How to Improve a Bad Credit Score? : 5 Effective Ways

The credit score is one of the most important metrics within the financial system. It determines how much access people have to credit. Over 90% of top lenders make decisions based on FICO scores. It means that people with low or average credit scores might have difficulty getting loans approved since most lenders won’t consider them responsible credit users.

The truth, however, is that credit scores do not always accurately reflect creditworthiness. For instance, many people end up with bad credit scores due to factors like age or one-off financial events. Regardless of why you have a low credit score, it’s essential to adopt habits that can help improve it.

Here are some steps you can take to attain a high credit score:

✅ Fatten up your credit file

Credit history is one of the most critical factors in calculating a credit score. However, you cannot build a credit history if you do not have a credit file. Similarly, persons with thin credit files would have difficulty attaining an excellent credit score. Over 60 million Americans face this problem. So, what can you do?

The first step is to open new accounts that will get reported to the major credit bureaus, TransUnion, Equifax, and Experian. It shouldn’t be too difficult since most card issuers and lenders report to all three. Some great options to build your credit file include credit-builder loans and secured cards. Your on-time payments on these accounts would help increase your credit score.

If you have a friend with a credit card account that is used responsibly and has a high credit limit, you can ask to be added as an authorized user. It would result in the account being added to your credit reports and potentially improving your credit score. Finally, you can leverage services like Experian Boost to add on-time utility and cell phone payments to your credit report.

✅ Pay your bills on time

One of the easiest ways to damage your credit score is by making late payments. If you miss loan or credit card payments by more than 30 days, your late payments can be reported to the credit bureaus. It would, of course, leave a conspicuous dent in your credit score. These late payments can stay on your credit reports for up to 7 years.

You can avoid late payments by taking certain measures. For one, you can create a filing system to keep track of all monthly bills. Similarly, you can set account alerts so that you’re aware whenever a payment is due. You can also automate bill payments from your bank account to cover at least the minimum. This way, you can quickly create a history of on-time payments to build your credit score.

✅ Pay attention to your credit utilization

Another factor in the determination of your credit score is your credit utilization. A good strategy is to use less than 30% of your limit on your card. It’s better to use a much lower percentage of your card limit (think 7%).

To keep your credit utilization in check, it’s essential to pay your credit card balance strategically. It can either be by paying down the balance before the end of the billing cycle or paying multiple times during the month to keep your balance consistently low. You can also set alerts to know when your balance reaches specific amounts so that you can pay accordingly.

You can also improve your credit utilization ratio by requesting higher credit limits. If your credit limit increases while your balance stays the same, you are effectively using a lower percentage of the limit. You are likely to get your request for a higher credit limit approved if your annual income has gone up or you have more years of good credit experience.

✅ Leverage loan options designed for low credit scores

Depending on the factors hurting your credit and your discipline, it could take a while before you can increase your credit score to qualify for most personal loans. However, during this period of building your credit score, your need for credit does not simply go away.

Not to worry, several financial products and loans are specifically designed for individuals with low credit scores. Taking out these loans and paying them back on time can improve your credit score if these payments are reported to the credit bureaus. Check out CreditNinja.com poor credit options for some suitable loans you can explore.

✅ Remove credit report errors

It’s one step you can take to improve your credit score quickly. To check for errors, you have to request your credit report from each of the three national credit bureaus. It can be done for free once every year through AnnualCreditReport.com. After you get your reports, thoroughly review each of them for possible errors that might be hurting your score, especially late or missed payments.

It might take quite some time to review all of them and spot mistakes. However, it’s certainly worth it if you need to improve your credit score. Once you spot an error in any of your reports, file disputes with the concerned bureau and ensure to follow up as necessary.