I recently read an article in Forbes Magazine titled “How to Fix Your Credit in 7 Easy Steps.” The article, written by Lindsay VanSomeran and Jordan Tarver can be found at https://www.forbes.com/advisor/credit-score/how-to-fix-your-credit/. I was sad to hear this week that a very qualified candidate will likely not get a position in the Biden because of concerns about her debts. With the dysfunction in Congress and the relenting partisanship shown at every turn, the Biden Administration believed that she would not be confirmed and would face grueling scrutiny. Thankfully I don’t have credit concerns. Now. Unfortunately, that was not always the case, and I most certainly can identify with the candidate on so many levels. Because truly none of us regular folks know what tomorrow may bring. One catastrophic illness or a loss in a court case that doesn't go your way can change the trajectory of your life so quickly. A miscalculation of unforeseen expenses you may incur simply because you want to provide your child with a fighting chance by enrolling them in school can wreak havoc on well-intentioned budgets.
During the two years I was in grad school times were incredibly tight. When we looked for an apartment, we were denied twice because of our credit. One kind apartment manager took a chance on us and ignored the rules and decided to allow us to rent an apartment in a very nice complex. We moved in and hunkered down to begin the process of repairing our credit. In the article referenced above, VanSomeran and Tarver shared some great tips which may be helpful:
· Check your credit report and your score
Your credit report contains information about how you’ve used credit in the past 10 years. You have one credit report at each of the three bureaus: Equifax, Experian and TransUnion. Most creditors report to all three, but not all, so it’s worth checking the information on all three of these reports.
Your credit report is used to calculate your credit score, and it’s important to check this too. You can check your credit score for free through credit scoring websites or some credit card providers. Checking your own score only requires a soft credit inquiry, which doesn’t damage your score. We recommend checking your score once per month.
· Fix or Dispute Any Errors
Unfortunately, credit bureaus sometimes make errors. According to one study by the Federal Trade Commission, a quarter of people had errors on their credit report and 5% of people had errors that could have made getting a loan more costly for them.
So, while knowing your credit report and credit score is a good first step, it’s also crucial to look for errors. If you spot any, it’s a relatively simple process to dispute those errors and have them removed.
· Always Pay Your Bills on Time
Your payment history makes up 35% of your credit score. So, if you want to fix your credit, you should focus on ironing out your monthly payments.
If you can’t pay your bills on time, contact the office and work out a payment plan. If you’re worried about overdrawing your account, we recommend setting up a budget and/or scheduling your payments automatically for the same time you get paid.
· Keep Your Credit Utilization Ratio Below 30%
Your credit utilization ratio is measured by comparing your credit card balances to your overall credit card limit. Lenders use this ratio to evaluate how well you manage your finances. A ratio of less than 30% and greater than 0% is generally considered good.
For example, let’s say you have two cards with individual credit limits of $2,000 and $500 of unpaid balances on one card. Your credit utilization ratio would be 12.5%.
· Pay Down Other Debts
If you have outstanding debts, paying them off can help improve your payment history and reduce your credit utilization ratio. When planning to repay your credit card debt, consider the debt avalanche or snowball method. The debt avalanche method focuses on repaying your high-interest cards first while the snowball method focuses on repaying your smallest balances first. Evaluate both to determine which method is best for your situation.
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Keep Old Credit Cards Open
You might be tempted to close old credit cards when you’ve paid them off. However, don’t be so quick to do so. By keeping them open, you can establish a long credit history, which makes up 15% of your credit score.
There are a few caveats here, though. Your issuer may close your card after a certain period of inactivity and if it charges an annual fee, it might be worth closing.
· Don’t Take Out Credit Unless You Need It
Each time you apply for credit, your creditor will run a hard credit check. This can drop your score by one to five points. It’ll also lower your average account age, which also can drop your credit score. So, as a rule of thumb, try to avoid applying for credit unless you really need it.”
There was a June 7th article in the New York Times Magazine titled “The High Cost of Bad Credit” (https://www.nytimes.com/2023/06/07/magazine/bad-credit-repair.html) which talked about how the credit counseling business is booming. The article noted that Americans spend a billion dollars per year on “credit repair.” Entrepreneurs are finding it quite profitable to offer services to help customers repair their credit. Unfortunately, the credit repair industry is full of bad players who take advantage of consumers desperate to repair their credit.
Poor credit can be the reason you aren’t approved for housing or transportation. It can also be the reason you aren’t selected for employment. Don’t feel overwhelmed. Don’t feel guilty and beat yourself up over how you got here. Save that energy for the job at hand, repairing your credit. Get organized, start planning, create your budget, and get started. Remember “P, C and C.” Be patient, committed and consistent. You will get there.
