Whether you want to buy a house or get a new car, you will most like need to finance your purchase. Before a bank gives you a loan, they want to make sure that you will actually pay it back. This is the main reason why lenders look at credit scores. If you want to qualify for a loan, you have to find ways to improve your credit score if you’re in debt.
What Is a Credit Score?
A credit score consists of three digits. It is used to show lenders how likely you are to actually pay back a debt. There are three main credit bureaus that all create credit reports. Each year, you are allowed to get a free report from Equifax, TransUnion, and Experian. These credit bureaus create scores that range from 300 to 850 points.
Your score at each credit bureau can actually vary because lenders do not always update their information at the same time to each bureau. Some lenders do not report to the bureaus at all. In other cases, they may only report to one of the bureaus. Ultimately, your credit worthiness is determined by how high your score is. If you have an extremely high score, you are more likely to get approved for loans and receive a lower interest rate.
What Impacts Your Credit Score?
While there are different scoring models, there are a few similarities between these scores. In general, the scores will be based on your payment history, the amount of debt you have and how long you have had a credit record. The scoring models consider if you have different types of credit like student loans, credit cards, and mortgages.
In addition, your score is made up of how many hard inquiries you have on your credit report. The credit bureaus look at your total credit limits and how much of these limits you are actually using. While your score may vary between different credit reports, they will generally be fairly close.
How to Improve Your Credit Score
Ultimately, you want to figure out how to improve your credit score if you’re in debt. Other than boosting your score for a mortgage or car loan, you may also need a higher score to get a job. Some employers review your credit score and financial history before they consider hiring you or giving you a promotion. Luckily, a few changes can quickly work to boost your credit score.
One way to boost your score is to make sure that your credit report is actually accurate. In general, negative information like collections and missed payments disappear from your report after seven years. For bankruptcy, the information should go away after 10 years. If any of this information is still on your report, file a dispute to get the information removed.
Sometimes, the problem with your credit score is the types of credit. If you have different debt types like student loans, mortgages and car loans, it looks better than having a bunch of credit cards. No matter what type of debt you get, you need to make sure that you pay your bills on time. Any late payments on your mortgage, utility bills or other debts can hurt your overall score.
Credit bureaus look at your overall debt limit and how much of your limit is currently in use. If you are using 90 percent of your debt limit, it will be worse for your score than if you are using 60 percent. To remedy this problem, start by paying off your debt. Focus on paying anything with a high-interest rate first before moving on to your other debts.
Ideally, you want your credit utilization rate to be under 30 percent. This shows lenders that you have self-control and are not getting in over your head. If you cannot afford to pay off your credit debt to reach this goal, try raising your credit limit. This will instantly work to lower the amount of your limit that is being used.
Consolidate Debt to Boost Your Score
Consolidating your debt can also increase your credit score. If you are using 80 percent of your credit limit, you can consolidate those debts into a single loan. Then, your credit utilization rate goes down. Consolidating debt can also help you diversify your credit file and pay off delinquent debts.
This technique also helps by simplifying your monthly payments. Instead of paying five bills at different times of the month, you get one easy payment. Often, you can consolidate debt for a lower payment amount as well. Because you only have one payment to remember, you are less likely to forget to pay it. As a result, you can enjoy a higher credit score.
Debt Settlement Can Help Your Credit Score
For your credit score to improve, you have to be able to pay your debts on time and have a fairly low utilization rate for your credit cards. Sometimes, achieving those goals is impossible with your current debt levels. With debt settlement, you can negotiate with your creditors to pay a lower amount. If you were previously unable to pay those debts at all, settling them is definitely a better option.
If you have found yourself struggling to make monthly payments and are ready to get a handle on your debt, call Christian Debt Counselors today. Our professional staff will work with you to examine your debts and determine a debt payment strategy that works for you. Along with debt consolidation or debt settlement and your hard work – your credit score will begin to improve. Call today!