Finance Globe

U.S. financial and economic topics from several finance writers.
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Slow and Steady Wins the Credit Score Race

You can kill a good credit score in a matter of months. It’s easy. In fact, you don’t have to do anything because not doing something, specifically not paying your bills, is precisely what makes you lose a good credit rating. Once your good credit score is gone, getting back won’t be so easy or as quick. Think of it as growing your hair long again after getting a haircut. It takes just a short time to whack off those long locks. But it may be several months or years before your hair is the same length again.

You might already know that negative credit information stays on your credit report for seven years. And the more recent those negative items are, the more they’ll hurt your credit. If you’ve fallen behind on payments, you can’t fix the damage to your credit by catching up. Credit scoring doesn’t work like that. All the mistakes you’ve made within the past seven years (10 years if it was a bankruptcy) will affect your credit. Some mistakes hurt worse than others. For example, a bankruptcy, repossession, or foreclosure will hurt your credit score more than a 30-day late payment.

The presence of recent, positive information on your credit report is exactly what you need to turn your credit around, but you can’t expect fast results. It takes work to rebuild your credit score. The negative items will eventually get old and drop off your credit report. But, you also need to have timely payment history to get a great credit score again. How to do this? Start by opening a couple of new credit accounts. You'll probably have small credit limits on these accounts. When you have bad credit, banks probably won’t trust you to responsibly handle a large credit limit. It’s ok. You have to start somewhere and it's better than nothing.

As you show your creditors that you can manage a small credit limit, they may extend a little more credit to you, either voluntarily or upon your request. Wait about three to six months after opening your account before you request a credit limit increase. You’re more likely to get a credit limit increase if you’ve paid on time and have kept your balance low relative to the credit limit.

Increases in your credit limit are a sign that your credit is improving. Creditors are willing to let you borrow a little more than they would at first.

If your creditors refuse to raise your credit limit, try not to get frustrated. Instead, figure out why. When a creditor denies your request for a credit limit increase, they’ll follow up with a letter explaining why. You’ll get a free credit report or credit score (or both), if either was used in the decision to deny your credit limit increase.

Subscribing to a credit monitoring service can help you see how your credit score is changing in response to your new credit habits. If you don’t want to pay for credit monitoring services, you can use a free service like CreditSesame.com or CreditKarma.com to check your credit score. Note that these are both educational credit scores, not the ones used by lenders to approve your credit card application. Still, watching these scores over a period of time will show you how your credit score moves. You’ll see it inch up every few weeks and it may shoot up when negative things drop from your credit score.

Don’t be discouraged if your credit score drops a few points. It happens. The important thing is to keep being responsible with your credit. It will take time, but your credit score will respond.
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Monday, 26 August 2019

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