Good credit takes a long time to build, and only a few mistakes to ruin. Bad credit can get you turned down for a car loan or a home loan. It also means you’ll pay higher interest any time you need to borrow money, and it can impact the way businesses and employers make decisions about you. If you’ve made mistakes in the past, WestWind Homes is here to help. Our Home Buyer’s Club and credit repair events help Texans correct errors, pay off debt and improve their credit score faster than most dream possible.
How a Bad Credit Score Affects Your Life
Texans turn to us for help with credit repair because a low credit score can keep them from reaching their goals. Bad credit can cost you in a number of ways.
- Low credit means high-interest rates – Your credit score tells lenders how likely you are to pay (or not pay) money you borrow. Some lenders won’t provide financing at all. The ones that do will charge you more because they see you as risky.
- Employers might turn you down for a job – You could have all the qualifications for a finance or management position, but still get turned down because a prospective employer runs your credit. They worry if you have had problems paying bills in the past, you might mismanage their funds, miss deadlines or not meet responsibilities.
- Lenders could deny your credit application altogether – There’s not much worse than falling in love with a house or a vehicle and finding out you can’t qualify for financing. If your credit is too low, lenders won’t approve a loan at any interest rate. It becomes necessary to fix bad credit in order to get a loan.
- Insurance companies charge you higher premiums – Insurers link lower credit scores with higher claims. Even if you haven’t filed any claims, they could charge you more if they find you have a low credit score.
- You could have problems getting cell phone service – Major providers run your credit before they give you a phone and a contract. Bad credit could mean you only qualify for a prepaid cell phone that costs more than regular service, or that you have to pay more upfront.
- Landlords might rent to someone else – Landlords often run your credit when they evaluate your rental application. If you default on other bills, they think you might not pay your rent on time either. If they have two otherwise equal applicants and the other person’s credit is better than yours, they could pick them over you.
Those are just some of the ways bad credit costs you in terms of dollars and cents. It’s harder to measure the stress that goes with it. If you’re experiencing it right now, you already know what it’s like to be hounded by debt collectors and the feeling of being crushed by a growing mountain of debt.
If that seems like a lot of penalties to pay for a handful of financial mistakes, we agree. That’s why we’re dedicated to helping individuals and families get back on track with credit repair. But first, let’s look at some of the most common mistakes that have a negative impact and cause people to need credit repair in the first place.
Things That Hurt Your Credit Score
There are a lot of myths out there about bad credit. A lot of people think a late payment here and there is no big deal or that all debt makes your credit score go down. One of the most common myths we encounter is that only irresponsible people have bad credit.
The truth is, responsible, intelligent people come to us all the time for credit repair. They don’t blow their paychecks or live on the edge, they just don’t understand how credit scores are calculated and what opportunities they’re missing to improve their situation.
In order to improve your credit, it’s important to understand what decisions matter most. Here are the worst, and unfortunately the most common credit mistakes to avoid.
The unpleasant truth about late payments is that just one could drop your score by as much as 100 points. It seems unfair that a long history of paying on time can be so negatively impacted by one mistake, but if your payment is more than 30 days late, it could end up on your credit report.
Payment history makes up almost 35 percent of your credit score. That makes it the largest percentage and therefore the most important part of your credit score. If a payment is due, don’t put it off thinking just one missed or late payment won’t matter much. If you’re late, that tells lenders you’re not reliable.
Credit card companies also charge hefty late fees, often between $25 and $35. They might penalize you even further with an interest rate hike. If you got a low introductory rate, defaulting could mean they charge you up to 29.99 percent APR on your remaining balance. If you don’t settle up, your account might go to collections, an action that stays on your credit report for seven years.
Maxing Out Credit Cards
Credit utilization is up to 30 percent of your credit score. It’s a measure of how much of your available credit you’ve borrowed, especially on revolving accounts. Lenders like to see low balances, indicating you show restraint in spending. If you regularly charge at or near your limit, that’s a red flag.
Payment history plus credit utilization makes up 65 percent of your credit score, a significant portion. When we help home buyers repair their credit, we emphasize paying bills on time and carrying low balances. It takes discipline but goes a long way toward creating good credit. However, there are plenty of other mistakes that can make it harder to get a loan.
Only Making Minimum Payments
If you have a high balance and you only pay the minimum every month, that also affects the credit utilization part of your score. The problem is, credit card companies keep tacking interest onto your balance, so your payment barely makes a difference. The amount of credit available to you measured against what you’ve already borrowed only changes incrementally.
