Last Updated: February 4, 2021
Bad credit scores can be detrimental to your life. But what is a bad credit score?
A bad credit score is a financial grade that adversely affects not only your finances but also your employment opportunities and professional relationships. It’s important to fix it right away before your situation worsens.
In this article, we’ll teach you how to fix your credit score. You’ll also find out how to get credit reports regularly to monitor your performance.
More importantly, we’ll provide effective steps to repair your credit and teach you how to improve your credit score fast.
How Are Credit Scores Calculated?
Knowing how to increase your credit score quickly depends partly on your understanding of how credit scores are calculated.
There are three main credit bureaus in the US: Experian, Equifax, and TransUnion. Each has its own criteria for measuring your credit performance, but they differ only minimally. But what affects your credit score? Generally, the calculation is based on five groups of data in the report:
- Payment history (35%)
- Amounts owed (30%)
- New credit (10%)
- Length of credit history (15%)
- Credit mix (10%)
The score they give ranges between 300-800. A bad credit score is below 370. In particular, a score between 580 and 669 is considered fair, while a score between 300 and 579 is deemed poor.
How Can You Get a Hold of Your Credit Score?
Before learning how to repair your credit score, you must know where to get it first. You can get your credit score in different ways either free or paid:
- Annual Report via AnnualCreditReport.com – on this site, you can get a free copy of your credit report every three months from the three main credit bureaus. Be wary of fake sites. The legitimate site only asks for your personal information before generating the free credit report.
- Sign Up for Credit Reporting Companies – you can also get free monthly reports by signing up on each of the credit bureaus’ websites. For instance, Experian offers six free reports each year when you create an account with them.
- Turned Down Credit Request – you can get a free credit report if your credit application is declined by a lender, who will include the report with the rejection notice it will send you.
If you’re ready to find out how to fix your credit score in 2021, read the following steps and implement them in your financial strategies.
6 Steps to Fixing Your Credit Score
You can fix your credit using simple methods. It’s not done overnight, but following these steps will put you on the right track to repairing a poor credit score.
1. Check and Dispute Errors
One of the simplest ways to fix your score is to ensure all information on your credit report is correct. Search for accounts that don’t belong to you.
This might take a few days to verify, but you’ll be scrubbing your reports clean of erroneous data, which can hamper your efforts to repair your credit score.
If you do find errors, dispute them immediately. Ordering a report often comes with instructions on how to dispute negative items on it.
Disputing items is as straightforward as:
- Writing to the reporting company that you think the report is inaccurate.
- Telling the person, company, or organization that supplies the information to the credit bureaus that you dispute an item on the report.
Credit reporting companies must investigate the dispute within 30 days. You’ll get the results in writing. If you’re correct, the disputed information will disappear from the report, completing your credit clean up effort.
If the information provider continues to report inaccurate information, it must let the bureau know that you dispute that piece of information.
Though it may not raise your credit score 100 points overnight, checking for errors definitely helps you get a more favorable report.
2. Don’t Close Credit Cards
Closing credit cards will just further hurt your score for two main reasons.
Firstly, keeping your credit utilization rate low is one of the best ways to improve your credit score, and closing a credit card leads to a high utilization rate since you’ll lose your available credit limit on that account.
Lenders see high utilization ratios as risky, and that adversely affects your creditworthiness.
Secondly, longer payment histories are good for your credit score. Canceling a credit card lowers the overall age of the accounts on your report, leading to bad credit.
Moreover, if your card doesn’t charge an annual fee, you lose nothing by not using it instead of canceling it. That’s why it helps to search for the best no annual fee credit cards.
What alternatives do you have?
The quickest way to improve your credit score is to get out of debt. So, instead of canceling the account, clear your credit card bills.
And don’t think of applying for more credit cards to clear the bills on another card. Instead, it’s a better idea to read tips on how to get a loan with bad credit — it can be tricky, but it’s possible.
This leads us to the next step.
3. Prioritize What Needs Fixing
The best way to repair bad credit is to pay off debts. This can be a challenge if you have little funding, but there are good ways to go about it.
Prioritize debts that turn into charge-offs, which are debts deemed unlikely to be collected. Do that by paying past-due accounts first.
You should also target the most expensive, high-interest rate debts. Make sure you’re not breaking any agreement with other providers or incurring penalties for overpaying.
If the majority of your debt comes from credit cards, a credit card consolidation loan might do the trick. Read the features and terms of the best credit card consolidation loans you find and choose one that fits your situation best.
If you have maxed-out credit cards, how do you repair credit on your own? You must bring them below the limit by:
- Asking your credit card issuer for an increase in credit limit; or
- Paying down the balance due as much as you can.
If you can pay in full, you can consider paying a significant chunk of the balance. If that doesn’t work for you, consider searching for bad credit loans with guaranteed approval. These have flexible terms you can leverage to minimize your debt.
4. Use Simple Credit Repair Tricks
There are smaller ways in which you can improve your credit score. You may not see the results at first, but they accumulate and become a great credit score booster.
Cut down on expenses like cell phone and other utility bills. Adjust your budget and allotted expenses for these bills if you can. Then, use the money to pay off loan balances and debts. Other money-saving tricks include negotiating your rent (if you’re renting) or taking up a side hustle.
Those small tactics help if you’re not sure how to fix your credit score. The idea is simple: save money and earn more — two effective ways of building creditworthiness.
