So you want to know how to fix a bad credit score? It may be easier than you think.
Before we are able to give you a proper or final answer, you must know there are a number of factors that go into bad credit scores, but the most important one is the balance on your card. If it’s high, then that can affect your score.
However, this doesn’t mean that fixing this problem with your card is going to solve the entire problem, and even less fast.
The rest of the factors play individual roles, and in order to understand and manage them properly, it is necessary to have all the concepts and definitions right.
For example, do you actually know what a GOOD credit score is? Based on it, do you know what a bad one is?
You probably think it is only a score that doesn’t allow you to request personal loans or credits for the latter. However, it is much more.
Thus, before we help you solve this little (actually big) issue, let’s focus on understanding everything.
What Is a Credit Score?
A credit score is a number of three digits, typically on a scale from 300 to 850. It estimates your likelihood to repay debt and pay bills, which is why it is the most crucial part when requesting any loan or credit.
Your credit history is used to calculate your credit score. Credit-reporting agencies (also known as credit bureaus) collect this data and compile it into credit reports. Equifax, Experian, and TransUnion are the three largest bureaus in this matter.
Credit score plays an important role in the decision of a lender to lend you credit. For example, people with lower credit scores than 650 are considered subprime borrowers.
In order to offset their higher risk, lending institutions charge more interest on subprime mortgages than conventional mortgages. For borrowers with low credit scores, they may require a shorter repayment period or a cosigner.
It isn’t like you cannot access loans, but you are less likely to get ones for large amounts, and for any sort of credit, you will need to handle tougher conditions and terms. Starting with interest rates.
Lenders often review borrowers’ credit scores when they decide whether to modify a credit limit or change an interest rate.
Credit Score Factors: How It Is Calculated in Detail
This will be easier to explain since we already mentioned the three major credit reporting agencies in the United States, Experian, Equifax, and Transunion.
First, they take care of reports, update and store credit history information. Although there may be some differences between the credit bureaus’ information, the main factors that are used to calculate a credit score are:
- History of payments.
- The total amount owed.
- Credit history length.
- Different types of credit.
- Credit new.
The payment history is 35% of a credit score. It shows whether someone pays their bills on time.
The total amount owed is 30%. It also takes into consideration the credit that is being used currently, which is called credit utilization.
The length of credit history is a factor that counts 15%. Longer credit histories are considered to be less risky because there are more records to help determine payment history.
Another 10% of a credit score corresponds to the type of credit used. It shows whether a person has both installment credit (such as car loans or mortgages) and revolving credit (such as credit cards).
New credit count for 10% as well, including how many accounts a person has recently, how many applications they’ve made, and the date that the last account was opened.
Put it all together, and you get your 100% based on every detailed info.
Learning Credit Score Ranges
Although each creditor sets their own standards regarding the acceptable scores they will accept (which means what we will write is only an average), most of them are guided for this credit scoring model:
- A 720 score and higher is considered excellent credit.
- A 690 score to 719 is considered good credit.
- Scores between 689 and 630 are fair credit.
- Poor or bad credit scores are those with 629 or less.
Creditors will consider other factors than your credit score when deciding whether or not to approve your application.
Thus, the credit score isn’t everything, but it indeed plays a crucial role.
How To Improve Your Credit Score In 12 Steps
After all that explanation, we are in the section you are eager to know about: Fixing it.
We want you to know that although what we will share is going to be fast, that doesn’t mean it will be instant.
If you follow things carefully or dedicate your time to implementing all possibilities, you should be able to achieve the changes much sooner. Thus, pay attention from here onwards:
Check Why You Have a Bad Credit Score
To fix a low credit score, the first step is to identify why it is so low. You probably know that you have a low credit score if you are reading this guide, but do you know the reasons behind it?
For those who don’t know, there are a few companies that can help you get an estimate and understand your situation better:
- Experian: It offers a limited-free service, and it is one of the most well-known credit rating agencies. This is a great place to start if you need a quick overview of your score or track improvements.
- Equifax: No cost for the first 30 Days. Equifax is one of three major credit bureaus. They offer many tips and tricks to help you understand and improve credit scores.
- TransUnion: It is free for life, but it’s newer and provides less information than paid services. Despite all this, it provides enough information to help you take control of your finances and understand the reasons behind the score.
- Clearscore: It is a revolutionary credit score management system. It is 100% free and offers mobile apps that are packed with useful information as well as easy-to-use navigation.
You can use any of the apps and, in case you don’t want to pay, you must cancel any subscriptions after you have signed up for a free trial. It’s not a good idea to get billed the next month.
Free options might be the right move to avoid any possibilities of being charged.
Eliminate any existing debts
To fix bad credit, the second thing you should do is pay off all outstanding debt. If you are applying for a loan or credit card, this will be reflected in your credit score.
You can either pay off your debts or start to make monthly payments.
You can transfer your debt to a 0% APR credit card, which will eliminate interest.
We know it is easier said than done when you have to really on the usual “I’ll pay this with my money,” but it is necessary.
Once you apply for a loan but without any debts or barely one or two, your chances of getting it are much higher.
