L ots of people may be searching up how to fix your credit score since it is quite common to work with debt and through credit cards in America. There is a considerable portion of the American population with poor credit scores, so there is definitely no issue in looking this up. According to an estimate, over 16% of Americans have a credit score of 550 or lower.
If you happen to fall under this particular category, there is nothing to feel anxious about. It’s not too late to fix your credit score, and it certainly is not too difficult. Here are some crucial tips on how to fix your credit score. If you follow the tips listed below, you’ll be back on your feet in no time!
Check Out Your Credit Report
Your credit score is calculated through a document known as the credit report. These reports contain information about all the credits you have requested for the past 10 years. All creditors report this information to three bodies: TransUnion, Equifax, and Experian. So, look up your credit report in each of them. Mistakes in calculating credit scores are more common than you think.
If you feel like there has been some sort of miscalculation, dispute the error immediately to that respective bureau. Even if there isn’t any sort of mistake, it is still a healthy habit to keep track of your credit score through these reports. It will help you understand the mistakes so that you can avoid them in the future. Taking accountability for your financial mistakes and working towards fixing them is essential to any improved credit score.
Be Timely With Your Bills
Over one-third of your credit score is dependent on your payment history. So, if you have a low credit score, and you want to build your way back up, it is absolutely crucial for you to pay all your bills from here on out, and pay them on time!
It is understandable if the task of paying bills can get overwhelming for some, so our best suggestion would be to get yourself an autopay service. If autopay is not possible, such as in the case of medical bills, contact the concerned party and work out a payment plan. Payment plans give the illusion of timely payments even if you are behind them, which always helps if you cannot pay your bills on time.
Determine Your Debt Repayment Strategy
If you happen to be under a lot of debt and have no idea how to even begin repaying it, you need to work out a debt repayment strategy. There are a lot of options you could choose from, but the two most popular are the avalanche and snowball methods.
The avalanche method suggests that you pay your high-interest loans first before moving on to the smaller ones. The snowball method is the opposite. It is based on paying smaller loans first and slowly building your way up. There is no right answer here, you need to figure out what works for you. Properly assess your financial situation before deciding what debt repayment strategy you want to have.
Do Not Close Off Your Old Credit Cards
The temptation to close off credit cards whose debts you have paid for is pretty understandable, however, this only damages your credit score. Around 15% of your credit score is dependent on your credit history. You need to show credit bureaus and creditors that you have a long history of credit, and for that, you need multiple active credit cards.
Avoid Taking Unnecessary Credits
This is rather obvious, but you need to think long and hard before requesting a credit. Every single time you apply for credit, the creditor does a hard credit check, which lowers your credit score by 1-5 points. This may not seem like a lot, but if you are habitual of taking out unnecessary loans, the snowball effect will considerably lower your credit scores over time.
Be Mindful of Your Credit Utilization
Lenders need to know how well you manage your finances before giving you a loan. One of the biggest ways they do that is by looking at your credit utilization ratio. A credit utilization ratio compares your credit card balance to your overall credit card limit. Ideally, you need to ensure that it is above 0% but below 30% to attain credit score points.
Before implementing these changes, it is always recommended that you talk to a financial counselor. While these tips provide a decent reference point, your counselor can properly assess your subjective financial situations and guide you on how to fix your credit score.
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