You can also get a secured credit card. These cards function like traditional cards, but you’ll pay a cash deposit upfront to guarantee your credit line.
They’re a great option for people with poor credit. The deposit serves as collateral for the card provider in case you miss payments. But if you pay responsibly for several months, this is a surefire way of restoring good credit history.
Take advantage of these benefits by searching for the best secured credit cards available to you and picking one that best fits your needs.
5. Get Credit Counseling
Credit counseling is a great way to find answers if you want to know how to improve your credit score. You don’t need to wait until you’re in dire straits before you approach a counselor, either.
Generally, you need credit counseling when you struggle to make payments on time. You’ll get advice for debt management and budgeting.
Many credit counseling services will also negotiate on your behalf to reduce interest rates and late fees. To further help with credit repair, they’ll assist you in coming up with a personalized plan for your credit issues. They’ll also teach you how to get out of debt with no money and bad credit.
Once the plan is in place, they’ll check in on you to see if you’re going in the right direction. What matters after coming up with a plan is that you learn what you need to fix and how you can avoid similar problems from happening again.
Other benefits include a free review of your credit reports and referrals to other tools and resources.
Meanwhile, be wary of organizations that charge hefty fees just to “help” you. Know your rights under the Credit Repair Organizations Act (CROA), which regulates the behavior of such organizations.
6. Restoring Credit Takes Time
Finally, keep in mind that restoring credit isn’t an overnight journey. If you’re eager to increase your FICO score, be patient.
Don’t be afraid to ask for patience from lenders, but don’t wait until they come knocking on your door, either. The perfect balance lies in you taking a proactive approach and following these steps as soon as you can.
Think ahead, too. Do not max out your credit cards, and adjust your credit card expenses accordingly. As the saying goes, prevention is better than cure.
If these problems already exist, then go back to step number one, and start fixing the problems right away to get a more favorable account status.
And, if inevitable, think about whether you should file for bankruptcy.
As an individual, you can file for Chapter 7 bankruptcy, which lets you get rid of unsecured debts. You may have to liquidate some assets along the way if you have them.
Going down that road may not be the best idea for you, so it’s important to know how to avoid filing for bankruptcy. The answer is almost always building up your creditworthiness.
Pros and Cons of Self Credit Repair
Repairing your credit score can be challenging, and it has both its pros and its cons. As such, it helps to know what you’ll win by doing the credit repair yourself.
The pros include:
Eligibility for Loans.
If you succeed in trying DIY credit repair, you can acquire loans of higher amounts and on better terms. Obtaining such loans can help further improve your credit standing.
Eligibility for Credit Cards.
Once you have a better credit score, you’ll be eligible for credit cards. If your credit score is excellent, you can also acquire no-fee credit cards, which help you manage card expenses more flexibly.
Knowing how to raise your credit score on your own also entails better interest terms for your loans. With better interest rates comes a better financial capability to pay off any existing balance, which in turn further boosts your credit score.
Since you’re doing things on your own, you don’t have to pay any credit builder loans or credit repair companies, although those are also helpful once you decide you can’t do it by yourself.
On the flip side of things, here are the cons:
If you don’t know any great credit repair tips, raising your credit score on your own can be stressful. You’ll manage all paperwork, strategies, and what-nots to ensure you’re on the right path. If something goes wrong, nobody else will deal with it but you.
A Credit Repair Company Can Do It Better.
If you’re not financially savvy, doing it yourself isn’t a good idea. You may end up worsening the problem instead of fixing it. A credit repair company may come in handy, so make sure you search for the best credit repair companies available to you. Though it may cost you in the short term, it will benefit your credit score in the long run.
It Will Take Time.
Fixing a bad credit history already takes time. Doing it without any help lengthens the time you need to get there. Most individuals go straight to admitting they need help with credit repair and skip doing it by themselves. And until their credit score is good, they apply for some installment loans for bad credit to help their finances.
Fixing your credit score isn’t easy, but the steps we discussed will put you on the right track. The best way to build credit is to ensure your credit reports are accurate. Follow the best practices in paying loans and credit cards — instead of closing them. Prioritize your debts, and use simple money tips. Don’t be afraid to seek counseling if best practices no longer work. Finally, be patient. It may take time, but doing things correctly will let you fix your credit score for good.
In general, negative records stay for around seven years on your credit reports. These include late or missed payments and debts sent to collection agencies. Bankruptcies tend to show on your report for up to 10 years, depending on the type of bankruptcy you file. Repossessions, foreclosures, and short sales also last around seven years.
Multiple active cards can be stressful to manage. You might struggle to keep track of payment due dates, or your spending can veer out of control. Also, once you’ve opened multiple accounts, closing some of them can be detrimental to your utilization ratio. As such, it also negatively affects your credit score.
Apart from the tips discussed above, you can raise your credit score in 30 days by making frequent payments, paying on time, becoming an authorized credit card user, and adding utility payments to your credit report. It also helps to deeply understand how your financial decisions affect your score directly and indirectly.
Technically, you can pay credit repair companies to “fix” your credit score. They do that by checking your accounts and reports for inaccuracies and asking the credit reporting company to delete or remove that inaccurate information. Realistically, though, this is something you can do on your own if you’re financially savvy.
It’s possible to improve your credit score in one to two months. It may take longer depending on your financial capabilities and challenges. It also depends on how well you strategize around your expenses and debts. Knowing how to fix your credit score ultimately means being proactive and smart in your financial decisions.