If your credit score is in the dumps, and you can’t get a loan or a credit card, you may think it’s impossible to improve it. But with some patience and hard work, getting back into improving your credit score is possible. You can build a solid financial future with Equifax, Experian, and TransUnion. That’s why it’s vital to maintain a good credit score. How do you improve your credit score? This guide will show you how to rebuild your poor credit scores.
Why Does a Good Credit Score Matter?
While your credit score is just a number, it can significantly impact your life. Getting a better credit score can help you get a job, rent an apartment, and even get cheaper insurance.
A high credit score means you’re responsible with money and can be trusted to pay what you owe on time. A credit card or loan lender wants to see that you can handle substantial debt responsibly, so lenders look for that in applicants.
You typically can’t qualify for coveted cash back credit cards, for example, if you don’t have a good credit score.
Credit scores tell lenders that you are reliable and can repay your loans without defaulting (which will lower your score further). It also helps them to do a credit score check on whether they should lend money: if they don’t think they’ll be paid back on time, why would they give out money?
How to improve your Credit score?
Here are a few ways you can consider:
- Pay all bills on time. If you can’t pay in full each month, ensure you always make payments by their due dates. This way, potential lenders will see you are responsible with money and won’t let you down in the future.
- Only open a few new accounts at a time. Despite the temptation to open many different accounts to build up your credit quickly, it is suggested against it. Lenders won’t like seeing so many different accounts on your credit report and the amount of debt they represent. The other ways include:
Check your credit report
Get your credit score range from the three major credit reporting agencies: Experian, Equifax, and TransUnion. You can request a free credit report from each agency once every 12 months by visiting AnnualCreditReport.com.
Free credit reports should provide enough information to understand how each bureau scores you. A score is given (ranging from 300-850), as well as how many accounts were opened in the past seven years.
Strategically pay off credit card balances
Pay your credit card balances in full each month. Paying interest on a balance is like paying rent to the bank—you’re essentially renting money that belongs to you. If you don’t have cash, it’s better to delay buying something than to pay for it with a credit card.
Try paying more than the minimum payment every month and look out for zero percent promotional offers from your issuer. In most cases, the grace period between when a bill is due and when interest begins to accrue is 21 days. No interest will be charged if you pay the entire amount within 10 days of the due date.
You should ensure that your monthly spending matches the category that gets you the most rewards (like gas versus groceries).
Pay your bills on time
One of the most significant factors in your credit score is whether or not you pay your bills on time. An outstanding balance on a credit card shows up as a negative mark until that balance is paid off. The longer it takes to pay off that debt and the more interest charges pile up while waiting for repayment, the worse this can be for your score.
To improve your credit score quickly and keep it high going forward. Pay attention to the types of accounts listed on your report (checking accounts, student loans, and car payments should all be listed). Then get a handle on bill payments by making sure:
- All bills are being paid on time (or at least within 30 days).
- Paying more than the minimum amounts due each month maintains a low balance across all accounts.
Keep your credit use to 30%
Credit utilization is the amount you have used compared to your available amount: the lower your credit utilization, the better. Using 30% of your available credit is the maximum you should use to maintain a good score. You spend only 30% of your available credit if you have $10,000 in available credit and spend $3,000 a month.
Your score will improve if your overall debt-to-income ratio is lower – the percentage of income used to pay off monthly bills. The money management skills of people who owe money indicate they are overextending themselves or getting into risky situations.
Keep your old accounts open and deal with delinquencies
Only close old accounts if you’re seeing a decrease in your credit score. Instead, keep those old accounts open and active. It’s essential to have a long history of paying bills on time—so even if an account doesn’t get much use anymore, leave it alone. You can always put that card back into play when you need it (for example, if you want to apply for a new line of credit).
Dispute credit report errors
In addition to reviewing your credit reports for accuracy and disputing any errors, it is also a good idea to stay on top of your credit card accounts. Do not pay for subscriptions, streaming services, or memberships you no longer use, as this can negatively impact your credit score. Maintaining an active account history is vital in helping lenders determine whether or not they should extend you more credit based on what they see when they look at your account history.
Sometimes people get exposed to identity theft and it can damage their credit. If you check your report and see it, you can take it up with the credit reporting agency. You can also invest an identity theft protection service.
The most important thing to remember if you want to improve the health of your overall financial situation is that many resources available today make managing money more accessible than ever before.