Pay Your Bills on Time
Be punctual with your payments. Your credit score will suffer if you don’t pay your fixed costs such as rent, mortgage, and credit card payment on time.
Many lenders will flag missed repayments as a red flag. It’s crucial to ensure you are on track.
Contact your creditors if you are experiencing financial difficulties and work out a payment plan that is more affordable and won’t delay you in your quotes.
Get on the Electoral Roll
Joining the electoral list can help improve your credit score. Lenders use it to verify your identity and address.
It is important to verify your address and stay at the same address for long periods of time. Sometimes this can help.
Sticking with the same job for long periods of time can prove to be a sign that you have consistent income for lenders.
Separate from Previous Financial Partners
Your credit score may be affected by your relationship with a partner, even if they are no longer with you.
Contact the credit reference agencies if you feel your ex-partner’s debts are having an effect on yours. This will enable them to dissociate you, which could increase your score.
After all, if they had a bad one but yours was decent, why bring it down? Find out!
Get Rid of Accounts with Unnecessary Credit
Lenders may use your available credit to determine your credit score. It is a good idea not to have any credit cards that aren’t in use or bank accounts with overdrafts.
This will improve your credit score and increase your chances of getting credit.
Pay Attention to The Applications You Submit
It is a bad idea to use a scattergun approach when applying for credit.
Soft search technology is best for applicants who are seeking credit. This will not affect your credit score.
Multiple applications can further reduce your credit score, so make sure to do your research before you apply.
To Build Up Credit, You Can Use A Credit Card
Although it may sound counterintuitive, increasing your debt is a smart move if you manage it. It’s still a good idea to get a credit card and use it to build your credit history.
If you pay your monthly repayments, a credit card or other type of charge card can help boost your score. Pay your monthly repayments on time. If you don’t, you could damage your score rather than fix it.
Maintain a Credit Utilization Ratio below 30%
The credit utilization rate is calculated by comparing your credit cards balances with your total credit card limit. Lenders use this ratio to assess how well you manage your finances.
A ratio less than 30% or greater than 0% is considered to be good.
Let’s take, for example, two cards with credit limits of $2,000 each and $500 in unpaid balances on the same card.
Your credit utilization ratio would then be 12.5%. This would be your credit utilization ratio. Add up your total debt ($500) and divide it by your total credit limit ($4,000).
Register for Experian Boost
If you have a low credit score due to being new to credit-seeking and are punctual with your phone and utility bills, the lender can pull a report using Experian’s “Experian Boost” plan.
This hybrid model uses what the industry calls “alternative data,” which is nontraditional payments that give lenders valuable insight into an applicant’s creditworthiness.
You will find that the road to success is a bit more difficult from this point on. It’s important to be aware of what’s ahead.
For Higher Credit Limits, Ask
Your credit utilization will decrease if your credit limit is increased and your balance remains the same. This can help improve your credit score.
You have a good chance of getting a higher credit limit if your income has increased or you have a more positive credit history.
Become an authorized user
Ask to be added as an authorized user if a friend or relative has a credit card with a high credit limit, good payment history, and strong credit history.
This will add the account to your credit report, which can increase your utilization.
Their positive payment history is also a benefit. You don’t need to be allowed to use the card or give the account number to your credit score to improve.
To get the best results, ensure that the account reports to all three major credit agencies.
Can You Hire a Company to Fix Your Credit?
Yes, but should you do it?
Credit repair mainly removes negative information from credit reports, usually errors. However, this is only one part of improving your credit score.
You might also be able to dispute errors faster.
Experian estimates that credit repair companies can cost between $50-$100 per month, but it is possible to do it yourself.
You can also seek affordable credit counseling through the National Foundation for Credit Counseling if you truly need it.
Overall, companies specializing in this will make sure you are able to achieve the goal through all the previous strategies and options.
Of course, since they are closely related to the three main bureaus, it is easier for them to influence the credit score with the right measures.
But it isn’t that worth considering it will take the same amount of weeks to fix the credit most of the time.
What Is the Average Time It Takes to Fix Credit?
A noticeable improvement in credit scores usually takes between 3-6 months and 3-6 months of good credit behavior.
If there was only one minor negative item on your credit reports, such as late payments or missed bills, it is hard to see a significant improvement in your credit score.
Although it is difficult to give a time frame for credit repair, it is safe to assume that the less negative information on your credit report (late payments, maxed credit cards, constant credit application, bankruptcy, etc.), the better.
It takes longer to fix a poor credit score than to build one. Making mistakes can affect your credit score, which could prevent you from getting approved for a loan.
Although student loans or any other that come to mind are available to those with poor credit, these loans can lead to higher interest rates and a cost of hundreds or even thousands of dollars. Poor credit scores can also be a barrier to renting an apartment or setting up utilities.
Your points will not be affected as much if you miss one payment. However, you won’t lose as many points as if your account has been in arrears for several months. Your score will reflect the severity of the second situation.
Now, how long will it take to boost your credit score?
When implementing all of them or the ones that apply in your case, you should be able to notice an improvement within 30 days. This needs to be added about 15 more days based on your interactions with more credits or when you borrow money.
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