7 Ways to Fix Your Credit
- It's possible to overcome bad credit in less time than you might think.
- Making payments on time and paying down debt affect the two most important credit score factors -- payment history and credit utilization.
- Serious credit problems might require professional help.
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Many people think it’s unnecessary to worry about their credit score. After all, lots of people have debt and less than stellar credit, but they seem to be enjoying a cushy lifestyle. So, if you’re able to buy the things you want, why should you be concerned? The answer is simple: life can be much easier when you have good credit.
Credit affects your ability to rent a home, buy a car, get a mortgage, and even get a job. Landlords, employers, and lenders all need to determine whether they can trust you, and they look at your credit score or your credit report as one indicator of your financial reputation. Creditors may be hesitant to work with people who have bad credit because the risk of not getting paid is high. How can they trust that you will pay them back if you haven’t paid others?
If your credit is already shaky, read on for ways to start fixing your credit score and reestablish your financial wellbeing.
1. Make your payments on time
We all know that money can be tight and it can be tempting to skip payments on one bill to help pay for other expenses. But timely payments are the biggest factor affecting your credit score, and just one missed payment can negatively affect your score. Keep a budget, set reminders, and make sure you have sufficient funds to make your credit card and loan payments on time.
2. Manage your credit utilization
Even if you pay your bills on time and in full each month, having large balances can hurt your score. Lenders typically like to see a big gap between how much you’re charging and your available credit limit — what’s known as credit utilization. So, to help repair your credit, try to limit your balance to 30% or less of your card’s limit.
3. Avoid the minimum payment trap
Credit cards can come with high interest rates. For example, a $2,000 computer can end up costing $8,168 if you make that purchase by making minimum payments and letting the rest of the balance grow at a 20% interest rate. So, one of the best ways to fix your credit is to pay off as much of your balance as you can every month until you’ve paid it down. Then, resolve not to let it run up so high again.
4. Keep old credit cards
Although you may want to be rid of them once and for all, don’t close out old credit cards. Typically, the longer your credit history, the better. And closed accounts tend to bring down your score. So, leave the accounts open but once you pay them off, stop using them.
5. Suspend credit inquiries
The more credit inquiries you have, the more your credit score could drop. Credit inquiries that can hurt your score are often initiated by things like:
Credit card applications
Apartment rental applications
Requests for credit limit increases
Placing a credit freeze on your report can put a temporary stop to these types of inquiries. Fix your credit and wait a while before allowing your credit to be pulled again.
6. Check your credit report for errors
You can check your credit report without a negative scoring effect once a year for free with the three credit bureaus. Make sure to look for any mistakes that could be hurting your score. If you see something wrong, make the effort to have it corrected.
7. Seek professional help
It’s very easy to damage your credit. Sometimes we let budgeting fall to the wayside, and sometimes we end up in tough financial situations because of things beyond our control. But whether you’ve experienced job loss, illness, or another type of financial disruption, it’s important to know that no matter how bad your credit is, you can turn things around.
If you’re overwhelmed with debt and don’t feel you can handle the problem on your own, consider working with a professional debt relief company. They can help you explore your options and give you guidance on how to get your financial health back on track.
Start by getting a handle on your finances
Learning how to deal with credit, debt, money, and planning for your future is crucial, but it doesn’t need to be hard. To assist your efforts, we’ve developed a simple to follow guide that can help you find the tools you need to move toward a better financial future. Get started by downloading our free guide right now.
Editor’s Note, January 6, 2020: This post has been edited to clarify that potential employers may not see your credit score, but may review a credit report.