We’ve all been there when it comes to credit cards: your credit limit is expanded by even the smallest margin, and we suddenly assume that we can buy absolutely everything and anything with little to no consequences attached. A few late payments go by that you don’t cover and before you know it, you are in some pretty deep debt, and your lack of funds to dig yourself out of the nice little hole you have dug yourself has left your credit score in tatters.
Fear not, for the path out of a ruined credit score is a lot smoother than you might think. Below is a breakdown of how you can use the very same credit card that ruined your credit score to climb your way back up the credit score ladder.
Credit cards are loans
Before we can tell you how to fix the problem, it’s good to know what your problem is. Your credit score is where you place on a meter in which institutions can see just how responsible you are with money as a loan, as represented on a numerical scale. The scale displays a three-digit number that places you on a range to gauge how creditworthy you are as seen from “Poor” to “Excellent”.
The scale gets its points system from how reliable you are in paying debts in a timely manner and in full amounts. How can you get and keep a good score? Pay your bills in full and on time. How can you wreck your credit score? Stop paying your bills in full and on time. It sounds silly, but life just isn’t as easy as it sounds to pay bills fully and on time. Things come up unexpectedly and sure enough, you have missed a single payment and your credit score has slipped from “Excellent” to “Fair”. It doesn’t take much.
Find out what your score is
To fix your score, you need to gauge the damage to understand just how hard you need to work to fix it. Checking your score too often however can actually end up being harmful to your score if checked too often, so look up the exact number with caution. Although this news may be troubling, there are still ways you can check how you are holding up in the credit score department that do not harm your score in any way.
There are three institutions that monitor your credit score, and each of these institutions release one free copy of your credit score per year: Equifax, TransUnion, and Experian, all of which run off AnnualCreditReport.com. So for those keeping track, that equals up to three different times that you can check your score per year with no penalty to your score. (They have differing scales on how they display your scores, but the information they use is for the most part universal).
Plan on taking advantage of these opportunities because knowing an exact number can be the difference between sleepless nights from all the stress of what it could be, and a good night’s sleep from knowing that your score is safe and in the green.
If you can pay it off, make it happen
When it comes to credit card debt, you need to get that paid off as soon as you can. If you are in a position to wipe it out in one clean sweep, then by all means make that happen. If you cannot knock out the entire debt, then make it a priority to wipe it out in payable increments as soon as possible. Having your debt accumulate acts as a cancer to your score and as time goes by, your score dips lower and lower. Pay off your credit card debt(s) in whole as soon as you can and by doing so, you can actually get started in turning your score around and head back uphill.
Spend not a penny more than half of your credit limit
If you use your credit card often, keep the amount you place onto the card under half of what your credit limit is, and if at all possible keep it under 30%. This may look pretty nit-picky, but by showing restraint with how much you place onto the credit card, you are telling the banks that you are responsible enough to show discipline in how much you do spend as compared to how much you can spend. Show them that you are responsible in using your credit and keep to using only 30%.
NOTE: For those with very small credit limits on any particular credit cards, you can call and see if you qualify to have your limit raised, therefore making your usable 30% bigger.
Make payments before the bill shows up
Don’t wait for the bank to tell you that “You can now pay off your credit card bill” at the end of every month. Beat them to the punch and make your payments throughout the month instead of one lump payment at the end. The more you show that you are reliable in making payments in regularity and in full, the more your score will go up.
Treat it like a debit card
When it comes to how you should think of your credit card, think of it as a debit card, but attached to an account that isn’t yours.
If you don’t have the money to pay for what you are buying with the credit card, then maybe you shouldn’t be making this purchase to begin with. Buy what you can afford, or at the very least pay off as close to immediately as possible. This train of thought will prevent you from making frivolous purchases and keep your budget more accurate to what it truly is instead of what your credit card makes it look like it is. A tighter leash on how often you whip out the card will avoid interest rates making the purchase even more expensive, and avoid even more decreases in your already bleeding credit score.
Keep accounts open
Don’t be so quick to close down a credit card account. When lenders and other score checkers look to see your number, having open and running accounts keep your score up, and also leaves the door open to opportunities to tidy up your score yourself by applying the methods discussed above. Only close down credit card accounts as an absolute last resort.
Don’t be afraid to negotiate
Before you throw in the towel and start pondering how bad declaring bankruptcy actually would be to go through, you still have one last tool in the box: negotiation. Call up your credit card service and considering if you have kept a close record of your credit card uses, go through and ask them if they would be willing to remove a few payments, or all of them altogether (this sounds ridiculous, but all it takes is a phone call with a nice person on the other end of the line).
State your case and if they are willing to listen, they may be willing to forgive at least one of your late payments, which would in turn boost your credit score up a few notches. Ask and you will receive.
Keeping your credit score in a solid place doesn’t have to be the hardest thing you have ever done, it just requires you to really pay attention as to how often you are pulling out the credit card when you could just as easily pull out cash or your debit.
That’s really the secret of how to get a good credit score: Only take out the plastic if you have a realistic plan to make the payment in the future fully and as soon as possible. Don’t let all the perks of credit cards lure you into a false sense of financial security. Think realistically, and swipe responsibly.