Bad credit is one of those problems you could have for years without realizing it, but it tends to hit you all at once. You’re going about your life, you apply for a loan to buy a new car, and you see that awful word: DENIED.
This happens to more people than you may expect. After all, most people don’t know which factors help or hurt their credit score. How are you supposed to raise your credit score if you don’t know what facts it takes into account?
If that’s where you are, you can put down the stress ball and stop googling “how to fix my credit score.” Simply follow this step-by-step guide.
1. Find Out the Details
You can’t fix a problem if you don’t know the full extent of it. Now is the time to rip off the band-aid and get all the details about your wounded and bad credit score.
Each person has three credit scores. You have one score from each of the three major credit bureaus: Equifax, TransUnion, and Experian. You need to know all three. But it’s free and easy to get the two most important ones from CreditKarma.com
When you have your credit reports, dig deeper. The reports will show you all the factors that are working for you and against you. You may have collections, debts or delinquent accounts you didn’t know about. You must deal with these details.
2. Make a Payment Schedule
When it comes to your credit score, time may not heal all wounds, but it heals a lot of them.
One of the best things you can do is to establish a longer history of making payments on time. To make sure that happens, find a way to keep track of all the payments you need to make.
In this age of technology, there are countless options. A simple calendar on your phone can alert you when a bill is coming due.
3. Pay Down Credit Card Debt
All your credit cards fall under the category of revolving credit. If you have a $10,000 credit limit on a card, you can charge, pay off, and re-use that $10,000 as much as you want. This is different from an auto loan in which you pay it off once and the credit is gone.
A large factor that impacts your credit is your credit usage ratio: the percentage of your revolving credit that you’re using. Add up the credit limits of all your credit cards, then add up the balances on all those cards. Divide your total credit card balance by your total credit limit and this is your credit usage ratio.
The lower that number is, the better. To lower it, focus your financial strength on paying down your credit cards. If you have extra money each month, it’s better to pay it toward your credit cards than your student loans or mortgage for example.
4. Share a Credit Card with a Strong History
Did you know you can share good credit? Well, in a way.
Your credit report factors in all the credit accounts in your name. That includes accounts that are in both your name and someone else’s name.
If someone has a credit card with a low credit utilization ratio and a long history of on-time payments, they can add you to their card as an authorized user. That card and all its credit-boosting power will go onto your credit report. This practice is called piggybacking, or using tradelines.
Our Boost My Score service does this for you: finding willing people with beneficial credit cards and adding your name to their cards. It’s a fast way to make a noticeable difference in your credit score.
5. Consider Getting More Credit
As we mentioned above, your credit utilization or usage ratio has a huge impact on your credit score. One way to change that ratio is to lower your balances. The other way is to increase your total credit limits.
You can do this by requesting a credit limit increase on a credit card you already have. Another option is to apply for a new credit card. Make sure it’s one that is likely to approve you with your low credit score.
There is a limit here, though. Every time you apply for new credit, it goes onto your credit report as something called a hard inquiry. If you have more than two hard inquiries in any 12-month period, it starts to lower your credit score.
Your credit report should show you how many hard inquiries you currently have. Only apply for a credit limit increase or a new credit card if you have fewer than two.
6. Only Close Credit Cards Under Specific Circumstances
Some people think their credit score is a measure of how responsible they are and that having too many credit cards makes them look less responsible. Both of these are incorrect.
Your credit score is a measure of how safe it is for someone to lend you money. If you only have one credit card, they have less information to use to make their assessment.
This is one reason it’s a mistake to take the action some people do: closing as many of their credit card accounts as possible.
There is another reason too. One of the factors in your credit score is your average account age. The more credit cards you have with long histories, the higher your score will be.
If you start closing all your credit cards, including your oldest ones, you lower your average account age.
If you feel that you must close some of your credit cards to be accountable with your money, only close the most recent accounts.
Asking “How to Fix My Credit Score?” It’s Easier Than You Think
A bad credit score can happen to anyone. In fact, it’s especially common for those who think they’re being responsible with their money by not having credit cards or loans.
If you’re saying, “I don’t know how to fix my credit score,” the good news is that there are plenty of ways to raise your credit score in a short period of time.
To take the first steps, get started by choosing the best tradeline company today.