“Extension season” is still in full swing here at Rejoice Tax Resolution, LLC. It’s a big part of what we do for our Columbia, SC clients this time of year.
We’re always a bit energized when putting the finishing touches on those extended filing jobs, and we’ll be going strong until October 15th.
(That IS the deadline for tax returns that have been extended, so consider this to be your reminder to send in any documents we’ve been waiting on. We need them to close things out.)
Today, though, I’d like to take some time to address something I’ve seen be a struggle for many of late: bad credit score. It’s common enough in an economy where things are still rocky and people are strapped to take care of basic needs. Here’s how you might handle it if it affects you.
Practical Steps for Columbia, SC People to Raise a Low Credit Score
“Tough times never last, but tough people do.” – Dr. Robert Schuller
First, forget those expensive credit repair companies. There are things they do that you could do… without paying anything — and that’s beneficial when you’re starting the repair-credit-score process.
While a 100-point jump in a short period is probably unrealistic when you’re trying to raise your credit score, you can still make significant progress with the right strategies. Here’s a breakdown of your credit score and how your habits affect it:
- Payment history (35 percent): This is the most crucial factor. On-time payments are a very important key.
- Amounts owed (30 percent): Keep your credit utilization ratio low. Ideally, aim between 2% and 9% of your total credit limit.
- Length of credit history (15 percent): The longer your positive credit history, the better.
- New credit (10 percent): Avoid applying for too many new credit cards in a short period.
- Credit mix (10 percent): Having a healthy mix of credit types (revolving credit like cards and installment loans) is beneficial.
Now, that you know how your credit is scored, let’s focus on actually raising your credit score.
Raise your credit score — Step 1: Find out what’s actually happening with your credit
Before you jump in, take a deep breath. You’re not alone. There are plenty of other people struggling with bad credit. Start out by grabbing your free credit report from AnnualCreditReport.com. Equifax, Experian, and TransUnion (the big three credit bureaus) all offer free weekly reports now, too. Don’t be surprised if you find errors – mistakes happen all the time. Dispute them directly with the bureaus. Remember, they can only remove demonstrably inaccurate or outdated information.
Raise your credit score — Step 2: Find a way to start paying your bills on time
This might sting, but on-time payments are the single biggest factor affecting your credit score (it makes up over a third of your FICO score). Set up automatic payments for recurring bills – just make sure you have the funds to cover them.
Then, focus on paying down high-interest debt first, especially those credit cards with high interest rates. Resist the urge to just pay the minimum – that’s a trap. The more you pay down the principal, the faster your score improves.
Raise your credit score — Step 3: Use your credit cards responsibly
Maxing out your credit cards is a big no-no. Credit bureaus love to see a low credit utilization ratio (how much credit you’re using compared to your total limit). Here’s the trick: strategically use your credit cards, but pay them off in full each month. This way, you benefit from the convenience of plastic without the interest rate nightmare.
While you’re at it, also avoid applying for tons of new credit cards. Each application triggers a “hard inquiry” that can ding your score for a while.
Bonus tip: Consider becoming a renter with a credit-reporting company. On-time rent payments can actually help your credit score.
Raise your credit score — Step 4: What to do when you lack credit history
A long credit history with consistent on-time payments is music to a lender’s ears. If you’re new to the credit game or haven’t had a lot of credit history built, consider these options:
- Become an authorized user on a trusted friend or family member’s credit card with a good history. Their positive payment history can piggyback onto yours. (But don’t repeat your past bad habits and take down their credit score, too.)
- Secured credit cards are another option. You put down a deposit as security, then use the card responsibly, gradually building a positive credit footprint.
Raise your credit score — Step 5: Implement some key strategies
Here are some additional tactics to consider, but be mindful that they may take more time and effort:
- Increase your credit limit: A higher credit limit can lower your credit utilization ratio, but only if you don’t use the extra credit as an excuse to spend more.
- If you find errors on your credit report, dispute them immediately.
- For late payments or collection accounts that have been paid off, try negotiating with the creditor to have them removed from your report entirely. This can significantly boost your score.
Remember: Building good credit takes time and effort, but the payoff is huge. When you can get to the place where you’re offered lower interest rates and easier loan approvals, you’ll feel the peace that comes with the hard work you’ve done.
Little steps can make a big difference in your financial life.
While we’re not financial advisors, we are cheering you on to a better way of living. And, as Richland County tax advisors, we can help you save on your yearly taxes. We’re here if you want to start that conversation:
To living financially free,
Akuathayre Snell