Americans have more than $1 trillion in combined credit card debt. Yes, that’s “trillion” with a T. As you can imagine, the average American doesn’t enjoy the greatest credit score in the world, either.
Having good credit can make many of your financial decisions easier and less expensive. With good credit, you’re more likely to get approved for an auto loan or mortgage, and you’re more likely to be given the best terms and lowest interest rates. Having a good credit score also affects how much you pay for insurance, and can even determine whether or not a utility company will ask for a deposit before serving you.
Whether you’re trying to recover from past financial mistakes or you’re starting from scratch, rebuilding credit isn’t always easy. But with the right information and strategy, anyone can succeed in rebuilding credit. Read on to learn how.
Factors That Influence Your Credit Scores
Many people are somewhat mystified by their credit history and credit scores. Accurate information on credit can be confusing or disjointed, and like many practical things, it isn’t taught in school.
The good news is, understanding credit isn’t actually difficult when you break it down. The following factors all work together to decide your credit score:
- Payment history: This is a record of all the payments you’ve ever made to creditors or services that report to credit bureaus. When you make a late payment, it leaves a negative impression on your credit history.
- Credit utilization ratio: This is a comparison of the debt you have vs. your available credit. If you have $4,000 in credit available for you to spend, but you only have $1,000 on your credit cards, then your credit utilization rate is just 25%. A rate of over 30% can have a negative impact on your score.
- Total debt: The total amount of debt you owe to creditors, including traditional loans as well as credit cards.
- Mix: The diversity of your credit account types. If you have a couple credit cards, an auto loan, and a personal bank loan all at the same time, you’re likely to have better credit than if you only have one type of loan.
- Age: How old your various credit accounts are. Older accounts mean you’ve been using credit for longer, suggesting you may be more responsible and resulting in a higher score.
- Hard inquiries: Any time a credit or loan company checks your credit report to loan you money, that’s called an inquiry. A hard inquiry means your credit score will likely drop by a few points after they check your report.
- Public records: These are legal issues, such as bankruptcies and civil judgments, and can have a negative impact on your score.
As you can see, it’s easy to have things impact your credit score without even realizing it’s happening. Many people miss payments or apply for new credit cards with no clue that it’s going to affect their credit score. To avoid letting this happen to you, compare your financial habits to the above list, and make sure you aren’t actively doing anything that might negatively impact your score.
Rebuilding Credit: What You Can Do
In addition to watching out for the above-listed behaviors, there are a couple proactive strategies you can use for rebuilding credit.
If you have a high credit utilization or a low mix of credit types, you could apply for additional loans just to help you build credit. If you only have one or two credit cards, acquiring one or two more can help decrease your credit utilization ratio (just don’t spend that extra credit once you have it). A personal loan can help you add to your credit type mix.
If you have a big purchase to make or you’re considering rent to own furniture, you might try using a lease-purchase program from Okinus leasing. Okinus stores offer furniture, appliances, electronics, and even jewelry with flexible finance options. You don’t need to have great credit to apply, and when you make your payments on time, your information will be reported to credit bureaus, and your score may improve.
Whether you decide to be more proactive about paying down credit card debt or to take out a flexible loan with customer financing, these are some ways you can rebuild your credit score.