Credit scores can be the deciding factor for many major transactions. Lenders use credit scores to predict future behavior based on your past—if you have a low score because your cable bill is delinquent, then a lender won't think you're a good risk.
The credit score consumers are most familiar with is FICO, but there are a variety of credit scores, and each is customized to fit a specific transaction type. It's wise to know about what these credit reports are saying about you, and a reputable identity protection and credit monitoring service can keep you up-to-date. Protecting your information, including social security number and financial accounts, is essential in safeguarding your future. An identity protection company will look after your sensitive data and keep it monitored under any possible threats.
If you have a low credit score or you're a credit newbie, you may think, “But if a lender won't extend credit to me, how can I pay build my credit score?” It seems like a vicious circle, but there is hope! The following tips can help you raise your credit score without falling victim to scams:
Keep Them Open
Sometimes people who have struggled to repay high credit card debts are tempted to close the accounts when they're been brought current. But that can actually hurt your credit score, because lenders will think you doubt your ability to manage the debt. The key is to make sure your debt-to-income ratio is in proportion. Keeping your balance to limit ratio low is key, suggests FICO.
When you apply for credit, an inquiry is made to the credit bureaus. Too many inquiries make you seem financially desperate, so be conservative. On the other hand, don't be a “credit ghost.” It's important to establish a history of taking out credit and repaying debts promptly, and you need at least three lines of credit to be tracked by the credit reporting agencies.
Start with your credit card bills—repaying them gives you the most bang for the buck in terms of building credit. ABC News suggests calling your lenders and asking if they're willing to negotiate the amount of debt owed and the interest rate. If you can agree to a plan—great! Just make sure you find out how the terms will be reported. And if you can't make any headway, contact a reputable financial counseling service. Look for an agency that's accredited by the Better Business Bureau and the National Foundation for Credit Counseling.
Choose the right credit cards
Asking someone with solid credit to co-sign on a card with you is a good way to build credit, according to The Street. So is using a card that's secured by your savings. Some cards are even made solely for the purpose of rebuilding credit. There are any number of credit cards that offer fewer penalties and lower interest rates—research them and choose the one that's the best fit.
So break the cycle! With careful planning and watchful monitoring, everyone can build a credit score high enough to make major purchases like cars and homes.