Just like trust, a great credit score is hard to achieve and easy to destroy. It takes just one missed payment or an extra-high balance to shave a few points off your score – and, depending on your current creditworthiness, that can mean the difference between being approved for a mortgage or having to continue renting indefinitely.
Many of us make bad financial decisions in our youth, and it can often feel impossible to break out of that debt cycle and begin building good credit. It’s true that it can be incredibly hard to start saving money and paying down debt, but it’s not impossible. No matter how far you’re in the hole, let’s take a look at some proven strategies that can help you repair your credit score and live the life you deserve.
Develop a budget that prioritizes paying down debts
You might be stunned to learn that only 33% of Americans keep a comprehensive budget that tracks their finances and sets hard limits on how much to spend in each category – but the good news is that it’s never too late to put one in place. You can’t begin to repair your credit if you’re still spending money on extraneous purchases, and the best way to see where you can cut down is by creating a budget.
For a month or so, you should meticulously track where all your money is going; don’t change anything just yet, only pay attention to what’s happening with your wallet. Once you’ve got some data, it’s time to tinker and build a budget you can stick to. It’s tempting to try to cut everything cold turkey, but that won’t work: just like with dieting, if you’re too restrictive, you’ll fall back on old habits for comfort. Are you spending money on comfort purchases? Try to replace that with something free, like a new hobby. Do you have a really expensive gym membership? See if there’s a YMCA nearby, as their memberships are usually much cheaper.
Now you can pour that extra money into paying off more than your minimum monthly statement on your credit cards, which will reduce your Debt to Income (DTI) ratio much faster.
Get a secured credit card
You might be thinking, “I’m trying to get out of debt, so why am I getting more credit?” It’s understandable to think that, but secured credit cards are different. These accounts, like the credit building credit card from Varo Bank, require a security deposit; Varo’s will set your credit limit at the amount you deposited, which means that you won’t be spending more money than you can afford. This card is great for those with bad credit, as they don’t check your score, and they also have no fees or interest rates. In addition, they help build your credit faster than a traditional card, but without providing you with access to temptingly high lines of credit that could exacerbate the problem.
If you’re struggling with a low credit score, you might also struggle with financial management; this card helps you develop good spending habits while also improving your credit, which is a total win-win.
Regularly check your credit report and, if necessary, work with a credit repair company
Errors on your credit history are far more common than you think, and they may be holding you back through no fault of your own. It’s important that you regularly check your credit score so that you can promptly protest any errors that pop up. Many credit card issuers provide a free credit monitoring service that you can access straight from your online portal; you can even set it up so that they will send you monthly reminders to check how your score is doing, as well as helpful advice for how to improve.
If you’ve got older errors that you missed, don’t despair: credit repair companies may be able to help you. They’ll take a close look at your history and begin disputes on your behalf, which can save you a lot of time and hassle. Even if a blemish on your report is legitimate, they may be able to negotiate with the other party to get the issue removed from your report. While they do take a fee, it’s worth it if a low credit score is all that stands between you and purchasing a home or a car.
With time and patience, you can develop an excellent credit score
Your credit score isn’t fixed, and it fluctuates regularly with every purchase. Though it may seem impossible to raise your score, everyday actions can make a big difference over time, so you should never despair if you find yourself denied a credit card or loan. By focusing on paying down debt, getting secured credit cards, and paying close attention to your score so you can dispute false marks, you can rebuild good credit that will help you access things like mortgages and car loans.