Car Buying Tips

How to Fix Your Bad Credit

Fixing Your Bad Credit to Buy a Car

We have all been there, our credit scores are low and we need to find a way to improve those scores to buy a used/new car. We have come up with some tips on how to improve your credit score and keep in mind, it will take some time. First off let’s explain what your credit score is. A credit score is calculated by applying a mathematical algorithm to the information in one of your three credit reports, and there is no one uniform algorithm employed by all lenders or other financial companies to compute the scores. Most scoring models take into account your payment history on loans and your credit cards or how much revolving credit you regularly use, how long you’ve had accounts open, the types of accounts you have and how often you apply to get new credit. Now, let’s list off some ways to improve your credit score fast so you can buy a used/new car.

Tip 1. Pay your bills on time!

Try to be on time when paying your bills that includes rent, cellphone payments, utility bills, credit card bills, auto loans, and scary student loans. You can positively influence the credit scoring factor by paying all of your bills on time every month. Paying late or settling an account for less than what you originally agreed to pay can negatively affect credit scores. Although late or missed payments appear as negative information on your credit report for seven years, their impact on your credit score declines over time.

Tip 2. Pay off balances and keep credit card balances low.

The credit utilization ratio is another important number in credit score calculations and it is calculated by adding all your credit card balances at any given time and dividing that amount by your total credit limit. For example, if you typically charge about $2,000 each month and your total credit limit across all your cards is $10,000, your utilization ratio is 20%.To figure out your own average credit utilization ratio, try to look at all your credit card statements from the last 12 months. Add the statement balances for each month across all your cards and divide by 12. That’s how much credit you use on average each month. Lenders typically like to see low ratios of 30% or less, and people with the best credit scores often have very low credit utilization ratios. Make sure you pay off all of your debt and keep those credit card balances low.

Tip 3. Apply for and open new credit accounts only as needed

Unnecessary credit can harm your credit score in multiple ways, from creating too many hard inquiries on your credit report to tempting you to overspend and accumulate more debt. Be responsible with your spending.

Tip 4. Don’t close unused credit cards

Keeping unused credit cards open (as long as they’re not costing you money in annual fees) is a good strategy, because closing an account may increase your credit utilization ratio. Owing the same amount but having fewer open accounts may lower your credit scores.

Tip 5. It will take some time.

If you have negative information on your credit reports, such as late payments, a public record item like bankruptcy or too many inquiries, you should pay your bills and wait. Time is your friend in improving your credit scores. There isn’t a quick fix for bad credit scores.

The length of time it takes to rebuild your credit history after a negative change depends on the reasons behind the change. Most negative changes in credit scores are due to the addition of a negative problem in your credit reports, such as a delinquency or collection account. These new elements will continue to affect your credit scores for a period of time. Remember delinquencies remain on your credit report for seven years and most public record items remain on your credit report for seven years, although some bankruptcies may remain for 10 years. A good credit score can open doors for you. From helping you qualify for the best interest rates when you borrow money to influencing how much you pay for life insurance. Some might be doors you never even dreamed existed. Landlords will consider your credit scores when you apply to rent, and even telecom companies might look at your scores before you lease your next smartphone. Car companies also look at your credit scores when it comes to car loans. So take the time to work on your credit before you try and purchase a car.

by Leashie V. – Content Creator at Half Full Marketing

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