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How to improve your credit score after taking a hit

by | Jul 28, 2022 | Personal Finance

We have been told they are they are integral to being approved for any kind of credit and also affect other aspects of our lives like opening up a business, renting an apartment or signing up for a cellphone contract, but what exactly is a credit report and what does it include?

According to multinational consumer credit reporting agency Equifax is a measure of measure of your ability to repay a loan and outlines the amount of risk you pose to potential lenders. Essentially, your credit score determines how much money you can borrow or the interest rate you will pay on that credit.

Included in your credit report is your identifying information, such as your name, address, ID number, and date of birth. Next it is your credit accounts information which includes information on all your credit accounts as well as your credit limit or loan amount, the date those accounts were opened, your payment history, and account balances. Your collection accounts, that is, accounts that have been turned over to a collection agency are also included in your report. Finally, all enquiries, including hard (generated because you have applied for credit or a service) and soft enquiries (resulting from your checking your own credit reports and other account reviews from existing clients’ insurers and the like) on your credit report are reflected.

So, now that we know what a credit score is and what goes into it, let’s unpack how credit reports reach a negative score that prevents you from accessing good credit deals, business/job opportunities and other contractual agreements that take your credit score into account. Soft and hard enquiries are known to be one of the common actions that can hurt your credit score. Some other common actions that can hurt your credit score include missing payments, using too much of your available credit, applying for a lot of credit in a short time, and ofcourse defaulting on accounts.

Due to a lack in financial education which most of us suffer at the start of our financial independence coupled with faltering global economic circumstances, most people have found themselves on the negative side of credit reports at some point in their lives. The good news is a bad credit report can be rehabilitated and brought up to a good score again, we have some tips on how you can do this.
Bad financial habits are not always the only reason for a credit score to be low, sometimes your credit score is low because you haven’t had any prior. Credit scores start out low and you have to build it up by opening up a new account. Start out small with products like store accounts and credit cards and ensure you don’t miss payments to make sure your credit score builds well and does not take a dip leaving you even more damaged than before.

Once you have built up a credit score, and you start qualifying for more and more credit products it is easy to fall into the debt trap where you find yourself buried in debt that you can no longer afford to pay off. At this point your credit score is already on the lower end and you cannot qualify for further credit.

Avoid skipping payments

The first step to recovery is by making sure you don’t damage your score even further by missing payments. A long history of on-time payments is one of the most important factors in determining your credit scores. Make sure you don’t miss loan or credit card payments by more than 29 days – payments reported to the credit bureaus after 30 days can result in lower credit scores. You can avoid missing payments by setting up automatic payments for the minimum amount due

Try and bring past due accounts to current

Next, try to catch up on your bills if you have fallen behind on some of them. In spite of the fact that a late payment can remain on your credit report for up to seven years, keeping all your accounts current can boost your credit score. You will also avoid any further late payments being added to your credit history.

Pay down revolving accounts

Another effective way of improving your credit score is also by maintaining a low balance on revolving accounts, such as credit cards and lines of credit. This is because high balances on revolving credit accounts can negatively impact your score even if you are not behind on your bills.

Don’t apply for anymore new accounts

Because every credit application you make can lead to a hard inquiry, which may hurt your scores a little, you generally want to limit how often you submit credit applications. Also, opening a new account will also lower your average age of accounts, and that could also hurt your scores.

Contact NDA now if you have reached a point where you feel like you can no longer afford to pay off your monthly debt installments, we can help you find some financial breathing ground again.

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