Photo Credit: LoboStudioHamburg
The other day I was surfing the web and I stumbled across a post on Daily Finance called “Is It Possible to Get a Perfect Credit Score?” The article talks about whether or not a perfect credit score is actually achievable (short answer: yes, but it probably won’t stay perfect for long because credit scores are calculated in a variety of ways and change almost daily) and all I could think was “Who cares about perfect? I just don’t want to get laughed at if I try to buy a new phone.” Oh New Girl. Your quirky comedy hits home on so many levels.
The most important thing I took away from that post, after I forced myself to finish reading it, wasn’t the fact that a perfect score is achievable (however fleetingly). What stuck with me was the fact that our credit scores are constantly changing. That dismal number you’re looking at right now isn’t permanent. You can take steps to change it. Moreover, most of the steps you take in the next few days could raise your score by hundreds of points within just a few months.
So what are those steps to a better score?
1. Figure Out Where You Are Now
If you haven’t run your credit report in the last twelve months, now is the time to do it. You can’t figure out where you want to go until you know where you’re starting out. Plus, you’re allowed to check your credit for free once every twelve months. Take advantage of the freebie.
2. Correct Mistakes
Did you know that most Americans have credit histories that are filled with mistakes? It’s true. It turns out that the credit reporting bureaus aren’t at all diligent in fact-checking your reports or scores. Making sure you don’t have mistakes on your record is your responsibility. This means that the first thing you need to do after downloading your reports is go through them detail by detail. Make sure every single detail is exactly accurate. If you find something that is even a little bit off, report that mistake to the agency that lists it. The credit reporting agencies are required to investigate disputed items (like mistakes) and if they can’t verify their accuracy, those mistakes must be removed from your record. Some people have experienced a significant score jump just by having their mistakes corrected.
3. Figure Out if You Need Help
You are the best judge of whether or not you are equipped to tackle your credit score and debt on your own. The simple fact is that you might not have enough room in your budget to pay even the minimum amount due on each of your debts every month. Or maybe you’re terrible at remembering to pay your bills on time. Don’t be prideful here. Look at your numbers and your habits as objectively as possible.
If you need help, there is no shame in asking for it. There are actually a lot of companies that specialize in credit repair and debt reduction. Typically the way it works is this: these companies act as a “middle man” / ”representative” between you and your creditors. They negotiate your payments and debts down as far as possible and then work with you and your budget to set up a respectable payment schedule. You send your payment to the credit repair company each month and then the credit repair company distributes that payment among your creditors, effectively paying down your debt.
The primary downside to this option is that these companies rarely take on this task for free. Most charge a fee—usually a larger “up front” fee and then a small commission is taken out of your monthly payment. Evaluate the fee vs. trying to pay down your debt on your own and then make the decision that makes the most sense based on your numbers (feelings have no place when it comes to repairing your credit and paying off your debt).
4. Build New Habits
Here’s the thing about bad credit scores that most of us don’t want to face: usually those bad scores and bad credit histories are our own faults. Yes, sometimes, there is a huge disaster that ruins your finances. Most of the time, though, your financial disaster is the result of dozens of small but still terrible decisions made over time. Paying off your debt isn’t going to magically cure you of these habits. You have to do the work to break old bad spending habits and build new responsible ones. This can be an extremely frustrating process but it is possible.
The trick is to do this slowly. Don’t try to make yourself over all at once. All that does is tempt you to rebel against your better intentions. Go slowly. If the changes are gradual, they’re more likely to *stick.*
The one exception to this is your shopping itself. Many of us shop simply out of habit, because we want to get out of the house and need something to do once we’re out. Instead of automatically heading to the mall, use sites like Meetup.com to find groups you can join based on your hobbies. Go to the library instead of the mall. You’ll be amazed at how much better you feel and how quickly you reduce your spending when you stop shopping out of boredom.
5. Rebuild Your Credit
A lot of people wait until their debts are completely paid off to start working on rebuilding their credit. It’s understandable that you’d be hesitant to take on new lines of credit or new types of debt. Still, there are things you can do to rebuild your credit that aren’t as risky (or as tempting to abuse). For example, instead of waiting until your debt is paid to open a new unsecured line of credit, save up some cash and use that to open a secured line of credit. This will help you get back into the habit of using your credit responsibly and can help you build your credit score back up.
Have you been working on your credit? What have you been doing to get back on track? In particular: what are you doing to develop new and healthy spending habits?