Your credit history is a crucial part of your financial identity and can help you receive approval on loans, lines of credit, and other financial products. Without a decent score on your credit reports, it can be extremely difficult to find essential funding when you need it. Looking for information on how to fix your credit score? You’ve come to the right place! Whether you are looking to transform your score entirely or just looking for ways to raise your credit score 100 points or so, there are things you can do now to start the credit repair process.
How Can I Improve My Credit Report?
How can you improve a bad credit score? Check out some surefire ways to start boosting your credit score below!
Pay Any Past Due Bills
The most important step you can take towards improving your credit reports is to work on your payment history. Go through your debts and make sure all your accounts are current. If they are not, make it a priority to catch up on your bills before the delinquency results in collection accounts. Some loans and lines of credit you should look at are:
- Credit card balances.
- Personal loan balances.
- Auto loan balances.
- Fast payday loans online.
Come up with a payment plan or try a debt consolidation loan to rectify any past due bills you may have acquired. Try the debt snowball or debt avalanche method. The debt snowball method involves paying off small debts first and then working your way up toward larger expenses. While the debt avalanche method involves paying off larger debts first and then working your way down to smaller expenses. Once you become current on your balances, you should see a boost in your score right away!
Try Working With a Credit Repair Company
If your situation is dire and you are suffering from extremely poor credit, it may be in your best interest to look into credit repair companies. When working with a credit repair company, you will be paired with a professional credit counselor who can give you personalized credit repair advice.
Beware of Credit Repair Scams
Protect your online security and make sure you are working with a reputable credit counseling agency. If you are working with a credit repair company with credit counselors that ask for personal details like your social security number or request a large payment upfront, cease contact with them immediately.
Keep Your Credit Utilization Ratio Below 30%
Your credit utilization ratio refers to how much of your available credit you are using. For example, say you have a credit card with a credit limit of $5,000. If you currently had a balance of $2,500, your credit utilization would be at 50%. Credit bureaus don’t expect consumers always to have an extremely low credit utilization, but it is best practice to try and keep it around 30% or lower.
Avoid Applying for New Credit
Credit bureaus keep track of how often you apply for loans or revolving debt like a credit card. If done too often, applying for a credit card could hurt your credit score. While you are working toward boosting your credit, try not to apply for new loans or lines of credit.
Take Advantage of Reward Programs
Did you know there are credit reward programs designed to help people improve their credit? For example, the credit bureau Experian has a program called Experian Boost that allows consumers to add expenses like utility bills and subscription services to their payment history repertoire. The more positive payment history you have on your credit report, the more your score will benefit!
What Do Credit Bureaus Put on Credit Reports?
Your credit report is broken down into five different financial categories. These categories tell lenders and financial institutions what kinds of financial habits and behaviors you have. They then use that information to determine your creditworthiness and if you are an appropriate lending risk or not. The five financial categories on your credit report are:
- Payment history.
- Credit history length.
- Hard credit inquiries.
- Credit mix.
- Debt-to-income ratio.
Tips for Maintaining a Healthy Credit Score
Once you boost your score, all you have to do is maintain your good credit. Check out the practices below that can help you do just that!
When trying to maintain or rebuild credit, staying on top of debt should be a priority. Just one missed payment can negatively impact your credit score for up to seven years!
Check Your Credit Score Regularly
Checking your credit reports often keeps you familiar with your credit score, allowing you to monitor your progress. You can get free weekly credit reports via your bank or credit card issuer. That way, if you see a sudden drop in your credit score, you can look at your recent financial activity and identify the issue immediately!
Have Credit Reporting Agencies Correct Any False Information
Checking your credit reports not only keeps you familiar with your score and progress but can help protect you from identity theft as well! If you notice any odd information on your report that does not appear to be accurately reported, contact the credit bureau immediately. You may be able to boost your score simply by removing incorrect information!
Sign Up for Autopay
Stay on top of monthly payments for personal loans or other expenses by signing up for autopay. That way, you can have a perfect payment history without worrying about remembering to make your own payments manually.
Have Automatic Deposits for Savings
Most banks allow you to sign up for an automatic savings program. With a savings program, money is automatically transferred from your checking account to your savings account once a month. This transfer allows you to start saving money slowly without it significantly affecting your daily budget. Over time you can save hundreds or even thousands of dollars without really realizing it!
How Long Does It Take To Improve a Credit Score?
How long it takes to improve your credit score depends heavily on your personal financial situation. For example, it can take several years for a bankruptcy to fall off your credit score, while a late payment of one day may only stay on your report for 30 days. More extreme financial setbacks, like foreclosure, may negatively affect your credit report for five to 10 years.
Typically, the longer you wait to rectify a financial issue, the longer the negative mark will stay on your credit report. This is why it is so important to identify and remedy financial mishaps and errors as soon as possible!
What Can Prevent My Credit Score From Going Up?
When trying to fix your credit score, it’s important to avoid behaviors that will hinder your credit report. Below are a few financial habits that may prevent your credit score from increasing.
Making timely payments on your bills and due expenses is vital to having a good credit score. A 30-day late payment may negatively affect your credit report for nine months to three years, and a 90-day late payment may affect your credit report for nine months to seven years!
If you’ve missed so many payments on a loan that the account has fallen into default, your credit report most certainly will take a hit.
Frivolous spending habits can also be a hindrance to your credit report. Overspending can easily lead to extremely high credit card balances, credit card debt, or even checking account overdrafts.
When lenders or financial institutions see that you have a high amount of debt and poor spending habits, they may deem you an unreliable borrower and not want to work with you.
Too Many Loan or Credit Applications
Whenever you apply to borrow money, lenders and financial institutions do what is called a hard credit check. Hard credit checks are a formal inquiry into your credit score and involve an official report from one of the major credit bureaus. While one hard credit check by itself won’t harm your score much, several hard checks within a short period of time will.
Why Is a Credit Score and Credit Report Important?
Why do credit reports matter? Check out some of the benefits of having a good credit score below!
Access to a Broad Range of Financial Products
Unfortunately, having a bad credit score can affect how you borrow money. Some traditional lenders like banks may immediately reject an application if they see a low credit score. On the other hand, lenders are usually much more willing to lend to applicants with a mid-to-high tier credit score.
In fact, people with good credit may even receive pre-approved offers on loans and other financial products!
Higher Loan Amounts
Not only will you have access to more loan products when you have a higher credit score, but you may also receive approval on higher loan amounts as well! Having good credit is an indication to lenders that you are a responsible borrower and can be trusted with paying back your debts. Therefore, lenders are typically more comfortable with extending higher loan amounts to people with better credit.
Better Interest Rates
Your credit score can affect interest rates on loans as well. Borrowers with better credit are more likely to receive competitive rates on loans, lines of credit, and other financial products. When you have lower interest rates, you can save hundreds or even thousands of dollars over the course of your loan!