For Borrowers:

Eight Tips To Repair Bad Credit

Does your borrower want to improve their credit? They’re not alone! According to Credit Sesame, low credit scores put home ownership out of reach for 1 in 5 customers. Residential Acceptance Corporation (RAC) can help. We’ve put together eight helpful tips on how your borrower can begin to repair their credit.

  1. Create A Budget
    Would you ever go on vacation without knowing the details of how much your airline ticket costs or what you’d like to do/spend your money on once you’re at the destination? Knowing the breakdown of your income and expenses is just as, if not more, crucial to help build your credit back up. The secret? Make a personal budget. This will clearly lay out how much money you have coming in versus going out towards bills, date nights, etc. Try to set aside some funds for an emergency savings account or even a portion to start paying off your debt.
  2. Pay Your Bills Before the Due Date
    Paying your credit card balance in full may not always help your credit score. However, if you are able to take care of the payment prior to the next statement being ready, you may very well stand a better chance of raising your credit score. Need more motivation? Keep in mind that the way you pay your bills accounts for almost one-third of your credit score.
  3. Check Your Credit Report, Then Check Again
    Take a look at your credit report via Credit Karma or a company similar. Pay attention to all three of the main credit reporting agencies and see if there are any discrepancies. It isn’t uncommon to see false reporting on there, which factors into your score. Finding errors and alerting the credit bureaus is proactive in repairing your credit and will boost your score.
  4. Apply for a Secured Credit Card
    By getting a secured credit card and carrying a balance while paying off the majority of the monthly bill, you will be establishing good revolving credit and increasing your credit score simultaneously. This shows creditors that you are trying to move forward and you’re able to take on what you put on the plastic.
  5. Use Your Credit Card for Smaller Purchases
    Don’t rack up your credit card on one or two large purchases. Use your credit card for small daily purchases, like gasoline or groceries. This will show that you are responsible and are able to pay off what you need, not the expensive things that you want.
  6. Negotiate with Creditors
    Ever wonder if you can negotiate? Now’s your chance! Take the time to negotiate with your creditors to see what kind of payment options they can offer you. You will find your creditors surprisingly sympathetic if you contact them, explain your situation and offer to put a little money towards repaying your debt. In the end, you may wind up paying a lot less interest to take care of your debt; try it for yourself and see how much it helps!
  7. Avoid Closing or Limiting Accounts
    This is a HUGE part your overall score as it relates to the ratio of your used and available credit. Try to keep your maximum percentage at 30% utilization; this will help keep your score from declining. If you’re applying for a mortgage loan, definitely stay away from closing your credit cards as this may very well delay the process in getting your loan closed.
  8. Pay Off Credit Cards Using Credit Utilization
    What is credit utilization, you ask? In a nutshell, it’s the percentage of credit you have used. For example, if you have a balance of $500 on a credit card with a $1000 limit, your credit utilization would be 50 percent. Ideally, you will want your credit utilization to be at or under 30 percent on all of your credit cards. Having a low percentage will provide a quick boost to your credit score.

So… where do you go from here? It’s simple – apply these tips! Your borrower will begin to see their credit rising and be able to eventually increase their credit limit, allowing them to be more comfortable in life. Remind them not to forget this one important mantra: don’t spend more than you make!