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  • Writer's pictureBrandon Nishi

Mastering Your Credit: A Step-by-Step Guide to Restoring Credit

our credit score holds the key to financial opportunities and stability. In this comprehensive guide, we break down the essential steps to navigate the intricate world of credit, empowering you to take control of your financial journey.



1. Check Your Credit Score and Credit Report:

Understanding your financial health begins with reviewing your credit report and score. Obtain a free credit report from each of the three main credit bureaus—Equifax, and TransUnion. This allows you to scrutinize all your accounts, credit history, and the longevity of your credit lines.

Checking your credit score regularly is crucial. Some credit card providers offer free access, and it only requires a soft credit inquiry, ensuring your score remains unharmed. Make it a habit to review your credit score at least once a month.


2. Fix or Dispute Any Errors:

Credit bureaus are not infallible, and errors on your credit report can impact your financial standing. A study by the Federal Trade Commission revealed that a quarter of individuals had errors on their credit reports. If you identify mistakes, such as incorrect account ownership or payment history, promptly report them to the credit bureau. Timely correction is crucial to maintain an accurate credit profile.

Common credit report errors include:

  • Incorrect identity information

  • Accounts belonging to others with similar names

  • Fraudulent accounts due to identity theft

  • Closed accounts reported as open

  • Incorrect late or delinquent status

  • Duplicate listings of the same debt


3. Always Pay Your Bills On Time:

Your payment history significantly influences your credit score, constituting 35% of the total score. Consistent, on-time payments are vital for credit improvement. Consider using autopay for recurring bills and promptly address bills that don't permit autopay. If financial constraints arise, establish communication with creditors to devise a suitable payment plan.

4. Keep Your Credit Utilization Ratio Below 30%:

Maintaining a healthy credit utilization ratio—comparing credit card balances to the overall credit limit—is crucial. Lenders assess this ratio to gauge financial management. Aim for a ratio below 30%, as it is generally considered favorable. Calculate your ratio by dividing the total debt owed by the total credit limit.

5. Pay Down Other Debts:

Eliminating outstanding debts contributes to improved payment history and reduced credit utilization ratio. Employ strategies like the debt avalanche or snowball method to strategically repay debts. While there might be a temporary dip in your credit score, long-term benefits will follow.

6. Keep Old Credit Cards Open:

Maintain your old credit card accounts, even after paying them off, to establish a long credit history—constituting 15% of your credit score. However, be cautious of potential closures due to inactivity or annual fees.

7. Don't Take Out Credit Unless You Need It:

Limit credit applications to necessary instances, as each application triggers a hard credit check, potentially lowering your score. Applying only when needed prevents unnecessary score fluctuations.


 

BRANDON NISHI | YOUR MORTGAGE PROFESSIONAL

Questions or concerns? Contact me today!

P: (604) 353-5809


 

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