Deal with collections accounts
You might have a collection account on your credit report if someone or a business still owes you money. Collection accounts can be from various sources, but they all fall under delinquent debt. When a collection account becomes delinquent, it remains on your credit report for seven years.
Lenders use FICO scores to determine whether to extend credit so that collections will be included in your score. You won’t necessarily be disqualified for loans or new lines of credit (your score won’t drop dramatically). However, they still need to be handled as soon as possible because they can significantly impact how lenders view you.
Add to your credit mix
Another way to improve your credit score is by adding to your credit mix. A credit mix combines different types of credit, such as installment loans and revolving accounts (like a credit card). This can help you get a better interest rate, as well as a better overall score.
Get at least one installment loan (like a car loan or mortgage) and one revolving account (like a department store card).
Pad out a thin credit file
To build credit, you must get a loan or open a credit card account. You can also ask your employer if they offer company-sponsored loans or best starters credit cards.
If you have no credit history, try to get a secured loan or open a secured credit card. When you get a secured loan, the lender holds onto an asset you own until the debt is repaid – like a car loan. It works similarly: You deposit before receiving your card and has enough cash to pay any charges should things go wrong. Stick with traditional cards that don’t require security deposits unless necessary.
Get credit for rent and utility payments
You can also opt to get a credit card and use it to pay your rent and utility bills. Stay moderate: if you overspend, you’ll just dig yourself into a deeper hole.
Avoid high-interest rates by paying rent and utility bills directly from your bank account. If you write out the check or bring folding money, it won’t cost you anything extra (except your time).
Keep your old accounts open and deal with delinquencies
Only close old accounts if you’re seeing a decrease in your credit score. Instead, keep those old accounts open and active. Maintain a long history of paying bills on time, even if an account gets little use now. You can use that card again if you need it (like a new credit line).
Monitor your credit score
Credit monitoring services are a great way to monitor your credit score. Their free credit reports allow users to see how their score has changed over time. If you’re looking for a service, look for one that lets you:
- Track all of your information from all three major credit bureaus (Experian, TransUnion, and Equifax)
- Monitor more than one type of account at once (e.g., mortgage, student loans, and auto loans)
If your monitoring service needs to do what it says about your accounts, contact the provider and the creditor. Once you’ve found exemplary service, ensure it does what it says.
Debt consolidation might be a good idea
Consolidating your debt can help you:
- Lower your interest rate. The interest rates on your credit cards may be higher than the average card’s APR if you have several cards. Consolidating them can reduce your total debt and save you interest.
- Make payments more superficial and more efficient. If you pay multiple bills, you will be able to track if any of those bills are on time or missed altogether. Combined payments can be made on a single bill (or, better yet, just one card). You don’t have to worry about missing due dates anymore because they will all be due at once.
- Improve your credit score by paying down debt faster and reducing the utilization ratio (amount owed/ total available balance).
Add to your credit mix
- Add to your credit mix. Credit bureaus will need help determining your risk as a borrower if you have multiple cards. This is because they will need more information about your spending habits or income level when assessing. Using multiple types of cards (low limit, high limit, etc.), despite some cards not being used very often, others are.
- Use a low APR card. Suppose you have an option between two cards with similar limits and rewards programs. A lower interest rate is generally better, especially if it has no annual fee
How fast can you raise your credit?
If you want to improve your score quickly, pay off any debt
as soon as possible and try not to open new lines of credit until after about six months or so. When opening an account, try lowering the monthly money owed instead of increasing it. This will help keep balances low while still allowing access to funds if needed during emergencies.
How can I rebuild my poor credit?
There are several ways to rebuild your poor credit. Here are some tips that may help:
- Ask for a credit limit increase. Try again if you’ve been rejected for loans or lines of credit. Your creditors will likely give you more leverage if they see that you’re making an effort to improve your score.
- Get a secured credit card. In secured cards, the issuer requires collateral (usually cash) as security before issuing any funds. No matter your credit history, you can get one of these cards and use it responsibly until your score improves enough to qualify for unsecured ones.
- Make a budget and stick to it. Setting realistic goals based on income level is one of the biggest things people need to improve when trying to repair their scores. After paying all their monthly bills, they didn’t realize how much money was left over Creating a budget (and strictly complying with those limits) would be the easiest way around this problem.
Don’t let a bad credit score get you down. And stop wondering how to improve your credit score and build a healthy financial future with the proper steps. A good credit score is more than just a number; it’s the foundation of your financial future. If you follow these tips and work hard to improve your score, you’ll reach your goals faster.