Fix Bad Credit Score

A bad credit score shouldn’t be seen as a catastrophic event. This blog post will teach you 8 ways to fix bad credit score. Reducing your credit use and checking your credit reports are two simple things you can do to boost your score.

The average American consumer racked up $5,910 in credit card debt in 2022, and the usage of credit increased across all generations.

You will see a negative impact on your credit scores if you have a high credit utilization ratio, which is caused by credit card debt.

Anyone is vulnerable. Perhaps you overspent with your credit cards. Plus, you might find yourself unable to cover your expenses in the event of an emergency. Perhaps someone even took your identity. Whatever the situation may be, repairing a “bad” credit score is now your challenge.

Rebuilding credit and raising your score is certainly within your reach if you’re unhappy with your current score. We’ll explain how…

Why is my credit score important?

A low credit score is far from being a mere numerical value; it can profoundly affect your life.

It may be challenging for you to secure apartment rental approval. It might prevent you from qualifying for the most favorable terms on loans and credit cards, which could result in higher interest rates or even rejection. A below-average credit score may even have an effect on your ability to get a job in certain cases.

How your credit score is calculated

Learning how your credit score is determined is a prerequisite to taking steps to restore your credit. Your credit reports are the first step in this process.

All of your open and active credit accounts, such as those for vehicles, education, and credit cards, are detailed on your credit report. The three main consumer credit reporting agencies—Equifax, Experian, and TransUnion—are informed of this information.

Not all creditors and lenders report to the same agencies, and they don’t necessarily report at the same time every month, so your findings may vary depending on which one you choose. Yet, the appearance of the three reports ought to be consistent.

Based on the data in your credit reports, companies employ scoring models, which are formulae, to determine your credit score. Similar to how different companies employ different scoring models, you can see different numbers when looking at your credit report.

Fix Bad Credit Score

One of the most widely used credit scoring models, FICO, breaks down your score into five parts that will be discussed in this article:

1. 35% payment history: Your past pattern of payments (on-time or late — and how late) can raise or lower your credit score.

2. 30% amount owed: The balance you carry on all accounts compared to the amount of credit available to you is your credit utilization ratio. Your credit score will improve as this percentage decreases.

3. 15% length of credit history: The longer you’ve owned a credit account, the more it can help your credit score.

4. 10% new credit: When you apply for new credit, the card provider will likely pull your credit (also known as a hard inquiry). Inquiries can remain on your credit report for two years, but FICO only counts inquiries from the last 12 months.

5. 10% credit mix: This is the variety of credit you hold (installment loans, credit cards, mortgages, etc). Lenders may consider you less risky of a borrower if you can manage multiple types of credit.

Whenever there is a change to your credit profile, your credit score is also updated. The typical range for a FICO score is 300 to 850. A “fair” credit score falls somewhere between 580 and 669, while a “poor” score falls below 580.

8 Ways to Fix Bad Credit Score

Below are 8 ways to fix bad credit score:

1. Check your credit report and score

Looking at your credit report and making sure it’s accurate is the first step in raising a poor score.

Visit AnnualCreditReport.com to get your free copy of your credit report every week from each of the three major bureaus. Each of the three major credit bureaus should provide you a copy of your credit report.

The impact of checking your personal credit score is minimal and won’t affect your score in any way. Having an account with a bank, credit card provider, or other lender usually grants you access to seeing your score at no cost. Consulting with a nonprofit credit counselor is another option for obtaining your score.

2. Dispute any errors

It is important to promptly challenge any errors you may notice on your credit reports. Proof that anything is wrong may be required (for example, proof that you paid your bills on time even though they were listed as late).

As a general rule, the Fair Credit Reporting Act gives the credit agency 30 days to finish its investigation.

Your credit score may rise swiftly after a correction, depending on the nature of the mistake. But you still have some work to do before you can improve your score.

3. Get bill payments under control

With 35% of the total, your payment history is the single most important factor in determining your credit score. On time bill payments can go a long way toward raising your credit score. Setting up automatic payments for your current accounts is one approach to keep track of when you need to pay. In this approach, you can set up automatic payments so that you never miss a payment.

We encourage you to pay off your entire balance in full whenever possible, but if that isn’t possible, at least pay the minimum each month to keep from incurring late fees and perhaps increased interest. Additionally, your credit score will increase over time as your balance is gradually reduced by paying the minimum.

4. Set a goal for less than a 30% credit utilization ratio

Divide your overall debt by your total available credit to get your credit utilization ratio.

