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How To Fix Your Credit Score
Have you checked your credit lately? If not, you definitely should. A 2015 study found that almost 30 percent of Americans had a credit score of 601 or lower, which indicates bad credit.
If your credit is bad, it can be difficult to qualify for major life purchases requiring a lender, such as a new home or car; bad credit can also limit your ability to rent the apartment you like, and in some cases may even prevent you from getting a job as well.
If you’re one of the millions of Americans with sub-par credit, don’t panic. It takes some work, but you can improve your credit score fast.
Here are five steps you can begin taking right now to fix your credit score.
Assess Your Credit
If you want to fix your credit score by yourself, the first thing you need to do is figure out what it is. Most people don’t think about their credit until they need to make a major purchase and a lender runs a credit check; if your credit is not so great at that point, it can be difficult to fix it in time to make the purchase. However, it is really easy to check your credit.
You can order and download a free annual credit report once per year. Additionally, if your bank doesn’t allow you to monitor your credit score for free, there are dozens of apps that allow you to do so. After reviewing your credit score and annual report, you’ll have a better idea of what you need to work on to improve your credit.
Start Paying Your Bills on Time
One of the best and fastest ways to fix your credit score for free is to consistently pay your bills on time. If you are frequently late paying key bills, such as your mortgage and car payments or utilities, it can have a significant impact on your credit. In addition to any late fees you may incur, the lenders and other companies you do not pay on time often report your late payments to the major credit agencies as well, which is important to know.
Your payment history, or how well you pay your bills, accounts for about 35 percent of your overall credit score. If you can improve your ability to pay bills on time – by utilizing something as simple as a calendar, or perhaps by using an automated bill paying service – you can begin to rapidly improve your credit.
Pay Down High Credit Card Balances
The average American who carries a balance on their credit cards from month to month has over $6,200 in credit card debt. Those high credit card balances can be a real drag on your overall credit score. If you want to improve your credit score fast, work to reduce the balances on those cards. If you feel your credit card debt is too high to address on your own, then get some help.
In some cases, a debt consolidation loan can enable you to streamline your credit card debt, lower your monthly interest fees, and make that debt more manageable. In other cases, it may be helpful to discuss your situation with a nonprofit credit counselor and figure out the best way to address your debts. However you do it, lowering your overall credit card balances will definitely help you improve your credit score.
Utilize Your Credit
To improve credit score, you have to use your credit regularly as well. While it may seem counterintuitive, the credit reporting agencies that designate your credit score need to see that you are currently using your credit effectively.
So, if you typically use cash or your debit card for most of your daily transactions, start substitution your credit cards for some of these purchases. Don’t buy any big-ticket expensive items on credit that you’ll have trouble paying off; this could lead to higher balances on your cards and drag down your overall credit score. Instead, consistently use your credit cards for small routine purchases and pay off the balance each month, and you should see a modest but steady rise in your overall credit score.
Take out a Credit Builder Loan
If your credit score is so bad that you cannot even qualify for a new credit card, you can improve it by taking out a credit builder loan.
Many banks offer loans specifically designed to build up a borrower’s credit. In most cases the bank will issue a small loan to the borrower, then put the funds into a secure savings account as collateral.
The borrower then pays the loan off in monthly installments, usually at favorable interest rates. Once the loan is completely paid off, the bank releases the funds to the borrower.
This process can help to rapidly improve your credit score so that you can qualify for other types of credit. So, if your credit score is really bad, find a bank that offers these types of loans.
Parting Thoughts: How To Fix Your Credit Score
A bad credit score can really hold you back from achieving your financial goals. So, if you have a bad credit score, get on the right track as soon as you can. Use these five tips to assess your credit and begin fixing your credit score today.
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