When your credit score is low, it can cost you and it can create a lot of stress. But there is hope. Bad credit doesn’t have to be a stain on your record forever.
You can make changes that will affect your score positively, and get your finances back where they need to be.
1. Obtain a credit report
Before you can make changes to your credit score, you need to know what your problem areas are. The credit report tells you what accounts are bringing your credit score down. You can get a copy from each of the three credit bureaus when you go to AnnualCreditReport.com.
2. Find and eliminate credit errors
When you are checking your credit report, look for errors as you go. These mistakes can hurt your credit score, sometimes significantly. If a late payment was recorded when you paid on time, then your credit score can be brought down by 60-110 points. How much each error costs you will depend on what other items are on your report.
3. Stop using your credit cards so often
If you make new purchases on your credit cards, it will raise your credit utilization ratio. This is determined by how much credit you have available compared to how much you are using. If your balance is high, then that hurts your credit score. It’s better to pay for things with cash than to use your credit card. If you can manage to not buy unnecessary things at all, then that’s even better. You can save that money and use it to pay on your balances. If you get those balances down, then your credit score will improve.
4. Pay balances that are overdue
35% of your credit score is made up from your payment history. As you get further behind on payments, your credit score is hurt more and more. You may be able to pay off credit cards before they are considered late or sent into collections. If that’s possible, you can save your credit score from a serious drop. You can also talk to your creditors concerning late payments. It’s possible they will change your account’s standing to show that it has always been paid on time. This is called re-aging your account.
5. Don’t get new credit cards
You also want to avoid applying for new credit cards. These credit inquiries can bring down your score. If you open a new account, then that lowers your average account age, hurting your score as well.
6. Don’t close accounts, even after you pay them off
Those credit card accounts that have become past due are tempting targets to close. However, you should keep them open and try to pay them off. You want to ensure that any accounts you close will not hurt your credit score. If you close an account that has a balance still, then your score can suffer for it. That decreases your credit limit, and closing an account will rarely help your score.
7. Talk to your creditors
You may not feel like talking to your creditors, but they may be able to help you if you do. Tell them about any trouble you are having paying on your accounts on time. A lot of creditors have temporary hardship programs. These allow you to lower your monthly payments until you can get back in better control of your finances.
8. Get rid of debt
How much debt you carry around accounts for 30% of your credit score. If you want your credit situation to improve, then you have to start paying off those debts. You might not have the money on hand to do that, but you do have other options. You can take on another job, find another source of income or sell some of your belongings. You may be sacrificing, but it can be worth it to get some financial freedom. You will also gain some credit score points in the process.
9. Talk to a professional
There are plenty of resources out there to help you. If you feel like your finances are too much for you to handle, then you should call the National Foundation for Credit Counseling. Most credit card statements should have their number on them. Anytime you feel you need to get some help with your finances, be sure to reach out, because the resources are there for you to use.
10. Stick with it and don’t give up
You won’t see changes right away to your credit score or finances, in most cases. It didn’t take a single day to ruin your credit score, so it’s going to take a while to fix it too. Keep on paying on your debt and you will see improvement in time.
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