Why Does Repairing Credit Matter?
Credit scores are a significant part of our financial lives. They influence everything from the rental agreements we sign to the cars we drive every day. It is often challenging to qualify for things like credit cards and loans without a decent credit score. However, if you have poor credit, you aren’t alone. Over a third of Americans have low credit scores, and therefore, they may be thinking about how to start repairing their credit.
Understanding the intricacies of credit scores and reports can help you gain valuable insights and empower you to manage your credit more effectively. You are probably aware that it is essential to keep a low ratio of debt compared to available credit, pay your bills on time, and have a long history of accounts in good standing.
However, some less obvious factors can also impact your credit. Keep reading to learn 10 things you didn’t know about repairing your credit, courtesy of Max CashⓇ!
Things You Didn’t Know About Repairing Credit
Below are 10 interesting facts about credit repair that might surprise you, shedding light on ways to boost your credit and make informed financial decisions.
1. Checking Your Credit is a Harmless Exercise
A common misconception among some consumers is that checking their credit negatively impacts their scores. Checking your own credit score or accessing your credit report has the same impact as a soft inquiry. Therefore, it won’t impact your score the same way a hard inquiry would! When you apply for new credit, such as a personal loan or credit card, a hard inquiry occurs if you consent to it. Additionally, multiple hard inquiries from financial institutions will hurt your score. Avoid inquiring about many different types of new credit all at once!
2. The 30-Day Period
Late payments can impact your credit negatively, but this will most likely happen when you are at least 30 days overdue. Your creditor can report a late payment to credit bureaus after a specified period, whether it be 30 days, 60 days, or 90 days. However, it is important to understand that while your credit might not be damaged before the expiration of the thirty-day grace period, late payments can still attract some fees and make you miss out on some other benefits associated with your credit account. Also, late payments can remain on your reports for up to seven years, so it is important to avoid them as much as you can.
3. Balance Transfer Cards Can Help You Lower High Balances
High credit balances will negatively impact your score. Credit utilization is essentially the amount of available credit you use, and it’s best to keep this figure as low as possible. This is why balance transfer cards can be a great option to help you lower your high balances. Balance transfer cards can help you split a high balance into two medium balances and may also come with introductory rates that help you save on interest over time.
Most experts recommend that you keep it below 30%, and the lower, the better. You should aim to ensure your balance is low because it’s one of the most important considerations for calculating your score. A simple way to do that is to responsibly use your card and pay the full amount due every month.
4. Pay More Than Once a Month to Lower Your Credit Utilization Ratio
As an individual, you might prefer using a credit card to finance purchases in order to earn rewards. However, not paying off your cards can lead to a high credit utilization ratio which will hurt your credit score. Issuers of credit cards would normally report your balance standings at the end of every statement period.
By making extra payments toward your current balance before the end of your billing cycle, you can help lower the credit utilization ratio (the total percentage of available credit you’re using). You eventually get more rewards without keeping a high balance which could hurt your credit.
5. Your Credit Can Impact More Than Credit Cards and Loans
The impact of credit is not limited to just loans and credit cards. Though lenders and credit card issuers often rely on credit reports and scores to make critical approval decisions, your credit can be relevant even when you are not seeking a loan.
For example, your credit history can influence the decision of a landlord to grant you a rental. Additionally, car insurance companies might rely on your own credit reports to help them determine your premiums. These examples emphasize the importance of maintaining a positive credit profile even when you are not interested in loans or credit cards. If you do not have a strong credit score, repairing your credit is important.
6. You Can Have a Variety of Credit Scores
Credit reporting agencies tend to use different scoring models, resulting in a variety of credit scores.
Each scoring model also calculates your credit score based on the information contained in your credit reports, which can be derived from three major credit bureaus, i.e., Experian, TransUnion, and Equifax, Your scores from the bureaus can differ because each of them may calculate your score differently. These differences also can exist because some lenders don’t report to all three bureaus, and the bureaus may not update your reports at the same time.
However, when you make efforts to improve a credit score, other scores you possess are likely to improve as well. Variations can occur based on the credit report and scoring model used.
7. Some People Are Not Scoreable
When you apply to get a financial product, such as a loan, mortgage, or credit card, lenders rely on information from the major credit bureaus to provide them with vital information on your past credit management. This enables them to decide whether you have the necessary intent and means to repay any funds made available to you.
Credit scoring models require some amount of past data to generate a score for someone. For example, while a particular scoring model may require an individual to have at least a six-month-old account with sufficient activity in their credit report, another model may require just an account with activity, even if it’s only one month old.
People without a credit report or who don’t have enough information in their report to generate a score are sometimes referred to as unscorable or credit invisible. If you are in this category, you can take the necessary steps to build your credit.
8. Adding Information to Your Credit Reports Is Possible
Your credit report data is mostly based on information in the database of credit bureaus, much of which is supplied by creditors and collection agencies. That is usually out of your control, although you might still have the opportunity to review your credit reports and challenge any inconsistency.
However, if you have a genuine need to update your personal information on a credit report, you can achieve this by updating your records with creditors. For instance, when you change your residence, you can update this information with the creditor. Other examples include information on eligible rent or utility statements. The next time the creditor sends an update to the relevant credit bureaus, they can take the updated information into account when evaluating credit scores.
9. The Choice Lies with Creditors
Creditors can generally exercise discretion in choosing which credit scoring model to adopt, and you may not know which model they use for evaluating your loan application. While some may apply a combination of scoring models, others can create their proprietary models. Such flexibility may enable them to do better risk assessment and can also help to score consumers who would not be scorable if conventional scoring models were applied.
10. Secured Credit Cards Can Be Advantages
If you are struggling with your credit score and cannot obtain an unsecured credit card, then a secured credit card may be a step towards repairing your credit. Secured credit cards are backed by a deposit that is held as collateral. The deposit is usually equal to the amount of credit that is extended. Using secured credit cards responsibly can help you build your credit over time.5
Get Help to Review Your Credit Report
Understanding and leveraging the above tips to repair your credit can significantly impact your financial well-being and set you up for success. If you are looking for additional guidance on managing your credit or exploring opportunities to improve your score, you have viable options! Our experts are ready to help you learn how to stay on top of your credit report and assist you on your journey to financial success.5