A Rent to Own Guide

Getting One's Credit In Order

Rebuilding your credit is among the most important aspects not only in a successful Rent-to-Own agreement, but also in having a healthy financial profile. When you have damaged credit, getting everything from a rental apartment to a mortgage loan to a market-rate cell phone can be more difficult. Fixing your credit is not nearly as complicated as it seems so long as you abide by some basic principles. In a lot of ways, keeping your credit score healthy is a lot like keeping a canoe afloat; maintain consistency in motion and keep most of your activity low. Most people don’t know what helps and what hurts your credit and a lot of misinformation exists. Here are some good tips to help you get your credit back on the road.

Step 1: Pay all bills on time.

Paying all your bills on time is among the most important components to getting the credit score you want. Don’t miss payments! Set reminders on Google calendar, establish autopay for applicable debts or keep your finances organized to make sure your payments don’t get brushed under the rug. Consistent payment of debts unequivocally raises your score.

Step 2: Pay down existing debts.

If you have substantial credit card debt, pay it down as quickly as you can. Not only do large debts accrue more interest with each payment, but using up a large percentage of your credit limit makes you look less credit worthy to lenders. Keeping your credit card balances below 30% of your limit (or, better yet, below around 10%) is a good target to set.

Step 3: Check your credit reports for errors.

You should check your credit reports annually at least. Look through your reports thoroughly, looking out for anything that is a potential error. Errors can include mistaken listings, outdated items (more than seven years old for most negative items), questionable items, or items that should be removed as part of an agreement with a collection agency. If you find items on your report that don’t seem right, you can petition the credit bureaus directly by mail or consider hiring a credit repair agency to help expedite the process.

Step 4: Have one or two credit cards with low balances.

Keeping one or two credit cards open at any given time will help your credit score, so long as the balances on each are kept low. Have one card for everyday expenses and a second with a high limit for larger occasional emergency expenses.

Step 5: Keep credit card usage down.

That said, keep your credit card usage to a minimum. Use cash or debit when you have the ability to do so, only pulling out the credit card when needed. This will keep you from accidentally running up a high balance and dinging your score.

Step 6: Only apply for new lines of credit as needed.

Don’t apply for several credit cards at once, and don’t apply for more cards than you reasonably need. Each time you apply for a new line of credit, it is noted on your reports. Too many requests will show up as a negative item.

Step 7: Steer clear of car loans.

If you are actively repairing your credit with the hopes of getting a mortgage loan, steer clear of new car loans. A car loan will hit your credit for upwards of 45 points, and your payments don’t start to count towards your score until a year after your purchase.

Step 8: Don’t just move debt around.

Bouncing your debt from one card to another doesn’t get a rid of it. While you can consolidate your debt into one loan and refinance it at a lower interest rate to save yourself money, bouncing payments between lines of credit without absolving your debts won’t help you in the long run.

Step 9: Safeguard your info.

Always safeguard your information from potential fraud. While this tip isn’t specific to people rebuilding credit, it will be horribly disheartening to discover after a lot of hard work rebuilding your profile that you’ve been a victim of identity fraud. Be careful where you put your information, especially on the internet.

Step 10: Eliminate nuisance balances.

Keep most of your charges on one or two cards. One metric credit scores use takes notes of how many of your lines of credit have balances, so having small balances on multiple cards can hurt your score. If you keep and maintain two cards, both with low balances, you’re in good shape.

Step 11: When loan shopping, be quick about it.

If you’re shopping for a home loan, each time your lender places a request for your credit reports it is noted. If you stretch the process out over the course of several months, this can harm your score (and in a twist of fate, make it more difficult to secure a loan). Doing all your work quickly will help you secure the loan you need.

Leave old, good debt on report. If you have an old credit line that you’ve paid off, and that you paid off without major problems, leave it on your report. There is no reason to make a fuss getting it removed from your report, as it is an artifact testament to your creditworthiness.

Step 12: Authorized user.

If you are unable to secure a credit card because your credit condition is that poor, consider finding someone willing to help you out. By becoming an authorized user on a family member or friend’s credit card, you can build positive credit gradually in hopes of getting your own line of credit.

Step 13: Raise your credit limit.

If you have good control over your spending, see if your credit card company will raise your limit. It is much easier to keep a low percentage of use with a $5,000 ceiling than it is with a $500. However, if you have poor control over your spending, this can quickly get dangerous.

Step 14: Don’t put yourself at risk, be smart with money.

The best way to make sure your credit profile is strong for the long term is to make wise financial decisions. Maintain a solid budget and stick with it. Live within your means. Don’t put yourself in the position where you are unsure if you can make payments on items that you don’t necessarily need.

Managing your credit can seem complex at a glance, but in reality you can make great progress by adhering to a few simple principles. If there are three things to take away from this list of helpful tips, it’s this:

  1. Keep a close eye on your credit card use. Don’t use them if you don’t have to, and pay them off quickly and on time when you do.
  2. Be active about watching your credit reports. Consider paying for a monitoring service that will give you up to the minute access to any activity on your reports.
  3. Less is more. The less of your credit you use, the more points you get on your score. When you do access your credit, tend it closely and only for what you need.

Improving your credit takes time and requires effort, but is worth it in the long term. Even if you aren’t necessarily looking to buy a home or lease a car, having good credit when you need it will save you money and headaches in the long term. Everything nowadays comes back to credit, so it’s important to be prepared.