By: Diana Bello Aristizábal
Para leer en Español
In order to access the different opportunities that living in the United States offers, a mandatory path is to build a credit history, a subject that can be confusing for newcomers or overwhelming for others. For this reason, during National Credit Education Month, with the help of an expert, we will tell you everything you need to know to manage, improve or repair your credit.
First of all, it should be noted that credit is an indicator of your financial trustworthiness. In other words, having a good credit score makes you an ideal candidate to get a loan, although of course it is not the only standard to be evaluated.
In this sense, having a bad credit can also represent a threat to your economic growth. “Credit history is a powerful tool to gather goods and assets and facilitate the economic performance of a family or business,” explains Ivan Jimenez, director of finances at Buskeros.com
In practical terms, the credit can be used to, for example, buy car insurance, rent or buy a home or a premise for a business, among other activities that have an economic impact.
These and other financial opportunities can be accessed when you have a good credit score as measured by the three agencies in charge of this task: Equifax, TransUnion and Experian.
The above organizations evaluate payment history, probability of repayment and debt capacity of each individual using different scoring models for this purpose.
In addition, they also analyze each person taking into consideration several categories that increase or decrease credit quality. One of them refers to the type of credit used that can be, for example, for a car loan, a mortgage or a credit card.
On the other hand, they too take into account the use percentage versus the available credit, the duration or the time elapsed since the credit history was first created and the record of timely payments.
Getting around these variables properly is an art, just like correcting a rugged credit, which requires time and effort. Here are some recommendations to succeed in this task.
Effective credit management
The first thing that is needed to start creating credit history is to go to a bank institution in order to apply for a secured credit card. “You have to look at the annual fee that the card offers. The best thing to do is to start with one that has a lower annual fee,” advises the expert.
In addition, it should be remembered that building a credit history is a process that takes time. For this reason, it is better to start with a card that has lower credit available according to the payment capacity of each person.
Then, over time, which can be anywhere from six months to a year, other things can be done to improve credit, such as applying for a zero-interest car or getting a business loan.
As for sorting out the variables the organizations in charge of monitoring the credit value, it is important to know very well what is considered favorable and what is not to avoid damaging your credit.
Regarding use percentage versus available credit, the recommendation is to have a permanent month-to-month usefulness below 30 percent. “The corporations that monitor credit prefer that you show financial discipline through a specific management of the available credit. Even better if you only use 20% and even more positive, 10%,” says Ivan Jimenez.
As far as credit history time goes, you have to know that the more time has elapsed since the credit was opened, the better the credit strength will be, since it is not the same to have a credit history of three years than one of 5 or 10.
Of course, on-time payment history plays a critical role in effective credit management. To be successful in this aspect, the best route to follow is to always pay off the debt before the due date or, in the worst case scenario, not to exceed more than 29 days after the due date.
It is also a good idea to make payments beyond the established minimum payment whenever is possible. For example, if you have a debt of 2,000 dollars, to pay $500, which represents a significantly higher amount of the minimum payment, during a random month improves the credit history.
It is worth mentioning that contrary to popular belief, having a good credit history has nothing to do with living in debt. “It is more important to pay well. It is good to have available credit but not to use it all because having the cards full is not positive,” says the specialist.
However, there are times during the year when the market understands that people use a higher percentage of credit, such as the Christmas season. On those dates, you can lower the quality of your credit because you’re using much more than the recommended percentage, although if it’s done in moderation, there won’t be long-term damage.
Fixing bad credit
“The beauty of the United States is that it gives you a second chance, but it’s important to start paying on time today,” says Ivan Jimenez to give peace of mind to those that due to one circumstance or another, have affected their credit score.
If this is your case, you should know that there are several ways to repair your credit and several aspects to take into account before proceeding to correct it. One of them is to realistically analyze whether the debt can be paid off or not.
If it involves an impossible effort to carry out, it is best to hire a bankruptcy attorney, who will devise the best strategy to start anew.
However, if the debt is payable but stopped being paid due to transitory circumstances, such as lack of a job or lower-income, which have already been resolved, then it is possible to catch up without any problem as long as the debt does not exceed 7 years.
If it does, it is wise to seek the services of a consumer rights attorney to learn what negotiating rights the debtor can access to.
Non-profit agencies can also be contacted, whose mission is to provide advice to negotiate the repayment of the debt. “These are useful to, at least, not receive any more calls and restructure your debt,” says Ivan Jimenez.
Before hiring a company that provides this service, it is important to evaluate what it offers, since repairing the credit takes time, usually at least 1 year. In this way, you should be wary of the agencies that promise to correct it in 3 or 6 months.
To know for sure if the chosen option is serious, the advice is to go to the Better Business Bureau. On the website of this organization you can review the company’s history and performance profile and whether or not it has fraud or poor quality in the work delivered complaints.
Finally, check your credit history, because sometimes debts shown do not match with reality. “There are debts that are either not ours or are not the effective reflection of what really happened and it’s better to correct this,” says the expert, who suggests reviewing the Annual Credit Report website for free and without impacting credit history.
Following the above recommendations suppose a benefit greater than the financial cost that would imply not having a good credit. “This is a clear example in which the incentive is more powerful than the punishment in the United States,” the interviewee concludes.