So you’ve gotten around to checking on your credit score. It’s not bad, hovering around the 500 range. In fact, you’ll likely get by just fine. You’re a decent customer as far as banks are concerned. Probably missed a couple of bills by mistake, but not at risk of deliberately missing payments.
You can’t complain, but know that it would only take a small push to get your score into the Good category; and all the benefits that come with it. So how do you manage it?
Have a plan
Your current credit score is a bit of a tricky situation. It’s not as easy for us to say that you’re in trouble because you’re behind on payments. In fact, you could be on top of bill payments and still lag behind on your score.
Chances are this is because CCRIS doesn’t have enough information about you. This is likely because you don’t have any lines of credit (credit cards, loans, etc). While it’s nice to know that you’ve managed to live without getting into debt, but that doesn’t help you in the long run either.
Alternatively, you really could have missed more than a few payments on your loans and bills. It doesn’t matter why this happened; just know that it has affected your overall credit score.
With this in mind, your first course of action would be to take a closer look at your credit score and see if there are any glaring points that you can work out. Services like Experian and CTOS will provide you with credit reports that outline any missed payments and/or unpaid bills. It will also show you any debt or credit cards that you own – just remember that you actually need to have loans and credit lines to have a good credit score.
Any missed payments should be your priority. These are usually the easiest to resolve, especially if the sums aren’t too big. Your payment history accounts for 40% of your credit score, and fixing it does the most to bring your rating up.
This is most important if most of your debt is tied up in unsecured loans. While you could open new lines of credit as explained in the next section, it is safer to clear your these types of loans first.
You should also note if any legal action has been taken over missed payments. This won’t affect your score more than the payments themselves, but could serve as a red flag for banks.
Open lines of credit
Another possibility is that you may need to build more credibility as a borrower in order to convince banks of your ability to repay loans. This is basically done by taking on products that require monthly payments; essentially applying for a credit card.
You could potentially take on a personal loan, but you don’t want to overdo it at this point. A Fair credit score doesn’t open you to the best rates and it would be perhaps best to save this measure for boosting your credit score at a later time.
Alternatively, you may want to look into an automotive loan if you’re in the market for a new car. This is one of the most common loans available and will help establish your credentials as a financially responsible person.
Just don’t go overboard with this step just yet. As mentioned before, your credit score tells the bank that you’re a decent customer but not one that is risk free. This translates into higher interest rates as banks attempt to cover their bases.
In other words, build this rating slowly. There’s no point in taking on large amounts of debt that you may struggle to pay off. All this does it drag your credit score down and does more harm than good.
The safest path of opening a new line of credit would be to use debt consolidation. This comes in many forms, but it basically involves taking on a new financing solution in order to pay off all your other debts.
One method of debt consolidation comes from credit cards; as some banks offer facilities for transferring your remaining balance over to a new card. This usually involves some sort of arrangement to reduce your interest payments in order to clear the debt.
Alternatively, there are unsecured loans that also do the same thing for debts in general.
As a third alternative, home equity financing is an option for those that own property. This involves using the value of your home, even if you haven’t finished paying it off yet, as collateral for a new loan.
The goal to raising your credit score is incremental improvements over time. It usually takes between two to three months for any changes to be reflected on your score. So you won’t see anything happen overnight.
Your best bet is to instead stick to your plan and check your credit rating every three months or so. It’s tempting to keep going back, but that won’t do you any good. Especially if you’re constantly refreshing the page and getting frustrated.
As far as things go, your credit score isn’t bad. It’s just that you’re on the brink of being better off financially. All you need is a couple of small steps to make the change.