In the United States, your credit score can be either a sign of responsible financial practices or a warning signal to creditors that you’ve not been so reliable with your payments. So what do you do after a financial crisis when you are ready to use your credit score toward a large loan?
1. Fix Errors
Statistics have shown that up to 70 percent of American credit scores contain errors. For example, the presence of incorrect addresses or other personal information may indicate that the debt is not actually yours. Also, duplicate or outdated information can be removed upon request. Fortunately, you can request a copy of your credit scores from the top three agencies every 12 months, which will protect you and assist you in obtaining any new auto or home loans in the future.
2. Catch Up
Most creditors have hearts large enough to understand the unpredictable ways of life so missed payments can be fixed with a little communication. If you’re behind on your bills, trying to call and request a payment plan couldn’t hurt. If you are too far behind and creditor is unwilling to negotiate, a personal loan can help you pay off your existing debt. This new type of credit will make you look good as long as you are sure to make the loan payments on time.
3. Pay on Time
If you are planning on applying for a new home loan, the best thing you can do is make all of your current payments on time. This includes not just your credit cards, and other loans, but everything else from your cell phone bill to your rent and utilities as well. Late payments and collections negatively impact your score, but paying on time raise it, and may garner you some letters of recommendation when you are ready to apply for that home mortgage or new auto loan.
4. Control Your Credit Use
Catching up on payments and fixing error in your credit report are only the first step. Now is the time to not only make all of your current payments on time, but you must also stay in control of any new debt you may incur as you move forward. Experts agree that debtors should obtain an unsecured bank credit card and avoid closing older and more established cards.
5. Limit Your Inquiries
It is also recommended that you cluster any new credit applications into a short window of time as the credit bureaus will look at these as one inquiry. On the other hand, applications for new credit over a long period of time, or for different types of credit, are not viewed as favorably and can negatively impact your score.
Unfortunately, things such as job loss or major medical issues do happen and that can sometimes make paying those bills difficult. In addition, no one is perfect, not you or your creditors and things can fall through the cracks. So be sure to monitor and protect your credit score because you never know when you might need a loan.