Your credit score is an important three-digit number that helps determine your financial stability. Unfortunately, if you’ve missed payments or fallen behind on your credit card balances, you may be dealing with a low credit score.
Your credit score is constantly changing, and there are several ways to improve it. A higher credit score can help you score the best terms on loans and credit cards, while also receiving a lower interest rate. Here are 6 key steps to help you fix your credit score.
How to fix your credit score in 6 steps
1. Check your credit report
Before you can start fixing your credit score, it’s important to know where you stand. Start by checking your credit score and downloading a copy of your full credit report. You can request a free credit score from Experian, TransUnion, and Equifax each year by visiting AnnualCreditReport.com.
This will allow you to see which accounts you have open, current balances, and late payments. If any information on your credit report is inaccurate, be sure to dispute this with the credit bureau that is showing the inaccurate details, as this could be lowering your score.
2. Create a plan
Once you know your current credit score and have had a look at your credit report, it’s time to create a plan to fix your credit score. Start by tackling past-due payments and try to bring them up-to-date as quickly as possible.
Create a plan to pay down other debts and start making payments on-time whether that involves reworking your budget or scheduling automatic payments. Also, don’t be afraid to communicate with creditors if you are struggling to make payments.
Often, they’ll work with you to create a payment plan to help you get back on track.
3. Get a secured credit card
A secured credit card is an excellent tool to help you build credit. It works just like a traditional credit card except you must make a deposit ranging from $100 to $300. Your deposit becomes your credit limit to borrow against and then you’ll need to make at least the minimum payment each month.
Your payments get reported to the three major credit bureaus to help build your credit score. Some secured credit cards will even increase your limit or upgrade your account to an unsecured card after several months of on-time payments.
4. Try a credit builder loan
A credit builder loan is another way to build your credit score by building a positive payment history. Some banks, credit unions, and online lenders like Chime, offer these short-term loans and report your payments to the major credit bureaus.
Most credit builder loans also work like a savings account so instead of paying back the lender each month, your payments go into a holding account, and you’ll receive the total balance once your repayment term is up.
5. Keep your credit utilization low
Continue to keep your total credit utilization low when it comes to your credit card balances and revolving credit. A good rule of thumb is to keep your credit utilization below 30%. This means if you have a $2,000 limit, you don’t want to have your card balance exceed $600 which is 30% of that limit.
Also, aim to pay off your credit card balance in full each month if possible. This will help you avoid costly interest charges which can maximize your total debt amount.
6. Continue to monitor your progress
It’s important to continually monitor your progress when trying to fix your credit. Use a free credit monitoring site like Credit Sesame or Credit Karma to monitor changes to your balances and other factors. These sites will even notify you when your credit score has changed or when you’ve received a hard inquiry.
As you monitor your progress, you’ll clearly see how certain actions you take are working and identify any areas in which you may need to improve.
When should you fix your credit score?
If you have a poor credit score, you should take steps to fix it as soon as possible. This is important because lenders and financial institutions use credit scores to get a picture of your risk level as a borrower.
A poor credit score often leads to higher interest rates which can further damage your score if you’re unable to make payments on-time. Bad credit can also prevent you from getting approved for a loan or credit card. The sooner you start trying to fix your credit score using the tips above, the quicker you’ll see results.
How your credit score is calculated
Your credit score is calculated based on several factors including:
- Payment history.
- Credit utilization.
- Length of credit history.
- Type of credit or credit mix.
- Inquiries and new credit.
- Average age of accounts.
While all these factors are very important, payment history accounts for 35% to 40% of your credit score, so making payments on-time is crucial. You’ll also want to limit the number of hard inquiries you receive which will fall off your credit report after two years.
Keeping older credit cards open if possible can also help increase your average age of accounts and boost your credit score.
How long does it take to fix your credit?
The time it takes to fix your credit depends on several factors. For example, minor issues such as a late payment can be resolved within a few months. More severe issues like bankruptcies can take several years to fix.
Besides this, the specific steps you take to improve your credit could speed up the recovery time. This means if you’re consistently making payments on time, keeping your credit utilization rate low, and avoiding new credit inquiries, you’ll see faster improvements in your credit score.
Frequently asked questions (FAQs)
Is it possible to fix bad credit?
Yes, it’s always possible to fix bad credit by working to build positive credit history moving forward. This can be done by making payments on time, keeping your credit utilization low and limiting hard credit inquiries.
What is the fastest way to fix bad credit?
There are several ways to build credit quickly. You can get a secured credit card or credit builder loan which will report your payments to the three major credit bureaus. Another way to fix bad credit quickly is to start paying down your debt balances at a faster pace. Keep in mind that the timeframe it takes to fix bad credit will depend heavily on your unique situation and what your starting credit score is.
How long does a bad credit last?
It depends on your situation. If you actively take steps to rebuild your credit, your score will increase over time. However, if you don’t pay your bills on time or have accounts that remain in collections, you may have poor credit for a longer timeframe.
Is it worth paying someone to fix your credit?
Some credit repair agencies can be helpful if they send letters to creditors and negotiate on your behalf. However, you may find that you can do these things on your own without paying a third party. If the credit repair company offers a free consultation, this could be the best opportunity to learn more about the services and decide if hiring the company is necessary.
