How to Fix Your Credit Score

Darryl Bachmeier
Aug 14, 2020
Finance


You’ll see many articles touting quick ways to fixing your credit score. Don’t fall for them because most quick-fix efforts are likely to backfire! The process will take some patience, discipline, and time. Be responsible and manage rebuilding your credit over time. Begin by repairing your credit history, which will gradually up your credit score.

Use the steps that follow as guidelines to do both:

Checking and Disputing

When you receive the credit report, check it for any incorrect information. We’d recommend signing up to receive the reports from all three agencies. If you do find errors or missing data, contact the agency in question and prepare to dispute them. Learn how to do that. Also, keep in mind that you won’t affect your FICO score or any credit reports by checking your own credit score.

Tardiness can be Bad for your Credit Score

The main thing that interests a lender reviewing your credit report/score is how reliably you have been paying your bills. Using the information about your performance in the past, they predict how you’ll behave in future. If you know what the lenders will be looking for, you can affect the outcome. So, pay your bills on time every month. Avoid settling any accounts for less than the original amount or showing tardiness when paying. Both these actions will affect your scores negatively. And by bills, we don’t just mean those for any auto or students loans you might have or credit card bills. We’re using the word to cover everything, including the rent, phone bill, and utilities. If you fail to make the payments because it slips your mind, then start using resources that will ensure you don’t forget. Setting up automatic payments and calendar reminders will do that. Finally, things happen and it’s possible to be behind on payments even after trying really hard. Correct that by bringing them current as soon as possible. Sure, late and missed payments will show up as negative information on the report. But they will only remain there for seven years. What’s more, their impact on the credit score will also decline over time. In other words, older late payments will have less of an impact than the more recent ones. Use that information to your advantage!

Find out about your Credit Utilization Ratio/Rate

Another thing that can affect how credit scoring models calculate your score is the credit utilization ratio/rate. Simply put, it is the difference between credit available to you and how much you owe. So, sum up all revolving debt, like credit card balance. Then, divide it by the available credit – or total credit limit – and multiply what you get by 100 for a percentage. For example, with a $40,000 available credit value and $4,000 credit card balance, your credit utilization rate becomes 10%.

The higher this rate goes, the more negative an impact it will have on your credit scores. We’d advise that you keep the ratio under 30% at the very least. If you can go even lower, that would be even better. Some ways to help you bring your credit utilization rate down include paying down the account balances and opening a new credit account. You may also ask for an increased credit limit on a card you already have. Both this and new credit account opening will increase how much credit’s available to you. Finally, personal loans aren’t a part of the credit utilization ratio calculations. So, use them to consolidate any credit card debts. Having said that, we should mention that an increased credit limit can also be like taking a risk. For instance, if the newly inflated limit is tempting you to go on a spree, you’ll end up falling into debt more deeply. Similarly, when you get a new card, your report will show a hard inquiry. Such an inquest can also bring down your credit score. So, only take these steps if you have no other options. Likewise, personal loans will bring the utilization rate immediately down to zero. But if your credit score just took a beating, you aren’t likely to get approved for one. Even if you do, the interest rate might not be so reasonable. Therefore, only take this step if you cannot pay down your balances – the best option for improvement of credit utilization rate. Finally, when there’s additional credit available to you, don’t actually use it! Doing so will only bring things full circle. In fact, you might end up in even more debt than before. In the end, we’ll admit that you will have to work on your credit score for months – even years. But do it and it will improve. And when you begin thinking about owning a home or taking out loans, all this hard work will have made it possible!

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