Your credit report reassures lenders of your ability to repay a loan. If you have poor credit score, there are things you can do to restore your credit. The following are some helpful steps to follow:
1. Obtain a copy of your credit report: You can't fix your credit report if you don't know what is on it and what problems exist. To find out what is on your credit, you would need to pull your credit report. You are entitled to a free credit report every 12 months and it can be obtained from AnnualCreditReport.com. When you receive your report, examine it for errors then move to step two.
2. Dispute any and all errors on your credit report: An inaccurate reported late payment could potentially bring your credit score down about 60 to 110 points.
3. Avoid new credit card purchases: 30% of your credit score is a reflection of your credit card balances. The higher your card balances, the more it impacts your credit score. New purchases may go over the 30% utilization of the total amount of your available credit which will impact your credit greatly. Keep your credit card utilization under 30% of your total available limit eg for a $20,000 credit card limit, do not spend over $6000.
4. Pay off all past due balances: Your payment history makes up 35% of your total credit history and score. Past due balances reflect poorly on your credit and gives lenders the impression that you will not pay your bills which increases the risk for the lender.
5. Avoid applying for new credit: Applying for new credit cards hurts your credit score by causing you to lose points due to the credit inquiry.
6. Don't close existing credit accounts, leave them open: Closing a credit account with a balance still remaining can negatively affect your credit. The length of your credit history also makes up 15% of your credit score, so closing older accounts can adversely shorten your credit history. By closing an account, you will also lose the credit that came along with it, which can negatively impact your debt-to-limit ratio.
7. Negotiate with your creditors: You would be surprised just by asking for help, how often you will receive it when being unable to keep up with payments on past-due balances.
8. Pay off debts: Almost 30% of your credit score is a reflection of your total debt. Paying off these in a timely manner and reducing credit card balances will help to improve your score.
9. Seek credit counsel: If you are having trouble keeping up with your past-due balances and credit, just find help with consumer credit counseling.
10. Be Patient: Restoring your credit doesn't happen overnight, it takes time and patience for it to be restored.