If you have debt and you can only make the minimum payment, absolutely do that. But if you can pay more, do everything you can to pay extra until you no longer carry a balance. As you improve your credit utilization ratio, your credit score will also improve.
Frequently Opening New Accounts
Retailers offer discounts and incentives at the checkout if you apply for store credit, and it’s hard to resist. Credit card companies send you the promise of low rates and it’s almost too easy to apply. You can buy furniture, electronics and almost anything else on a payment system, and if you make enough for the payment, you wonder what’s the harm?
When you apply for a loan, the lender runs a hard credit inquiry. Hard credit requests drop your score by a few points every time they occur.
New credit accounts for up to 10 percent of your credit score. Multiple new accounts could also indicate to lenders you don’t have enough money to pay for things yourself, so you should only apply for them when you actually need them.
Having No Credit Cards
This seems counter-intuitive. If you don’t have any credit cards, you don’t have any credit card debt, so shouldn’t that be a positive?
It seems that way, but 10 percent of your credit score is credit mix. Lenders like to see you show financial responsibility for multiple types of payment.
If you have a car payment, a credit card, a mortgage and a student loan, they feel comfortable you’ll be able to balance another type of financing as well. If you have no credit cards, how you’ll handle debt is an unknown.
How Bad is Bad?
A lot of people ask what credit score they need to qualify for a mortgage. Often what they really want to know is what number means a credit score will start to get in the way of reaching their goals. Ideally, you want your credit score to stay above 670.
If your FICO credit score is between 300 and 579, it’s considered poor. A score from 580 to 669 is rated fair, but still will cause you problems. If you’re in the 670-739 range, your credit score is good. Lenders see 740-799 as very good and scores above 800 as exceptional.
The Harsh Reality
Owing money is stressful, but the debt isn’t the hardest part of having bad credit. You pay more in fees and more in interest. Job opportunities and good rental property aren’t available, so you don’t get raises or affordable rent.
It gets harder and harder to get out of the hole. Higher fees and lower wages mean you have less to put toward paying down debt.
There’s barely enough money at the end of every month to take care of all your bills. So when something goes wrong you don’t have any savings and you have to apply for more high-interest debt to make ends meet.
Then you look at people who have decent credit and realize how much easier it is for them to pay their bills. They don’t have to pay outrageous interest. They qualify for a mortgage, so they don’t have to keep throwing money away on rent.
Plus, they don’t lose a second of sleep over what a prospective employer or landlord might find out if they run their credit. Not only do they have good credit, more job opportunities and lower payments, it’s easier for them to hold on to those things because they keep more of their income.
How Credit Repair Works
Negative items on your credit report can stay there for years, but a bad credit score doesn’t have to be a roadblock for nearly as long. When you choose credit repair, you can take control of your financial future and start seeing a positive impact almost immediately.
Credit repair companies help individuals identify what’s wrong and take steps to fix it – for a fee. Not all of them offer the service they promise. The credit repair process takes time because credit card companies and credit bureaus are large institutions with tons of services and thousands of customers. Credit repair companies usually charge you on a monthly basis, so the longer it drags out, the more you pay.
People use credit repair services because they take charge of resolving issues and they understand the laws. But most of the steps credit repair companies walk you through, you can do yourself.
That’s how we can help for free. The WestWind Homes Home Buyer’s Club and our credit repair classes both help you identify problems. Then we show you a variety of strategies to help you fix them.
8 Reasons You Should Fix Your Credit Now
Credit repair is never an easy fix. It takes commitment and self-discipline, but it’s worth it in the end. We’ve helped people who thought there was no hope for their credit experience these 8 benefits of credit repair.
- Lower interest rates – Finance charges on your mortgage, credit cards, car loan and everything else will be lower. That means lower payments and more cash back in your pocket.
- No more debt collector phone calls – We’ll help you pay off items in collections, and you’ll never have to be afraid to answer the phone again.
- Loan approval – With good credit, you can apply for a home, auto or any other loan with confidence.
- A better job – If your credit has been holding you back from a promotion or new position, it won’t anymore.
- Stop relying on family – You won’t have to rely on your parents, your uncle or anyone else if you have a bad month. You won’t need anyone to cosign for you. You’ll have lower payments on everything that charges interest and the ability to qualify for financing of your own.
- Cheaper insurance – What if your car insurance, life insurance and home insurance all had lower premiums?
- Reduced security deposits – If you’ve ever applied for electricity or a phone and your jaw dropped at the amount you had to pay to get service connected, it might be due to your credit. Good credit means lower security deposits.
