Your credit score can make your life easier — it can also make your life more challenging. For instance, a bad credit score can make it difficult to get approved for a loan to purchase a house. You might have trouble renting an apartment, getting approved for low interest rates, and maybe even landing your dream job.
Is your credit score on the lower side?Don’t worry; there are ways you can raise it, from getting a credit builder card to fixing credit report errors or having your credit repair. In this article, we list a few ways to help you overcome a bad credit score. We’ll start by explaining what makes up your credit score then discuss tactics you can use to improve yours.
- Understand What Makes Up Your Credit Score
While most people are aware of the importance of a credit score, not everyone knows what factors go into creating one. Your credit score is a composite of these five elements:
Payment History (35%)
Payment history records whether you pay your bills on time and whether you have any missed payments.
Credit Utilization Ratio (30%)
To calculate your credit utilization ratio, you divide the amount of credit you’re currently using by your total combined credit limits. Experts advise using less than 30% of your available credit.
Credit History Length (15%)
Your credit history length is the amount of time you’ve had extant credit accounts.
Credit Mix (10%)
Your credit mix reflects the diversity of your credit sources. For example, you might have a credit card, car loan, student debt, etc.
Number of Recent Credit Accounts (10%)
Every time you open a new credit account, it triggers a hard inquiry, which will negatively affect your score. While a couple hard inquiries aren’t a big deal, many such inquiries can have a big impact. Furthermore, opening multiple credit accounts could lead you to amass more debt.
- Review Your Score
The first step in improving a bad credit score is knowing which of the above factors are impacting it. To do that, you have to check your credit score.
There’s a common misconception that it costs money to review your score. This isn’t true. A majority of credit card issuers provide this information at no cost. If they don’t, you can use free resources like Capital One’s CreditWise or Chase’s Credit Journey Chase, even if you aren’t a customer.
Your credit score doesn’t just show you a number. It also shows you what is contributing to your score. For example, let’s say you have a history of late payments. That will be highlighted in your score profile. And since you know that payment history makes up 35% of your score, you know how influential missed payments can be.
With this information, you can create a plan that helps you avoid missing payments. Whether that’s setting up automatic payments or reworking your budget, your goal will be to pay your bills on time.
- Consider a Credit Builder Card
One key way to improve your credit score is by using a credit builder card. Unfortunately, it’s hard to get approved for new accounts when you have bad credit. That’s where a secured credit card comes into play.
A credit builder card works similarly to a traditional credit card. The difference is you put down a cash deposit, which typically becomes the card’s credit limit. This deposit acts as a safeguard for credit issuers, meaning they’re more likely to approve your card application. Because of this, credit builder cards are a great option for those with bad credit.
Several different issuers offer these credit cards. While they all pretty much work the same, they may have different features. Some cards don’t charge an annual fee, and there are even credit builder cards that don’t require a minimum security deposit. That’s why it’s important to shop around to ensure you find the right card for you.
- Pull Your Credit Report
According to a Consumer Reports investigation, over one-third of Americans have found at least one error on their credit report. Of those who reported errors, 41% said they found an unrecognized account on their report, while 23% detected wrongly reported late payments.
It’s important to review your credit report for errors. If it shows late payments you know were made on time, for example, your score is being harmed through no fault of yours. As a rule of thumb, it’s a good idea to pull your report every year. Luckily, you can do that at no cost through major consumer reporting companies like Equifax and Experian.
While reviewing your credit score, take note of anything that looks suspicious. If you find discrepancies, don’t hesitate to dispute the errors with a credit reporting agency. While these can take time to be investigated, it’s worth disputing them and improving your score.
A bad credit score can be an obstacle, but don’t let it stop you. The truth is, that many people will experience fluctuations in their credit score. Whether that’s from an accidental missed payment or having to borrow more money than usual, life happens. Instead of worrying about your bad credit score, do something about it. The tips above are a great place to start, and they can get you steps closer to achieving your ideal credit score.