Well, it can be said that having bad credit is pretty much like losing weight: It is a time-consuming process and there is no swift way of fixing a credit score. But, choosing any of the quick-fix methods to have more odds of bouncing back, so it is advisable to stay cautious of such false claims. Ideally, responsible management of the credit, over time, is one of the best ways to rebuild credit. First and foremost, repair of the credit history should be initiated in order to witness an improvement in the credit score. Following are some of the tips that will surely help you improve poor credit score –
Factors That Affects Your Credit Score
There are also bounty of things not. While it’s important to know what things help you to establish a good credit score, you also have to know the actions that could hurt your credit score.
1 Audit credit report
The credit report plays a key role towards repairing your credit score. If you have not checked till now, make sure that you order it today and cross check for any errors. The calculation of your score is done on the basis of the data of your credit report and there are possibilities that it may have some errors. This calculation will prove useful in distinguishing any late payments that have been wrongly mentioned and the owing amount, for each account, is right. In the case where you find any error in the reports, you can dispute them with the credit bureau.
2. Cutting down the amount of debt that you owe –
Bringing down the amount that you owe, is a great feeling than improving your credit score. In order to do this, the first thing that you need to do is to prohibit using credit cards. The credit report will be of great assistance to help you to jot down all your accounts. Then you can cross check all your statements to find out what is the exact amount that you owe on each account along with the rate of interest that is being charged. You should make a plan that puts the majority of the budget for the payment of the debts, giving priority to the high-interest rates first. This will help to maintain lesser payment on other accounts.
Related: What Is Debt Consolidation?
3. Payment reminders
One of the important contributing elements, towards your credit scores, is making timely credit payments. With the help of their online banking methods, various banks send emails or text messages giving you reminders of the due payments. It is up to you whether you want to enroll in the automatic payments, via your credit card and loan providers, to have the payments automatically debited from the bank account. But, the payments that are being made to your credit cards are quite low.
4. Credit card utilization rate
Your open credit card utilization rate is your available credit compared with how much you’re using at any given time. It can be calculated by taking your total open credit card balances and dividing that number by your total open credit card limits. The resulting percentage is your utilization rate.
It’s important to note that your credit card utilization rate is not calculated by looking at the balance you carry over from month to month. It is calculated using the balance you have at the time that your credit card issuer reports to the credit bureau. Therefore, it is not necessary to carry over a balance from month to month. You could maintain a healthy credit card utilization through regular credit card use and paying off your balance every month.
5. Avg Age of Open Credit Lines
This element averages the ages of your open credit cards, mortgages, auto loans, student loans and other lines of credit on your credit report. If your credit history is outstretched, lenders have more information to efficiently assess creditworthiness. It’s also occasionally an signal that you have been able to successfully manage your credit.
Related – Credit Card Debt Negotiation
6. Total Number of Accounts
This credit score factor aggregate up your number of credit cards, auto and student loans, mortgages and other lines of credit.
7. Hard Credit Inquiries
Hard inquiries occur when a financial institution, such as a lender or credit card issuer, supervises your credit in order to determine whether to approve you for a loan or credit card.
8. Having an account sent to collections
Creditors often use third-party debt collectors to try to accumulate payment from you. Creditors might send your account to collections before or after charging it off. A collection status reveals that the creditor gave up trying to get payment from you and employed someone else to do it.
9. Defaulting on a loan
Loan defaults are like credit card charge-offs. A default shows that you have not met your end of the loan contract.
10. Having your home foreclosed
Getting behind on your mortgage payments will lead your lender to forestall on your home. In turn, the late payments will hurt your credit score and make it harder to get authorized for future mortgage loans.
11. Maxed out credit cards
Maxed out and over-the-limit credit card balances make your credit usage 100%. This is minimal ideal for your credit score.
12. Closing a Credit Card Account
13. Applying For New Credit
14. Renting a Car With a Debit Card
15. Financing a Major Purchase
16. Not Paying a Parking Ticket
Related: Credit Card Debt Settlement Process
Related to payment history
The contribution of 35% to FICO score calculation, this category bears great significance for the improvement of the scores. But, past issues such as late or missed payments are not easily fixed.
- Timely payment of the bills – Delinquent payments, even if it is a few days late, and collections can have a negative effect on your FICO scores.
- Try to get current and stay current – Make sure that you make your payments for your bills, otherwise, it will end up increasing your FICO scores.
- Seeking the help of a credit counselor – There are two key things that you need to do in order to increase your score gradually – Managing your credit and make timely payments. Above all, a good credit counselor proves beneficial for the FICO scores.
- Paying off a collection account – If you have made the payment for a collection account, still it will show on your credit report.
Related – Tips To Pay Off Your Credit Card Debt
Related to the owed amounts
As per this category, around 30% is contributed to the score calculation of FICO and it is far easier to clean up as compared to the payment history. But, at the same time, it also requires strict fiscal discipline and holistic comprehension of the below-discussed tips –
- The opening of new credit cards – If you are thinking of opening new credit cards that you don’t, actually, require then it could bounce back and it will lower your credit scores as well.
- Having low balances on credit cards – In the case where you are having high outstanding debt, it will negatively affect your credit score.
- It is never advisable to close unused credit cards in order to increase your scores. This is a short-term strategy and it’s of no use.
- Paying off your debts – When you make a payment for your credit card debt, you are actually improving your credit scores. In fact, owning an identical amount but having less open accounts, will help you to lower your scores.
Related to the length of credit history –
If you have been managing credit, opening new accounts is not advisable – Not many people are aware but opening new accounts actually bring down the age of your account. It will greatly influence your scores if you are not having other credit details. Moreover, if you are a new credit user, quick account buildup may prove risky.
Related to new credit –
- Reestablishing credit history – Make sure that you have shown great responsibility while opening new accounts and it is also important that timely payments are also being made. This will help you to increase your credit score in the future.
- Make sure you have checked your credit report – You have to ensure that you have ordered the credit report from the credit reporting company. It can also be asked from an authorized organization that is responsible for providing credit reports to the consumers.
Tips related to credit use –
- credit cards If you have , ensure that you are managing them properly – Generally, if you have credit cards and installment loans, it will help in rebuilding your credit scores. Someone who is not having credit cards, for instance, tends to be at higher risk as compared to the ones who knows how to manage credit cards responsibly.
- New credit accounts should only be opened only when you need them – New accounts should not be opened just to have good credit mix. Remember, this won’t increase your credit score.
In the end, it can be concluded that fixing a credit score deals more about fixing errors in your credit history. Then follow the above-discussed guidelines to maintain an impressive credit history. After having not so impressive mark on your report, increasing your credit score will require discipline and patience.