- Set a good example – Your children learn financial habits from you. If you prioritize credit now, they internalize your commitment to sound financial health.
The Danger of Credit Repair Scams
Some credit repair experts deliver what they promise, they just charge a fee to do it. Unfortunately, there are also people out there who will take your money and not help you improve your credit, putting you further in the hole. Some companies help, but they take their time since that means you pay their monthly fee for longer. The Federal Trade Commission warns you to watch out for these signs of a credit repair scam.
- The credit repair company demands you pay them before they start work.
- The company doesn’t tell you about your legal rights when it comes to credit.
- Your “expert” tells you not to try to contact creditors yourself.
- Advisors say you should dispute information you know is correct.
- The credit repair scammer advises you to lie on a credit or loan application.
- Advertising promises to give you a “new credit identity” by hiding your credit history and giving you a number other than your social security number to use for a hefty fee.
If you decide to hire a credit repair company, always check them out before you agree to use their services. The United States Department of Justice lists approved credit counseling agencies by state.
If you’re reading this and you just signed up for credit repair, but now you want to sign up for the WestWind Homes Home Buyer’s Club or take one of our credit repair classes instead, you still can. You have the right to cancel your contract with a credit repair organization within three business days for whatever reason you choose.
How WestWind Homes Helps Texans Get Credit Repair
So if you become a member of the Home Buyer’s Club or attend one of our credit repair events, what can you expect? What kinds of things will you need to do for credit repair, and how soon can you expect to see results?
Hundreds of individuals have expressed surprise that it was actually not that hard to fix bad credit, and it happened faster than they expected. Our experts walk you through the steps you need to take.
Review Your Credit Reports
You’re entitled to a free annual copy of your credit report from the three major credit bureaus – TransUnion, Equifax and Experian. We’ll start by helping you know where and how to request it. Then, we’ll look over the information they contain and help you make sense of the items hurting your credit right now.
Sometimes people find collection accounts, judgments or other negative items on their credit report that shouldn’t be there. We’ll help you initiate a dispute. After that, the credit bureau is required to investigate the issue and report back to you once they’ve come to a resolution. If there’s something on your credit report that shouldn’t be, they’ll remove it and you’ll see your score improve.
Sometimes lenders report you paid something late when you didn’t. Also, at times digits end up in the wrong place and the amount you paid isn’t reported correctly. You can dispute late and incorrect payments and improve the payment history part of your score. We’ll tell you how to do that too.
Improve Credit Utilization Ratio
Remember how we said maxing out credit cards and just making the minimum payment affects the credit utilization part of your score? There are two ways you can improve that 30 percent of your overall FICO score.
First, pay down balances. That’s the tough part, but when you make a concentrated effort and keep your goals in sight, you can do it. Then you’ll owe a lower percentage of the amount available to you.
Sometimes we find people who are already struggling with bad credit get upset when we suggest this step. They say if they had the money to pay off their debt, they wouldn’t be in this situation in the first place.
Getting through this part can mean making painful choices. Some individuals have to give up luxury items and eat noodles for a month. Others sell a second vehicle or get a temporary second job. It’s worth it to increase your credit score. Then, once you get there you can stay financially healthy for a lifetime.
Second, if you have a decent payment history, you can also request your credit card company increase your credit limit. They want you to borrow more because then you might end up paying them more in interest. If they raise your credit limit, your credit card utilization ratio improves. Just be careful not to use that extra amount or you’ll be in worse shape than when you started.
Pay Off Most Important Items First
Another reason people stay in debt is they don’t understand the best way to pay it off. If you’ve been splitting your extra cash evenly between half a dozen big bills, each payment doesn’t go very far toward diminishing the balance. It makes more sense to concentrate on the items that have the biggest effect on your credit score. We’ll help you figure out which ones to focus on so you see a bigger impact. Your credit score will improve faster and you’ll spend less on interest overall.
Apply (Judiciously) For New Credit
Again, when you have a big available balance and you don’t owe much, your credit score improves. Applying for a new credit card raises the amount available to you.
What You Can Now Do to Increase Your Credit Score
This article just scratched the surface of what you’ll learn when you attend one of our Credit Repair Events or join the WestWind Homes Home Buyer’s Club. No matter how bad your credit score is, we can help. We also have resources for people who are new to the United States and need to build credit from scratch. Even if you’ve been turned down in the past, you can start working toward a brighter financial future. Get in touch today to find out more.