An individual’s credit score becomes crucial in certain circumstances, such as borrowing from a lender or proceeding with a credit card application. Very briefly, your credit history will determine whether or not you can get credit. A higher score in your credit profile, for example, qualifies you for credit cards or loans with lower interest rates. As such, improving your credit score is vital for your financial future.
Generally, credit scores are determined using an algorithm applied by lenders or financial companies to data in credit reports. The FICO score is one of the most common credit scoring models that look into an individual’s revolving credit, payment history, applications for new credit, and other factors that affect credit rating.
Bankruptcies stay on (and affect) your credit report and score for several years. However, while building your credit after bankruptcy can be difficult, it is not impossible. Regularly check your credit report and, slowly but steadily, raise your credit score by doing the following:
- Check your credit scores and look into risk factors. Keep in mind that creditor reports affect your credit score. Credit score factors you should consider include credit utilization ratios, credit payment patterns, and repayment history.
- Pay your bills and make monthly payments for debts regularly. A would-be creditor will check the credit report of a borrower to see his or her payment behavior. Making payments responsibly seem simple but it has a significant impact. As much as possible, avoid late payments. Whether it is a credit card bill, an auto loan, a student loan, or any other loan, pay it on time.
- Pay back what you owe and ensure that your credit card balance remains low. This will help you manage your credit utilization ratio (or the sum of your credit card balances divided by your credit limit, across card companies and bank accounts). A credit utilization ratio below 30% is often considered ideal.
- Avoid opening new credit accounts. While new accounts can help you get a better credit mix, keep in mind that unnecessary credit can lead to hard inquiries. In addition to this, new accounts can also lead to overspending, which could translate to more credit problems in the future.
- Try to not close your unused credit cards. Even if it would mean paying more annual fees, keeping these unused accounts open can decrease your credit utilization ratio. As above, it helps in building good credit and increasing credit scores.
- Take time to regularly check your credit reports through credit reporting bureaus. Doing so will allow you to spot and dispute inaccuracies or incorrect information in the accounts listed. Monitoring your credit regularly and adjusting your actions based on what you see help in establishing credit.
While rebuilding credit after bankruptcy can indeed be challenging, it should be reassuring to know that it is doable. Checking your credit report and credit scores regularly is a good start. Maintaining or changing certain behaviors are also important. A good credit score enables you to get a credit card and borrow money under favorable terms and with low-interest rates, so make sure you take these things seriously.
For questions on bankruptcies, bad credit, or building your credit, give us a call. Contact us at HS&A, P.C today for a consultation.