Approximately 68 million Americans have poor or bad credit scores, which is defined as anything under a score of 601.
If you’re not happy with your credit score, now’s the time to get it sorted. That’s because your credit score can impact a number of things in your life. Did you know, for example, that you may not be able to rent an apartment with bad credit? You’re also likely to pay more for car insurance and higher utility deposits. Your cellphone service options may also be limited.
Ready to learn how to clear your credit and take control of your finances in 2019? Let’s get started.
Common Credit Myths
Unfortunately, there are plenty of myths out there about credit. And these misunderstandings could be impacting your credit score. For example, many people think that carrying a balance on their credit cards will help their scores. This is unnecessary, and paying your balance in full each month is a better option since you’ll avoid interest charges.
Some people assume that we all start with perfect credit. Unfortunately, everyone has to work their way up – including new immigrants to the United States who start with no credit.
If you were thinking that a credit score higher than 600 will qualify you for any credit card you’d like, you’re wrong. This is actually below average. Someone with excellent credit will qualify for almost eight times the number of cards – with better perks and rewards.
How to Clear Your Credit
So you made a mistake or two along the way, and your credit rating could use some help. The great thing about your credit score is that it’s directly impacted by your behavior. That means that it’s completely possible to turn it all around and raise your score significantly.
Here are the best ways to clear your credit:
Get the Full Picture
Before you can improve your scores, you need to know what they are. You can do this by checking your credit scores online. These reports will also show you which factors are having the biggest impact on your scores.
Pay on Time
It may seem obvious, but late payments hurt your credit score. If you’re the type to simply forget to pay your bill, it’s a good idea to set up an automatic payment. Ideally, you’ll be paying off the balance each month, but at the very least you need to make the minimum payment.
Watch Your Utilization
If you haven’t yet learned about credit utilization, you’ve been missing out on a major way to increase your credit score. Your credit utilization is how much of your available credit you’re using at any one time.
If you’re using a large percentage of the credit available to you, you can look like a risky bet. Lenders may assume you’re not budgeting well and are relying on credit to get through the month. Most experts suggest utilization of less than 30%.
Don’t Open Too Many Accounts
Every time you apply for a new card, you get a “hard inquiry” on your report. This impacts your credit rating. Not to mention the more credit you have, the more tempting it can be to overspend.
Don’t Close Old Accounts
At the same time, it’s a good idea to keep any unused credit cards open – as long as you’re not paying high annual fees. That’s because closing an account will reduce how much credit you have available – increasing your credit utilization and lowering your credit score.
Inaccuracies are common, and they could be impacting your credit score without you realizing it. Take the time to check your credit reports regularly and make sure that all of the accounts on those reports are correct.
If you do notice errors, be sure to dispute them so they can be corrected and your credit score can be updated.
Cut Your Newest Card Out First
You may find that you need to close a credit card or two simply to remove the chance that you’ll go into further debt. In this case, never cut your older cards. The longer you’ve had a credit card, the larger the impact it has on our credit score.
That’s because the credit scoring firms consider you to be more reliable if you’ve been with one creditor for a long time. If you need to close a card, choose one of your newer cards instead.
Get a Secured Card
If you’re not eligible for a credit card because of your prior credit history, you may be wondering where to start. This is also true for new immigrants and students who need to begin building credit.
One of the best ways to do this is through a secured card.
This means that you’ll pay a deposit (usually from $300 to $5,000) to the bank, and this will be your credit limit. Yes, this does mean that you’re essentially borrowing your own money.
Choose a secured card that guarantees it will report to the major credit bureaus. This will ensure that your credit score will increase with regular use of your card and paying on time.
Many banks will also monitor your use of your card, and if you prove that you’re a responsible borrower, they’ll often switch you to a normal card. This means that your deposit will be refunded and your credit card will be unsecured.
Bad credit can impact many areas of your life. It can make it more difficult to find an apartment, and cost you money with higher rates, deposits, and more.
Bad credit can also impact how you feel about yourself. No one wants to feel like they’re still paying for their poor financial decisions years later. By using the above guidelines, you’ll learn how to clear your credit, so you can improve your score.
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