6 Ways You Can Improve A Bad Credit Score
A credit score is a number that shows how creditworthy you are and what gives your credit score. If your credit score is low, you are at a greater risk of having a hard time getting approved for mortgages, car loans, and credit cards. According to FICO, a bad credit score is 699 and below. If you belong to this category, you shouldn’t feel too down. After all, they do not last eternally, especially if you take the following steps.
Ways To Recover From A Bad Credit Score
Review Your Credit Report
You can’t do anything about the past, but you can take steps to improve your credit score for the future. Credit scores are based on information in your credit report, and creating a positive credit report is the first step to improving your credit score. Review your credit report for errors and get any errors corrected. The credit bureaus are required to investigate any disputes you submit.
The Fair Credit Reporting Act is a federal law that gives you the right to see a copy of your credit report from each of the three nationwide credit reporting companies – Experian, Equifax, and TransUnion. The Act requires the credit bureaus to give you a free copy of your report each year.
Identify And Dispute Errors In Your Credit Report
The Fair Credit Reporting Act protects consumers when credit is denied, or credit limits are reduced based on information in their credit reports. This federal law allows you to dispute credit report errors and requires credit bureaus to investigate and correct mistakes. The bureau where you submitted your complaint must probe the dispute within 30 days.
There are various errors that can affect your credit score. Examples are errors on the address, birthday, and Social Security Number. Creditors also commit mistakes on their data entry, so make sure that you know how to counter check all the information listed in your credit report.
Avoid Purchases With New Credit Card
While you may be tempted to open up a new credit card account to pay for a big purchase, doing so can hurt your credit score. The fact is, opening a new credit card can represent financial risk, and potential creditors may be concerned that you can’t handle your money responsibly. If you’re looking to build a good credit score to improve your chances of securing loans or low-interest rates, the best thing you can do is keep the same card open and actively use it.
If you have a new credit card already, you should never use it to make purchases. Otherwise, it will cause an increase in your utilization rate, which plays a factor in the calculation of your credit score. The bigger the credit card balance, the higher the credit utilization becomes. High credit utilization is bad for your credit score.
Based on FICO’s credit score model, credit utilization should be below 30%. For instance, if your credit limit is $5,000, then your credit card utilization should not go higher than $1,500.
Settle Past-Due Balances
Keep in mind that your payment history forms 35% of your credit score. Hence, individuals who have sour payment history often get bad credit score ratings. Specifically, if you are not keeping up with your dues, your credit score will likely get hurt.
Aside from avoiding purchases with your credit cards, you also have to keep track of your credit card payments. Pay your balances fully; these will reflect positively in your credit card report.
Don’t Apply For New Credit Cards
As long as your goal is to recover from a bad credit score, you should never attempt to apply for new credit cards. Every time you apply for a new credit card, creditors will do a “hard inquiry.” The latter is a process that reviews your credit report. Once a hard inquiry is conducted, it may affect your credit score badly. i
In fact, hard inquiries constitute 10% of your credit score. Opening credit cards simultaneously can alarm lenders, as it is a sign that a person is in a difficult financial situation.
Seek Help From Your Creditors
With the tough economic times, more and more people are finding themselves in debt. While it is easy to think that there is no hope, it is essential to note that there are many different credit score solutions available for those in debt. Not all of these solutions are ideal for everyone. For example, if you have a high-risk credit score, you may want to consider asking help from your creditors instead of trying to file for bankruptcy.
Creditors are willing to work with many people through difficult times, and they may be willing to give you a second chance.