Anyone with bad credit knows just how debilitating a low score can be. While it may not affect your day to day life, it can certainly influence big life decisions – such as buying a car, getting an apartment, or filling out a mortgage application. And while it can seem impossible to escape a low credit score, there are actually a number of simple things that can be done.
1. Seek Out a Credit Repair Company
Most people don’t realize that there are credit repair companies out there who can fight on your behalf. They fix bad scores by spotting legitimate errors on your credit report, highlighting details that can’t be verified, and negotiating with lenders on your behalf. Sometimes credit repair agencies work, while other times they aren’t able to get much done. It all depends on why your score is low and if your lenders are willing to negotiate with repair agencies.
It’s also important to know that not all repair agencies are created equal. There are a lot of scams out there and you must know exactly what to look for. The top traits are years in business, reputation, and money-back guarantees. Here’s a look at some of the best credit repair companies with reviews from past clients.
2. Pay Bills on Time
What’s in the past should stay there. You have no control over those mistakes. If your credit repair agency can fix things, they will. You, however, need to focus on the present. Your goal should be to pay every single bill on time. Delinquent payments – even if they’re late by just a few days – can have a negative impact on your FICO score.
One bill paid on time may not seem like a big deal. In fact, two or three months of bills paid on time won’t be that impressive. However, after 8 months, 12 months, or 2 years, your consistent on-time payments will reflect well on your score.
3. Leave Good Debt On
As soon as people pay off a car loan or some other form of debt, many will immediately pick up the phone and try to get the record removed from their credit report. They do so thinking that having a history of debt will negatively impact their score, when in fact good debt – debt that you’ve properly handled and paid off – is good for your score. It shows that you’re fiscally responsible.
Trying to get rid of good debt would be like earning a 4.0 GPA in college and then trying to wipe off that A+ you made in physics your freshman year. Why would you want the good grades to go away?
4. Keep Credit Card Balances Low
Another misnomer is that you shouldn’t have a credit card if you want to have a good credit score. Once again, this is false. Credit cards actually help you obtain higher scores if they’re used responsibly.
Do you know what a credit utilization ratio is? It’s essentially the percentage of your credit limit that you use on a monthly basis. So, if you have a $5,000 credit limit and you’re using $1,000 each month, your utilization ratio is 20 percent.
You want to keep your credit utilization ratio as low as possible. Never exceed 30 percent, but try to keep it closer to 10 or 15 percent. It may even be a good idea to ask for a credit limit increase. This can lower your ratio without forcing you to spend less.
5. Consolidate Cards
Do you have multiple credit cards open? While you may assume it looks good to just use a small amount on each card – $50 here and $30 there – this isn’t true. It’s actually better to consolidate cards and charge everything to a single card. And if you’re going to do away with a card, make sure you’re closing the newer accounts.
You want to increase the average age of your revolving credit lines without reducing the amount of your total credit limit. So, your best option is to close out new lines and increase the credit limit of your oldest line (assuming it has a good rate).
Don’t Wait Any Longer
Your poor credit score isn’t a reflection of you as a person, but try telling that to a bank or lender. A bad score might not be hurting you right now, but as soon as you want to buy a car, apply for a home loan, or make a big purchase that requires financing, you’ll find out just how frustrating that little number can be.
Now’s the time to take action. Review these tips and begin improving your credit score little by little. Over time, it’s possible to fully repair your score and reclaim a number that both you and lending institutions will be comfortable with. Don’t delay!