6 Ways to improve your credit score when you have “bad” credit
Updated: Dec 12, 2022
Is your credit score considered “bad”? Or, do you just think that you have “bad” credit because you’ve had some challenges keeping up with your credit rating. We tend to believe that we have bad credit when basically it really means that we need to get ready to commit to improving our credit scores and how we manage our credit.
Having ‘bad’ credit or a low credit score doesn’t mean you’re a bad person. So let’s get that straight right now. Face the fact that things may have happened in your life that caused you to not make credit card, car loan, or even mortgage payments on time. It may have been a health emergency or something else-like a global pandemic. Life happens to us. Now is the time, if you’re ready, to start working on your credit and improving your score and credit rating. It’s good for you to have access to more financial resources and also it makes sense to begin to build intergenerational wealth for your family or for your personal legacy by considering homeownership. You’ll need a stronger credit score in order to do that.
Here’s the good news. If your score has been hanging around the low end of the scale for some time, you will most likely achieve positive gains in your credit score quite quickly. What to keep in mind in how your credit rating is determined are the following factors: payment history, credit usage, age of credit accounts, credit mix, and new credit inquiries. You are entitled to a free credit report every year from all 3 credit bureaus, Experian, Equifax, and Transunion.
Here are a few tips to help you get started. These tips may seem obvious but if you stick with them, you will see an improvement in your score.
Closed accounts, collections, or judgments on your report? Make sure that they are paid off and marked closed so that they do not continue to report and keep your score low. You need to establish a plan for yourself to pay these down over time. More information on this below.
Foreclosures, bankruptcies, and repossessions-understanding how they work with getting new credit. These will stay on your credit report for 7-10 years (Chapter 7-10 years/Chapter 13-7 years). It is still possible to get new credit after 4 years of reporting.
Dispute errors on your credit report. You can find all kinds of incorrect reporting listed on your credit report. Make sure you check each of the credit bureaus. Often, collection accounts can be reported incorrectly. Duplicate accounts, hard inquiries, and negative items on your report older than 7 years can be disputed. Old lines from bad accounts can continue to report as current and harm your credit when the account has been closed and old for a long time. Keep in mind not to delete positive accounts that may be closed and were paid on time. You will need that old credit history to keep your score on the higher side.
Pay down open credit card balances to 30% of the limit and don’t use more than that. This method will highly impact your credit rating. This way the credit agency reports …plus it may be more affordable for you to pay off the balance on a monthly basis. Keep in mind that the limit on your credit card is not extra income. People who use less than 7% of their credit limit typically have the highest credit scores. Keep in mind not to close paid-off accounts that have a positive payment history.
Did you know that you can get credit for paying your rent and utilities on time? Check out Experian Boost for alternative ways to have credit like this reported for paying these bills on time.
Secured credit cards. If you don’t have any current, open accounts and cannot get approved for a new credit card, consider getting a secured credit card to rebuild your credit and create a positive credit history.
How to stay on top of your credit:
Make calendar reminders for yourself when a payment is due. You can forward set all of your reminders for an entire year.
Make a regular commitment to yourself to check your credit report on a quarterly basis. Regularly checking your credit will help you to build pride in your credit and where you stand progressively. Also, it will help you to keep track of any new errors that may pop up on your report. Many banks and credit card companies offer this service for free.
Make a small financial plan to sort out paying down and paying off your credit cards and collection accounts. Think about putting a strategy together to pay off these debts in 6 months to 1 year. With your score increasing, your readiness to buy a home will also become promising. You are then proving your risk to the mortgage company or bank. Be consistent! Avoiding late payments is avoiding late fees which also pile up and make it more difficult to stay on top of your payments. Keep in mind that the higher the balance you keep, the more interest you are paying to the credit issuer. Be determined to keep your cash in your pocket to help with purchasing a home rather than making your creditors rich.
At QBI, we look forward to helping you become a homeowner for the first time or subsequent time. Get your QBI on our website www.getqbi.com.
References:
Kanika Holloway
Chief Relationship Officer
Kanika Holloway, MBA, is the Chief Relationship Officer for QBI, LLC. Kanika brings 24+ years of experience in senior management in corporate finance, national lending, FMCG, and nonprofit organizational management sectors.