Your credit score is a number that is meant to represent how worthy you are of receiving credit from banks or loaning agencies and how much risk you present to a lender. These banks and loaning agencies will assess your credit score before committing to giving you any money.
Your score will be based on the amount of money you have borrowed, whether it be through loans or simply through using your credit card, versus how much of it you have successfully paid off. The more credit your are given, and the more of it you pay off, the higher your score will be. The most popular credit score is called the FICO score, and ranges from 300-850. The most recent study showed that the average FICO score in America is 711.
Since you’re seeking out advice on how to improve bad credit, it’s likely that last number has put you into a small panic. Don’t panic! Your credit score is complicated, but now that you understand it, all you have to do is follow these 8 steps, and you can get your credit score headed in the right direction.
1. Pay Off Old Debt, but Keep it on Your Report
A common mistake many highly worried people make about their credit score is trying to get old debt removed from their credit report once it is paid off. Based on the general public’s idea of credit score, this makes complete sense. Debt is bad, now that the debt is gone, I don’t want people to know about it.
This is actually counterproductive, though. Once your debt has been paid off, it actually becomes an asset to your credit score. When banks and loaning agencies see that you have successfully paid off your student loans, car, or house payments, it establishes that they can count on you to pay off any loan they may provide.
2. Pay Your Bills on Time
Forgive me if I’m being too obvious, but this is an absolutely essential part of having a strong credit score. If you have spent your adult life procrastinating on your bills, there is nothing you can do to change the past. But you do have control over the present and the future, and your credit won’t improve if you continue your bad habits. From now on, pay the bill before the due date.
3. Manage Your Credit Card Balances
Just because you can rack up a balance on your credit card and not worry about it for a few months, or years depending on how bold you are, doesn’t mean you should. Carrying around a large balance on multiple credit cards is a great way to damage your credit score. If you’re really having a hard time making a dent in your balance then know that there it is possible to find a specifically designed credit card for bad credit.
4. Have as Few Credit Cards as Possible
Having a small amount of debt on several different credit cards is no better than having a large balance on 1 or 2. You can draw your own conclusion about how harmful it is to have huge balances on several credit cards. Banks and loan agencies will read it as irresponsible if you have a high number of credit cards. Keep only the essential credit cards in your life, and pay off the whole balances as often as possible. Additionally, open new credit cards only when looking to replace a different one.
5. Don’t Move Debt Around
Attempts to counteract debt by simply moving it to a different credit card or a different type of debt will only lead to damaging your credit score. The only way to get rid of your debt is by paying it off. If you aren’t in a position to pay off your debt, than your credit score is your credit score, and you may have to put a hold on your more ambitious purchases for the near future.
6. Check Your Score Regularly
If you don’t know what your credit score is, it will be easy for it to get away from you. There are a number of websites – TrueCredit, Experian, EquiFax, CreditKarma — that can be used to keep tabs on your credit. Just google the phrase credit score and a million more will come up. If your credit score is trending down, try to get a handle on why and counteract it as soon as possible. Don’t pay money to check your credit score, either, especially if you won’t need credit anytime within the next few months. There are more than enough resources that can give you the info for free.
7. Protect Yourself from Fraud
Few things can look worse on your credit report than a sudden, unexplained jolt in irresponsible spending. Sure, the spending wouldn’t be done by you in this scenario, but the party assessing your credit may not know that. In an ideal world, you will receive justice for your fraud and have the money returned to you, thus having your credit report returned from chaos to order. But that won’t always be the way things work out. The first step to preventing fraud from ever happening is to be careful and mindful of this possibility.
8. Be Patient
The cold, hard truth is that it will take a long time for your credit score to recover. If you have put it through years of missed bill payments and credit card debt, your score is going to be a little mad at you. Luckily for you, it isn’t that important to have a perfect credit score unless you are planning on buying a house or car within the next year. If that is in the plans, you may just have to wait until your credit score is ready to cooperate.
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