Are you one of the 43 million Americans with bad credit?
If yes, you know how bad things can get.
Bad credit doesn’t just ensure you don’t get approved for loans at fair interest rates. It can get landlords to turn down your rental applications, and when you want to buy utility services such as electricity, the providers may require you to pay a deposit.
Clearly, bad credit makes your life harder.
But there’s good news. Bad credit is not a life sentence. You can build your credit from poor to excellent.
Here’s a guide on how to fix your credit score – quickly.
Understand How Credit Scoring Works
The first step to repairing your credit is to know how the credit scoring system works.
When computing your score, FICO – the most popular credit scoring model – uses the following parameters:
- Your payment history — accounts for 35 percent of your FICO score
- Credit utilization
- Credit mix
- Hard inquiries on your credit score
- Negative information – such as closed bank accounts or late bill payments.
Now that you know the factors that go into your score, you’re in a better position to make better financial decisions.
Build a Positive Payment History
Since your payment history carries a lot of weight, settling your bills on time is a sure way to give your score a quick boost.
But because rent and other utility bills don’t typically show up on your credit report, you’ve to focus on your credit payment history. This means going in for a loan or credit card and then staying on top of the balance repayments.
You’re probably wondering, “I have bad credit. Who will approve me for a loan?”
Well, there are loans and credit cards for all types of credit scores. Explore this site to learn more about credit cards for fair, bad or even no credit.
Pay Up Your Debts
If you’ve bad credit, past debt is most likely the culprit.
When you default on a loan, your lender will hand over your account to a collection agency. If the agency is unable to recover the money, it will forward your details to credit bureaus, and your credit score will tank.
As such, a fast way to build your credit is to pay up what you owe. After settling your debt, ask the lender to notify the credit bureaus, after which your credit report will be updated accordingly.
Don’t Apply for Credit Unnecessarily
While it’s a smart move to get a loan or a credit card and rebuild your payment history, don’t borrow unnecessarily.
Most traditional lenders will perform hard inquiries on your credit report. The more inquiries on your report, the lower your credit score will fall.
Check Your Credit Report for Errors
20 percent of credit consumers have a significant error on their credit report.
So once you’ve got your credit report, check for the following common errors:
- Wrong identity
- Incorrect account balances
- Closed accounts marked open
- Accounts with an incorrect credit limit
If you find any errors, file a dispute with the credit bureau that issued it. After the correction is made, expect your credit score to improve.
That’s How to Fix Your Credit Score!
A good or excellent score is your pathway to financial freedom. However, if you made financial mistakes in the past and ruined your credit, it’s not the end.
With this guide on how to fix your credit score, you now know the steps you can take to move out of the red territory.
Need more credit tips? Explore our blog’s finance section.