than spending nothing on your credit card.
Absolutely do not cancel any existing credit cards as that will result in a reduction of your available credit which will hurt your credit score.
Set up Automatic Payments to Pay Bills on Time
Paying bills late negatively impacts your credit. You want to be consistently paying all your bills on time, and setting up automatic payments is an excellent way to take care of this while giving you peace of mind.
Check the Accuracy of Your Credit Report
Ensure that all the information on the credit report is accurate. If you see something that’s inaccurate you should aim to get that fixed by contacting the credit bureau. You have the right to dispute any errors you see. Your lender may have provided outdated information to the credit bureau which may hurt your credit score.
Negotiate with Creditors
It’s very important that you always know who owns your debt, so you can negotiate with them to change payment terms or to gain some extra breathing space to make a payment. This can make a huge difference when you have debts you have to pay and you’re falling behind. Instead of letting your credit score take another hit, contact your creditors and negotiate with them to work out more favorable terms. If you’re behind on a payment and it’s gone to a collection agency, you should immediately contact your lender and offer to pay the balance immediately if they in exchange mark the payment as “paid as agreed”. Borrow money from family or friends to pay your debts, as borrowing money from them won’t damage your credit.
Use Different Types of Credit
One of the factors that can boost your credit score is having a few different types of credit. The three types of credit are installment, revolving, and open.
Installment Credit- You pay a certain fixed amount each month off your debt along with interest. A mortgage is an example of an installment payment. Another example would be buying furniture on installment.
Revolving Credit-You have a certain amount of available credit of which you can use as much as you wish. As you pay the payment off the debt your credit is renewed. With revolving payments you have the option of pushing back the amount you owe to the next month in exchange for paying a high interest rate on it. A credit card is an example of a revolving payment.
Open Payment-An open payment is something that has to be paid off in full each month. Your cell phone bill falls into that category.
Having various types of credit accounts open can boost your credit score. For example, if you have revolving and open payment credit accounts, you may consider purchasing an inexpensive piece of furniture on installment to help improve your credit score.