There is no quick fix to repairing a bad credit score. In fact, if ever you are advised or you come across quick-fix solutions for damaged credit scores, then you had better be on your way because it is likely going to backfire. The best way to repair a damaged credit score is to manage it responsibly over a period of time. Before you can begin to see credit score improvement you would need to repair your credit history. Below are some practical tips that can help you fix a bad credit score;
Get the latest copies of your credit report:
Before you begin to repair your credit you need to know where it all went wrong and what you need to repair. Your credit report is like a report card, it gives you details of all the mistakes that you have made that led you to where you currently are. Go through your credit report to identify the negative items that are affecting your credit score.
The law allows you to receive free credit reports from each of the three credit bureaus each year.
Review your credit report:
After obtaining your credit report, you need to read through it to confirm that there is no mistake in it. Typically, your credit report will be several pages long but you must try not to get overwhelmed by the abundance of information and numbers. Some of the things you may need to correct include incorrect information, such as accounts that aren’t yours, payments that have been incorrectly reported late, etc.
Make timely repayment:
Making timely repayments is one of the major contributing factors to a good credit score. Some banks even go ahead to offer payment reminders via their online banking portals which send out text or email notification of when payment is due. You may also enroll in automatic payment via your loan provider or credit providers such that payments can be automatically deducted from your bank account. The challenge with this second idea is that it only makes the minimum payment on your credit card and does not help instill money management skill.
Pay down credit card balances:
Credit utilization is one of the key determinants of your credit score, hence paying down your credit card balance is highly instrumental in having a good credit score. Credit utilization is defined as the ratio of credit card balance against credit limit. So, take, for instance, you have a credit card with a $1000 limit and your balance on it is $900, this amounts to a 90% credit utilization. The lower your credit utilization the greater your chances of finding a lender. Your credit score can go as high as 40 points by you simply handling your credit utilization. The benchmark should be to get the utilization down to under 10%.
Open a new account:
Your credit card utilization is vital to your credit score. A smart way to improve your credit card utilization is to open a new account. The idea is to not carry a balance on the card. By doing this your available credit increases immediately by the card’s limit.
It is advisable to get a card that doesn’t charge an annual fee. Although such cards tend to charge a higher interest rate, as long as you don’t carry a balance, you would never find out about the interest rate. The best place to find such a card is from a bank you already have an account.
But it is important that you are smart with this. You must always remember that the goal is not to have access to more funds but to improve your credit score. If there is a chance you will run up a balance on the new account then it is better you don’t.
Reduce the amount of debt you owe:
Although this is easier said than done but reducing the amount you owe would give you a more satisfying feeling than even what you will get from improving your credit score. The first step towards reducing your debt is to stop using your credit cards. Next, will be to use your credit report to make a list of all of your accounts and then ascertain what you owe on each of these accounts and the interest you are being charged. Then, develop a payment plan that allocates a majority of your available budget for debt payment towards the highest interest card first, and then maintain minimum payments on your other accounts.
Keep your old credit cards:
Although it may have a moderate impact, the age of your credit history can still impact your credit score. Take, for instance, you have had a certain credit card for up to 10 years, closing that account will negatively impact your credit score and may decrease your overall average credit history, particularly over a short term.
If you wish to get rid of a credit card account but still hope to increase your credit score, then it is advisable you get rid of your newest card.