So you have a bad credit score. Don’t despair. Most peoples’ scores go through ups and downs throughout their lives. Why are credit scores such a roller-coaster? Well, a lot goes into determining a person’s score.
The five credit score factors are payment history, credit utilization ratio, credit history, credit mix, and new credit. All of these factors could negatively or positively affect your score. For example, if you borrow more than normal in one month, your utilization ratio increases, and your score may go down. Life happens. But, thankfully, there are ways to improve a bad credit score when it takes a dip — or even a dive.
Below are five straightforward tips to help you improve your credit score.
1. Review Your Credit Report
Your credit report is what’s used to determine your credit score. It includes personal information like your credit activity, payment history, and the status of your credit cards. One of the first things you should do when trying to improve your score is pull your credit report.
Chances are, by reviewing it, you’ll quickly discover what’s contributing to your bad score. For instance, you might notice you have a history of late payments or that several credit issuers have pulled your score recently.
You might also catch errors in your credit report. Whether they are identity errors or balance errors, you want to contact the credit reporting bureau ASAP. You’d be surprised by how one small error can impact your score.
Some people are under the misconception it costs money to pull a credit report, but that’s not true. Federal law allows you to access a free copy of your credit report every 12 months. Make sure you take advantage.
2. Consider a Secured Credit Card
One powerful way to improve your credit score is through prudent use of a credit card. Unfortunately, if your score is already low, it can be difficult to be approved for a traditional credit card. That’s where a secured credit card comes into play.
These cards function similarly to traditional credit cards, but they require a deposit. This deposit, which is equivalent to the card’s limit, acts as a safeguard. If you don’t pay your bill, the credit card company can recoup what you owe from your deposit.
Just remember that you have to purchase things and pay your bill on time if you want your score to improve. While most secured credit cards operate in similar ways, they offer different features. For instance, some may allow different maximum deposits. Before choosing a card, make sure you do your research.
3. Pay Down Debt
Revolving debt plays a huge factor in your credit score. Regardless of whether it’s due to loans or credit card bills, the less debt you have, the better your score.
While paying down debt isn’t easy, it’s easier if you have a plan in place. One option is to focus on the debt with the highest interest. This is called the “avalanche method.” With this method, you categorize your debt from the highest to the lower interest rate.
Once you’ve identified the highest, focus on paying that down first. Once you’re done, you should move to the second-highest, then the third, fourth, etc.
If you’re looking for a more bite-size approach, try the “snowball method.” Instead of focusing on high interest rates, you focus on paying down debt with the smallest balance. What’s nice about this method is you’ll see your number of debts quickly going down. After all, it’s easier to pay off small balances.
That said, the avalanche method is more beneficial in the long run. Because you’re targeting your highest-interest debts, progress may not seem as swift, but your balances will accumulate less interest.
4. Don’t Close Old Accounts
You might feel the urge to shut down your accounts and shred your credit cards. You’d be removing the temptation, so to speak. But that would be counterproductive, as having a long credit history can benefit your score. A long credit history shows creditors that you have experience handling credit.
Instead of closing your accounts, keep them open and find a way to control your spending. That might mean creating a budget for yourself or making the decision to only use your credit card for groceries or gas. Create boundaries for yourself to keep you from potentially acquiring more debt.
On the flip side, you might think it’s time to open up a new credit card. More cards equal a higher credit limit, a lower utilization ratio, and — therefore — a better score, right? Wrong. Every time you apply for a new credit card, the bank runs a hard inquiry, which can lower your score. Plus, having too many credit lines can look suspicious to lenders and credit issuers.
5. Become an Authorized User
Finally, becoming an authorized user could also improve your score — as long as you’re working with someone responsible. Because an authorized user isn’t responsible for the account, it won’t boost your score as much as some of the other tips above. But it’s worth looking into.
To become an authorized user, ask someone you know and trust to add you to their credit card account. This person’s activity will then become your activity. That means if they pay their bills on time, every time, your score will improve.
Unfortunately, the opposite is also true. If this person constantly misses payments and carries a high balance, your score will be impacted. The better you know this person, the more likely you are to know their spending habits. And since you’ll be able to use this card like it’s your own, make sure you’re spending responsibly, too.
The tips above are a great starting point to help you improve your score. Just remember that it won’t happen overnight. It takes time, patience, and some trial and error to figure out what works. If that fails, remember you can always consult with a credit or financial professional for personalized advice.