Q. I went bankrupt in my twenties. I’m 40 now but my credit isn’t that hot. I only have one credit card and am paying it off, but I barely use it. I mostly use my debit card because I don’t want to spend money I don’t have. I have a car loan and I pay it back on time but it’s still an interest rate of 7%, and I’m renting. What can I do to improve my credit?
A. Thank you for your question.
We’re sorry to hear about your credit situation.
Most people who file for bankruptcy may have perfect credit within two years, said Union City bankruptcy attorney Karra Kingston.
“For most people filing, bankruptcy shouldn’t have such a lasting impact on a credit report,” she said. “Bankruptcy is a tool that is available to give people a fresh start.”
Many things make up a credit score, she said.
The first is the debt-to-income ratio.
“It’s the amount of debt you have relative to your available credit,” Kingston said. âLenders want to know that you can pay off your debt. Therefore, if you use too much of your available credit, it could lower your credit score. Â»
Then there’s your payment history, which Kingston says is the most important factor when calculating a credit score.
“Payment history is 35% of your score,” she said. “That means timely payments are hugely important to lenders because they want to be sure you can pay off your debts.”
Your the length of the credit history, or how long you have opened credit accounts as well, she said. This represents 15% of your FICO credit score. The longer your accounts are open, the more your credit score will be, she said.
New credits also count.
âLenders like to see a diversified portfolio. However, too many serious demands on your credit could cause your credit rating to drop,â she said, noting that it’s important not to open multiple new accounts at once.
Finally, your credit mix is ââalso taken into account.
“Having a diversified portfolio is essential when it comes to a good credit rating,” she said. “People who have different accounts such as student loans, credit cards, auto loans often see an increase in their credit score.”
As for your score, you may want to review your credit to make sure things are being reported correctly to the credit bureaus.
You can get copies of your reports once a year from the three major credit bureaus – Experian, Equifax and TransUnion – at annualcreditreport.com.
If you find items that aren’t accurate, you can file a dispute with the bureaus, Kingston said.
Send your questions to Ask@NJMoneyHelp.com.
Karin Price Mueller writes the Bamboos column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. To find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.comit’s weekly e-newsletter.