A bad credit score may make obtaining an apartment or a credit card or mortgage more difficult. It may also subject you to higher interest rates, making the credit lines and loans you receive more expensive to return.
If you have poor or fair credit, which is considered a FICO score of 668 or lower, you may need to start thinking about how to improve your credit score. As hopeless as the situation may appear right now, bad credit does not have to stay forever. There are things you can do right now to increase your credit rating.
1. Maintain a Record of Your Credit Score
Before you decide on ways to increase credit rating, you must first understand where you stand. Because your credit score is calculated using data from your credit report, the first thing you should do to increase your credit rating is a copy of your credit report.
The credit report is a track of your credit and debt management, as well as your payback history. It may also include information regarding your collections, bankruptcies, accounts, and repossessions. Request a copy of your credit report to determine the accounts that require attention.
2. Credit Report Inaccuracies
You have the right to an accurate credit report under the Fair Credit Reporting Act. This privilege permits you to appeal credit report mistakes through writing to the relevant credit company, which has 30 days to verify the claim.
Errors can harm your credit score if they occur due to data entry mistakes by creditors, addresses, or birthdays, or identity fraud.
For instance, when you already have a record of outstanding debts and incorrectly recorded late payment on another’s report might have a relatively immediate negative impact on your credit score.
The sooner you claim and have inaccuracies corrected, the faster you can begin to improve your credit score.
3. Stop Acquiring New Credit Cards
New credit card transactions will increase your credit usage, which is a proportion of your credit card balances against their separate credit limits that accounts for 30 percent of your credit score.
You can figure it out by dividing your debt by your credit limit. The more your balances are, the greater your credit use, and the greater the risk to your credit score.
4. Clear up Your Past Dues
Once you’ve reduced your new credit card spending, utilize your money to catch up on the credit card transactions before they’re sent to a collection agency or blocked.
Pay off all outstanding balances as soon as possible; the creditor will then adjust the payment status to “paid in whole,” which will reflect more positively on your credit than an unsettled account.
Payment history accounts for 35 percent of your credit score, making it the most significant indicator of your credit. The longer you fall behind on your payments, the worse your credit score suffers.
5. Do Not Apply for New Credit Cards
Stop getting new credit applications while you’re working on your credit. If you submit credit applications, the lender will frequently do a “tough investigation,” which is a credit assessment that appears on your credit history and affects your credit rating.
The number of credit accounts you recently created and the number of investigations you received show your risk level as a borrower and contribute to 10 percent of your credit rating.
Creating many accounts in a short duration might signal to creditors that a borrower is in desperate financial troubles, which can lower your credit score even more.
Having little or no newly created accounts, on the other hand, demonstrates financial steadiness, which might help to increase credit rating.
6. Do Not Close Accounts
Closing a credit card never improves your credit score. At the barest minimum, make sure that closing an account will not harm your credit. You may be attracted to close overdue credit card accounts, but the unpaid balance will remain on your credit record till you clear it off. It is advisable to keep the account running and clear it off at the given time.
7. Stay in Touch with Lenders
They may be the last people you would like to contact, but you’ll be amazed at how much assistance you can get if you phone your credit card company. If you’re encountering problems, talk to your lenders about it.
Most companies provide temporary difficulty programs that lower your interest rate or monthly payments until you get the stability. If you notify them that you may be unable to make an impending payment, they may be able to work out a mutually advantageous solution. This courtesy may assist in making progress to repay outstanding accounts and increase credit rating.
8. Clear up Your Current Dues
Your total debt as a percentage of your entire credit accounts for 30 percent of your credit rating, so you’ll need to repay that debt to increase your credit rating. If you owe more than you earn, you’ll have to get resourceful with additional cash you’ll have to pay down.
9. Stay Persistent and Patient
Patience and discipline aren’t a part of calculating your credit rating, but it’s something you’ll need when you’re improving your credit. The credit was not harmed overnight, and don’t assume it to recover in that time frame.
Keep your spending in line, keep watching your credit, and pay your obligations timely, and this will help increase your credit rating over time.
10. Seek Expert Assistance
Increasing your credit score is an excellent objective to have, specifically if you want to access the money to make a large purchase, such as a new home or car, or if you have to qualify for a rewards program. When you gradually work to improve your score, it may take weeks, if not months, to see a significant improvement.
Consumer credit counseling services can help you if you are overwhelmed by your credit position or monthly bills, if you struggle to make ends meet, or if you are going bankrupt.
Certified credit counselors such as Jacaranda Finance can assist you in organizing your money, developing a debt management strategy, and developing a budget.