It might have been student loans or just general overspending when you were younger, but a poor credit rating can end up seriously affecting your ability to move forward later in life. When you are considering purchasing a property (to live in or as a real estate investment), your credit score plays a large role in how expensive the financing will be by way of your interest rate. It can also be a barrier to approval for your mortgage loan entirely. If this is a cause for concern or a problem you are dealing with and looking to resolve, then you’ve come to the right place – the ultimate guide to repairing your credit score fast!
Get a Copy of Your Credit Report
Before you do anything, you need a copy of your credit report. This allows you to assess the score and see just how bad the situation might be. By looking through the scores and seeing the reasons you have a less than desirable score, you’ll get a good sense of where to start repairing your credit score. The report will also allow you to work out which aspect of the report should be tackled first. You can obtain a copy of your credit score by paying for it, or you can often join a credit rating agency for a 30-day free trial, get the report, and then cancel. The main credit bureaus also will allow you to download your report free of charge once every 12 months, via the government-sponsored website AnnualCreditReport.com.
Related: How to Buy Investment Property with a Bad Credit Score
Dispute
Bear in mind that when you obtain your credit report, don’t automatically assume everything on it is correct. Match up your report with your financial documents and accounts, so you can go through everything with a fine-tooth comb. If you find incorrect late-charge entries or general inconsistencies – especially accounts that you never opened or thought you closed – then tackle them first. It can be difficult enough to repair a credit report without taking responsibility for things you haven’t actually done wrong or that may be the result of identity theft. Investigate and don’t be afraid to challenge or dispute anything you see that you don’t agree with or is erroneous.
Work Out Your Expenses
There’s little point in interrogating your credit report and score if you’re living beyond your means. Attempting to fix your report while still over-spending each month will simply keep you in the same position you’re already in – with limited access to credit or loans, and little hope of putting your money to work via property investment. You must take a good look at your finances and work out what you can and can’t live without. It may be that you have to get rid of that website membership or stop hitting up the local coffee chain for your daily caffeine fix.
If you are living beyond your means, you have to make some sacrifices until you get your finances back on track. Prepare a monthly budget based on your income and essential expenditures. Then work out where the rest of your money goes and decide what you can cut out. Making savings on unnecessary costs also means you will have more cash to put towards making a real estate investment. It’s a win-win situation.
Related: How to Save for a Down Payment on Investment Property
Late Payments
One of the first things you can do to repair your credit score quickly is to remove any recent late payments. A single late payment can have a significant impact on your score, so make a list of any you have on your report and make contact with the original creditor. Requesting the removal of late payments can take a bit of steel on your part. Some companies will be reluctant. If you come across anyone like this, offer to set up regular payments in exchange for the removal of the offending article from your report, and you might find they’re suddenly more willing to play ball.
Pay Your Bills on Time
The logical companion task to resolving late payments is striving to pay your bills on time in the first place. Set up direct debits/automatic payments, or use your smart phone’s calendar app if you pay by paper check, to remind yourself in advance of the due date. Late payments do not look good for you and put you back in the situation of having to contact creditors, asking them to remove the evidence from your report. It’s a case of one step forward and two steps back for your credit score and will make lenders hesitant to issue you a loan.
Raise Your Credit Limits
Although it may seem like an odd way to improve your score, it really does work. This immediately helps to reduce your credit utilization, which is typically an area where many people have negative dings on their credit score. Credit utilization is a percentage or ratio, essentially the outstanding balance divided by the credit limit for that account. Higher utilization means you are living close to the edge of your credit limit, so a lower percentage is the goal here. By boosting your limits, your utilization percentage immediately goes down, often significantly, and thus improving your credit score. If you contact your credit card or credit line companies, do it in writing, and request a soft pull on your credit. If a hard pull is made, the search will show up on your report, and this doesn’t do you any favors – too many inquiries is another common reason for poor credit scores.
Get More Credit
Again, it might seem like the last thing you should be doing, but a secure credit card or a co-signatory (someone with an excellent credit score) can actually help to increase your score. It’s essential to have credit as this is what feeds into and makes up your credit score. If you don’t want to go down this route, get someone you know with excellent credit to add you to a credit card as an authorized user. This means the history on the card is counted towards your score as well, and, as long as the card isn’t abused, it can help to pull your credit score up quickly.
Pay Down Revolving Debts
The total amount you owe on credit cards should optimally be around 30% of your credit limit. Higher debt loads on cards will result in a greater impact on your credit score. If you can reduce the debt on each card – or as many as you can – down to less than 30% of the available balance, it will improve your score. Check all your cards for current balances and work out what percentage of the limit your current debt comprises. From there, you can calculate how much you would have to pay in order to reduce this to less than 30%. If you can take them down further, even better, but reducing them all below 30% is the factor that will help improve your score quickly.
Related: Is It OK to Be in Debt While Investing in Real Estate?
Summary
There are numerous ways to quickly make a positive impact on your credit score. However, quick fixes are unlikely to last long if you don’t change the habits that caused the issues in the first place. The overall goal is to have an excellent credit score so that you can get the lowest interest rate, largest mortgage loan, and purchase the investment property you’ve been dreaming about. To achieve this, you need to put these suggestions for repairing your credit into practice and work on your budgeting, planning, and timely payment of bills at the same time.
This article has been contributed by Chris Mercadante.
