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A credit score is a three-digit-number that lenders use to determine your creditworthiness. Your credit score reflects your current and past credit history and includes paying your bills on time and the number of delinquent accounts.
Credit scores are important because today’s economy relies on credit. As a result, getting a mortgage for a house, a car loan, and similar items require a good credit score. Furthermore, lack of good credit limits the things you can purchase and enjoy unless you pay in cash for everything.
Most people have to repair their credit because of debt and factors that contribute to debt, including:
· Failure to budget
· Lack of financial knowledge
Before attempting to improve your credit score, you need to know what to improve. Accordingly, you’ll need all three credit reports from Equifax, TransUnion, and Experian. Your credit report will list:
· Accounts in collections
· The name of the company that currently handles the account
· The phone number and address of the company
· The amount you owe to the company
Make sure you make payments to your current accounts on time, including your light and water bill, cable, and any other household expenses you have. Although your credit score might not reflect the best score at this time, continuously paying your bills on time boosts your credit score.
Late payments negatively impact your credit score. In addition, accounts that are in collections account for 30 percent of your credit score.
Create a budget to help you pay off the debt you owe to each company. As you pay off these debts, your credit score will increase. Make sure you receive something in writing from the company that states you paid your debts.
Credit utilization rate reflects the relationship between your credit card limits and balances. Also, if you have one or more credit cards, keep them open. And, only use them for emergency purposes or small purchases, such as gas for your vehicle. Equally important, you should only use seven percent of your available credit.
Various self-reporting tools allow you to report each time you pay your rent, phone bill, and other accounts on time. Using these tools helps you increase your credit score and improve your creditworthiness.
Applying for new credit is a hard inquiry on your credit report. This type of inquiry includes your full credit report and decreases your credit score. Moreover, a hard inquiry can remain on your account for two years.
The good news is you can repair your credit when you continuously pay your bills on time and pay off debt. Although having excellent credit is not an overnight success, it is not impossible.
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