These days, having bad credit closes the doors to countless opportunities, like getting a new car, getting a house, or even obtaining a loan. The worst part about it all is that bad credit tends to sneak up on you – forget a couple of due dates, max out your card, or maybe even forget about one of your credit cards for a few months, and all of a sudden you’re hit with a sub-600 score.
While seeing a bad score can be stressful, there are things that can be done to fix it. It will take a while to bring that score back up, but once you do, it will be better than ever, and you will feel like a million bucks knowing you can successfully handle your finances.
Understand How Your Score Is Calculated
Credit scores are just a simple equation – 35% of your score is based on payment history, 30% is amounts owed, 15% is the length of credit history, 10% is new credit, and 10% is the types of credit.
Credit scores also range from bad – where you need to do some serious credit cleaning – to excellent – where you could get a new line of credit with the lowest interest with little to no hassle. The score range is as follows:
- Excellent: 750 and above
- Good: 700-749
- Fair: 650-699
- Poor: 550-649
- Bad: 549 and below
Even if you fall into one of the lower categories, there are plenty of ways to increase your score and make it to the ‘excellent’ range.
Make A Plan
Any successful task requires a good plan to back it up. When it comes to your credit score, the best place is to start is taking a hard look at your credit report. This is where you will see what you have been doing well and where you can improve – kind of like a report card from middle and high school.
On the report, you will be able to see your overall FICO score and how that score has changed over time. It should also tell you the determining factors and what is needed to improve your credit score. Once you see the parts of your score that are creating a negative impact, you can write out a plan of attack. This can be writing out your payment due dates and sticking to them, using your card for more small purchases, or maybe evening opening a new line of credit, such as a personal loan, to establish some diversity.
Your payment history and debt are the two top factors in the score, so if, for example, your primary issue is making payments on time, you will probably be able to increase your score just from paying your balances. It’s also important to make sure you keep your credit revolving. Even if you have a lot of debt on one credit card, it’s better to use it to make small purchases every month (gum, a snack, coffee, etc.) and pay it off with your monthly payment. If you do not use your card regularly, it can have a negative impact on your score.
That being said, if you have multiple credit cards but find that there are a couple you don’t use, do not automatically get rid of them. It won’t be a short-term solution to your credit and may even make it worse. As previously stated, it is always better to maintain revolving credit and show that you can make purchases and pay them off without an issue.
Be In It For The Long Haul
We all like quick fixes. After all, nothing is a more significant stress relief than when something goes your way, and it happens with practically no effort on your part. However, there are just some things in life that are not that simple of a fix, including your credit. Your credit score did not get bad overnight, and your plan of action won’t increase your score overnight either. It’s essential for you to realize it will take time and plenty of patience to bring your score up.
Your best bet is to take the credit rebuilding process one step at a time. Start with the biggest issue you are having and go from there. For many people, this problem is credit utilization, or how much you use your card and how well you make those payments. Ideally, you want to keep your credit balance between 10 – 30% of your maximum allowance, as it shows creditors that you are using your credit line as a score booster rather than as a financial crutch.
Even when you pay off your credit and make positive changes to your account, it’s important to realize that those changes do not undo all the damage right away. It can take years for those credit dings to be removed entirely from reports that future lenders will see. For example, late payments and charge-offs remain for seven years from their issue dates and bankruptcies affect your score for ten years from the filing date.
Also Read: Check your Credit Score in 5 easy Steps
Fixing Your Credit Is Setting Up Your Future
Don’t let a bad credit score ruin your life goals and plans. As daunting as fixing your credit score can be, it can be done. The best thing you can do is stay determined and build good habits over time. Setting out on the quest of rectifying your finances will create a sense of freedom that will leave you feeling confident and ready for your future.
Katie is a writer, editor, and former HR professional. Working with clients such as Liberty Lending Group, she writes about the latest developments in HR, business communication, finance, recruiting, and CRM solutions.