If you’re like most Americans, you have a credit score. And if you have a credit score, you probably want to know how to fix it.
Credit scores are important because they help lenders determine whether or not you’re a good candidate for a loan. They also help determine the interest rate you’ll pay on a loan.
A good credit score is anything above 700. A bad credit score is anything below 600.
So, how do you fix your credit score? Read on to find out!
1. Check your credit report
The first step to fixing your credit is to check your credit report. Your credit report records your borrowing history maintained by the three major credit bureaus (Experian, TransUnion, and Equifax).
Your credit report includes information such as your credit accounts, payment histories, and other information that pertains to your creditworthiness.
You can obtain a free copy of your credit report from each credit bureau once every year. You can also pay a fee to get a copy of your information more frequently.
When you check your credit report, look for errors or inaccurate information. You can dispute any information that you believe is incorrect, and the credit bureau must investigate and correct it if they feel it is warranted.
You can also look for any overdue accounts or accounts you had previously paid off. Resolving any of these issues as soon as possible is essential, as they can negatively affect your credit score.
2. Pay your bills on time
Paying your bills on time is one of the best ways to improve and maintain a good credit score. Your payment history is the most critical factor in determining your credit score. A history of timely payments will increase your score, while late or missed payments can hurt your score.
It is essential to ensure your payments are received by the due date. Setting up automatic payments is one way to ensure that your bills get paid on time. Automating your payments will help prevent missed or late payments and improve your credit score.
You can also use credit monitoring services to track and receive alerts on activity related to your credit report. A credit monitoring service can help you detect suspicious activity, such as identity theft, and alert you so that you can take action as soon as possible.
3. Reduce your credit utilization
Reducing your credit utilization is another way to improve your credit score. Credit utilization is the ratio between the amount you borrowed and the available credit you have. Maintaining a good credit score is essential to keep this ratio low.
Ideally, your credit utilization should be below 30%, which means that the amount you borrowed should be at most 30% of the amount of available credit you have. For example, if you have three credit cards with $800 credit limits, you should borrow at most $240 across all three.
The lower your total credit utilization, the better your score. If you have maxed out any credit card, you should pay off the balance as soon as possible. Doing this will significantly reduce your credit utilization and improve your credit score.
4. Increase your credit limit
Increasing your credit limit also helps to improve your credit score, and this is because it reduces the credit utilization ratio, as discussed earlier. A higher credit limit also gives you access to more credit, which can help if you need to borrow money in an emergency.
Before increasing your credit limit, you should ensure you can use additional credit responsibly and avoid becoming tempted to overspend. If you can, you should only improve your credit limit if you are confident, you can pay off your debt in full and on time. You can increase your credit limit by asking the credit issuer to raise your limit or by taking out a new credit card.
5. Limit new credit applications
You should limit new credit applications when looking to fix your credit score. When you apply for a new type of credit, this is recorded as a ‘hard inquiry’ by the credit bureaus. Hard inquiries can adversely affect your credit score, particularly if you have several within a short period.
If you need to borrow additional funds and want to rely on something other than existing credit accounts, consider applying for a secured loan or opening a secure credit card. Fast loans and secured credit cards are designed for individuals with bad credit and require collateral, such as a large sum of money or a fine piece of jewelry before you can use them.
When using these options, it is best to take out only what you need and make sure you pay your balance in full each month. Doing so will help you to improve your credit score over time.
6. Consider a secured credit card
A secured credit card is an excellent option for improving their credit score, and this card type is a good choice for individuals with bad credit or limited credit history. An essential feature of a secured credit card is that you must provide a security deposit before you can access the line of credit.
The security deposit amount is usually equal to the credit limit, up to a few thousand dollars, and is kept in a bank account and regularly monitored by the card issuer. The purpose of this security deposit is to provide the issuer with some security if you should stop paying your credit card bills.
Using a secured credit card responsibly is an excellent way to improve your credit score. Make sure you make all payments on time, remain within your credit limit, and keep your balance low. After a few months, you can apply for an unsecured card.