Changing Your Credit Score© Towfiqu Photography / Getty Images
Improving your credit score takes time and effort, that’s why you want to check your credit history well before you start your car-buying process. If you see an advertisement offering to fix your credit report for a fee, you need to understand that is not how it works.
What Can Hurt Your Credit Score
The first thing you need to do when trying to improve your score is to stop doing things that hurt it. Here are a few things that will get you in trouble with bad credit.
Opening New Credit Cards: Each time you apply for a credit card there’s an inquiry to the credit bureaus that drops your score a few points. While opening a new line of credit can give you the benefit of reducing your credit utilization ratio (the amount you owe compared to your available sources of credit), it also raises the total amount of credit available to you, which can be bad if the bureaus feel you already have enough.
Closing Credit Cards: You would think that if opening credit cards is bad, closing them would be good. However, closing a credit card raises your credit utilization ratio and hurts your score.
Too Many Inquiries: Once you decide to get a car loan, you want to do all of your shopping for financing in a very short time. If you stretch your applications over a period of months, each will be seen as a separate inquiry. Do them in a short time, and the credit reporting companies will see all of them as a single inquiry. A single inquiry will only ding your credit a few points.
Missing Payments: Nothing hurts your credit score more than missing payments or making them so late that your delay is reported to the credit bureaus. You can avoid missing payments by setting up automatic bill payments and reminders at the financial institution where you have your checking account.
Co-signing on a Loan: While you may think you're being nice by being a co-signer on a relative or friend's loan, your credit score will take a massive hit if they don't make their payments. Co-signing is rarely a good idea. A better approach is helping them with a substantial down payment or counseling them away from buying something they can't afford on their own.
Maxing Out Your Credit Cards: Just because you have a $10,000 credit limit on your credit card doesn't mean you should use it all. You should strive never to use more than 30 percent of your available balance and to pay it off as quickly as possible. Credit cards typically have exorbitant interest rates, so it’s best if you never carry a balance from month to month.
Burying Yourself in Debt in Your 20s: It’s easy to make serious financial mistakes when you’re just out of college and trying to establish your independence. Keep in mind, however, that those mistakes can snowball and affect your credit score for years or even decades. Our Money team has put together a guide on how to recover from financial mistakes you make in your 20s.
What Helps Your Credit Score
The path to good credit is a journey of small steps that will improve your standing a few points at a time. Here are a few of those steps:
Correcting Errors: Many credit reports contain errors, and an important way to improve your score is to correct any mistakes that make you look less attractive to lenders. You will first need to tell the credit bureaus, in writing, that you believe an item is in error. They will investigate your claim by contacting the company that reported the information. The credit reporting agency will then report back to you with the results of their investigation.
If the investigation by the credit bureau or bureaus does not lead to the information being corrected, you will need to contact the company that reported the information and dispute its accuracy. If a company falsely reports information to your credit report and their failure to correct it causes you to be declined for a loan, they can face serious civil penalties.
You can find details on how to dispute incorrect information on the Federal Trade Commission’s website. If you are a victim of identity theft, make sure that you take steps with each credit bureau to place a fraud alert and an explanation of what has occurred on your report.
Paying More Than the Minimum: When you pay only the minimum on your credit card balances, you will hardly make a dent in the amount you owe – especially if you are still charging things on the card. Pay more than the minimum, and you'll bring down both the credit card balance and your credit utilization ratio – so long as your charges don’t outpace your payments. If you have more than one card with a balance, attack the card with the highest interest rate first, then the next lowest, and so on. Don't close the cards when you get them paid off, however, as that will hurt your score.
Make a Plan: It’s easier to work toward a goal when you have a plan. In your financial life, that plan is a budget that you adhere to. Look at your monthly expenses to see where you can save and where you need to spend. It's essential to include an emergency fund in your planning so that an unexpected expense doesn't wreck the rest of your budget.
Use Some Credit: It might seem obvious, but to have a credit history, you have to have a history of using credit. Even if you don’t believe in using credit cards and carrying balances, getting a credit card or two that you use for daily expenses and pay off in full each month – or even more often with electronic bill pay – will help to build your credit score. If you find a card with no annual fee that comes with a rewards program, you can even get some cash back by using a credit card. If you worry about having self-control with a credit card, get one with a reasonable credit limit that forces you to think about every purchase.
Even if you have bad credit, you can get a secured card that is backed by your savings. Use it responsibly and you can work your way into a traditional credit card as you prove your creditworthiness.
Don’t Panic: If you have bad credit, one of the worst things you can do is to panic and start making a lot of changes to your accounts in a short time. It's a better idea to work on each issue in your credit report methodically, so you don't have big swings in the amount of available credit or your utilization of it.
Source : https://www.msn.com/en-us/autos/buying/what-is-a-good-credit-score-to-buy-a-car/ar-BBPKzlN1367