The real world can be shocking to young adults like college graduates, especially when it comes to handling their finances. By the time many young adults are at the point in their lives that they want to consider purchasing a home, their credit scores are dismally low thanks to an irresponsible youth. If you’re ready to start cleaning up your credit score, you can do it in four easy steps.
1. Know Where You Stand
Financial pros like Don Gayhardt weren’t always experts in their field; they also had to start building their credit somewhere. The beginning of the process is knowing what exactly your credit score is. There are several reputable sites that you can pay to access, but the easiest and cheapest (meaning FREE!) is Credit Karma. You can check your score without damaging it and the service will also give you credit monitoring access too.
2. Start Paying Off Debts
If your credit score is lower than you hoped, don’t despair. The next thing you need to do is to start getting your debts settled. This is the scary and hard part, especially if you suffer financial hardship, but ultimately it’s the best thing that you can do for yourself in the long run.
- Credit cards should be paid off first. If you have cards from retail stores like Target, Best Buy, etc, pay these off first; retail cards will typically have the highest interest rate.
- If you have a bill that is thousands of dollars that you can’t afford to pay all at once, contact your debt collector and ask about a payment plan. Generally they are happy to work with you and sort something out, so it’s worth speaking to someone.
3. Write Goodwill Letters
The old-fashioned ink and paper mail system isn’t dead quite yet. Writing letters to debt collectors is one method to explain your circumstances and ask them to please help work with you during your financial crisis. You might be surprised at how many agents will not only lower your payment but potentially drop it altogether (especially if it is a very old debt). A quick Google search for “goodwill letter templates” will yield hundreds of results to help you find the wording if you’re unsure where to start.
4. Be Consistent
Your credit score is built over the course of many years; in fact, the older your debts, the better you look in the eyes of the credit bureaus. However, the age of your debt is only part of the factor: You need to be sure that you are paying your bills on time too. Late payments will impact your credit score. If you are often late on important payments like auto loans and student loan payments, this is an instant red flag to potential lenders down the road. Who wants to lend money to someone with a bad history of repaying it?
No matter how old you are, getting your credit score in order is essential. It can take years to build up to a level considered good enough for a mortgage broker, so the earlier you start working on getting yours in shape, the better.