To illustrate, if your available credit is $3,000 and you owe $800, your credit utilization rate is 26.67% ($800/$3,000).

Typically, a lower credit score is associated with a higher utilization ratio. In determining your FICO credit score, the two most crucial factors are your payment history and your credit utilization ratio.

Get your credit usage ratio down from 30% or more; ideally, you should aim for 10% or lower. You may speed up the process of reaching your goal by paying off your current obligations and staying away from further credit card debt. Another option is to request a higher credit limit; however, this strategy can backfire if you continue to make purchases using your credit card.

Credit card debt consolidation might be an option to consider if you’re carrying a large balance and would like to make your payments more reasonable and reduce the total amount you owe. One way to save money while paying off debt is to look into debt consolidation loans, as they often have lower interest rates.

5. Limit new credit inquiries

An inquiry is made on your credit record whenever you request a credit limit increase or apply for new credit. Soft inquiry and hard inquiry are the two main categories of questions.

Whereas a soft inquiry has no bearing on your credit score, it happens when:

• You check your own credit score.
• You give permission to an employer to check your credit.
• Credit card companies check to see if you’re pre-approved for offers.
• Financial institutions you do business with check your credit.

Applying for new credit causes a hard inquiry, which lowers your score. Your credit score and lenders’ perception of you as a risky borrower might be negatively impacted by numerous hard inquiries within a short period of time, even though the effects of a single query might be transient.

6. Avoid closing old credit cards

Closing a credit card account could seem like the best option if you’ve paid it off and have no plans to use it again. The process of canceling unused credit cards could have a negative impact on your score even further. A longer credit history is considered more favorable since it makes up 15% of your credit score.

Rather, put the old cards somewhere secure where you won’t have easy access to them. Think about charging something regular, like a Netflix membership, on the card every month and paying it off completely and on time if you’re good with credit.

Accounts that are not actively used may be closed by the issuer. If you don’t intend to use your credit card for a year, it could be wise to close the account.

7. Consider a balance transfer card 

One option to consider if you’re drowning in credit card interest is applying for a balance transfer credit card that offers low or no interest at all.

The introductory 0% APR period for most balance transfer credit cards usually lasts between nine and twenty-one months. This is a great way to save money on interest by merging all of your high-interest credit card balances into one manageable payment.

You can end up right back where you started if you apply for a balance transfer card and then can’t afford to pay it off during the introductory period.

By dividing the total amount by the total number of months in the promotional period, you can determine the amount that needs to be set aside each month to be paid off in full. Additionally, don’t forget to factor in the balance transfer fee—usually between three and five percent of the transferred total.

Instead than paying the fee up front, it is added to the transferred balance. Despite how much you hate paying fees, carrying a big load on a high-interest credit card is usually worse.

8. Apply for a secured credit card 

While it may take some time to rebuild your credit, a secured credit card can help you get a better score when you don’t meet the requirements for a regular credit card.

Secured credit cards are similar to unsecured ones, except that a refundable security deposit determines your credit limit. You can expect a $500 secured credit card limit, for example, if you pay $500 as a security deposit.

Your deposit may be refunded and your credit limit increased if your payment history and credit usage are excellent. A more conventional credit card may even be an option for you to upgrade to.

Frequently Asked Questions On 8 Ways to Fix Bad Credit Score

1. What is a bad credit score?

A: A bad credit score is a numerical representation of your creditworthiness, typically below a certain threshold, indicating a higher risk to lenders.

2. What factors affect my credit score?

A: Several factors influence credit scores, including payment history, credit utilization, length of credit history, credit mix, and new credit.

3. How long does it take to improve a bad credit score?

A: Improving a bad credit score takes time and consistent effort. Positive changes can start reflecting in a few months, but significant improvements might take longer.

4. How can I check my credit score?

A: You can check your credit score through credit bureaus or financial institutions.

5. What are the steps to improve my credit score?

A: Steps include paying bills on time, reducing credit card debt, disputing errors, and maintaining a diverse credit mix.

6. Can I use credit repair services?

A: While credit repair services can help, it’s essential to understand the process and potential costs.

7. What is a credit report?

A: A credit report is a detailed record of your credit history, including payment history, credit accounts, and public records.

8. How often can I check my credit report?

A: You can request a free credit report from each of the three major credit bureaus once a year.

9. How do I dispute errors on my credit report?

A: You can dispute errors directly with the credit bureaus by providing evidence of the inaccuracies.