If you are tired of your bad credit score affecting your ability to purchase anything from a vehicle to a home, there are some steps you can take to start improving your rating. It will take time, in some cases several years, but with hard work and consistency you slowly start improving your poor or bad credit score.
3 Things You Can Do Now
There are several steps that you can take to start improving your subpar credit score, and there are three that you can do now.
- Review your credit report.
The most important thing is to check your credit report. If you don’t know what your score is and why it is so low, you won’t know how to start repairing it. Errors can also occur in a credit report, and this is another reason why it is important to check it regularly.
Your credit report will show all of the information used to calculate your score. This includes data on any missed or late payments, which will cause your credit score to drop. If any mistakes are found on your report it is important to deal with it immediately by contacting the credit bureau.
Sometimes all it takes to improve your credit score is to remove an error from your report.
You are entitled to one free credit report every 12 months from each of the three credit reporting agencies. Most financial experts recommend requesting a copy of your credit report from a different agency every four months to ensure you are well informed.
- Make payments on time.
Late and missed payments are the most common reasons credit scores start falling. Setting up reminders when payments are due is one easy and convenient way to ensure it always gets sent in on time. Some financial institutions offer the option for automatic payments. The money is automatically deducted from your account on a preset date so you don’t have to worry about it. The only downside to this convenient option is that only the minimum payment is withdrawn each time so you don’t always have a chance to pay off a high interest auto or other loan in a shorter amount of time.
- Lower amount of debt.
It might not be easy, but lowering your amount of debt is a great way to start improving your credit score. It will also help you get a handle on your spending. Financial experts recommend paying off your credit cards with the highest interest rates first, while continuing to make the minimum monthly payments on your other loans.
Since you will still be making payments on the lower interest cards, your credit report will still continue to show a positive history.
Tips On Improving Your Credit Score
There are a few other things you can also do to start improving your credit score. The following tips are easy to implement, and if you use them consistently you’ll soon be able to qualify for auto loans with a lower interest rate.
Pay attention to credit card balances
The amount of revolving credit you have will affect your score, and smaller is always better. To help boost your rating pay off your balances and try to keep them low.
You also want to make sure that your monthly payments are the ones being reported to the credit bureau and not your balance. This will cause the amount of your revolving credit to be higher than the usage, and this will have a negative effect on your score.
Get rid of “nuisance” balances
“Nuisance” balances are usually small and occur when you use several cards, instead of just sticking with one. While making monthly payments on time will help your credit rating, having too many can have the opposite effect.
This way you are still able to make the purchases you need, without cluttering up your credit report.
Another advantage to only using one or two credit cards is that there are fewer payments to remember to make each month.
Don’t get rid of all old debt
It is actually good to have old debt appear on your credit report, even though many consumers try to have it removed. While missed and late payments, bankruptcies and repossessions all have a negative impact on your credit score, old debt that is paid off has a positive effect. It shows that you successfully paid a loan off, and potential lenders view this as a sign that you might qualify as a low risk borrower.
This usually translates into an easier approval process when you are applying for an auto loan, along with lower interest rates.
How to Keep Your Credit Score from Falling
It doesn’t matter if your credit score is considered excellent or poor, you don’t want it to fall. The biggest reason a credit score drops are due to missed or late payments, but there are other factors that can contribute to a loss in points. Knowing what these are will help you keep your credit score improving, instead of having to watch it fall.
- It is important to re-establish your credit history if your score is below average. One of the best ways is to open a new account and pay it off on time. Even though it will take a while to show up on your credit history it will prevent your score from falling, and eventually help it increase.
- You do want to check your credit score at least once a year, and some financial experts recommend doing so more often. As long as you request a copy of your credit report from one of the three major credit reporting agencies, Experian, Equifax and TransUnion, it will not affect your score.
- Refrain from opening several lines of credit in an attempt to maintain or improve a bad credit rating. Not only will this appear to potential lenders that you might be a high risk, it can also lower your score. Opening several credit accounts at the same time can cause some lenders to question your ability to make all of the various payments on time. It also makes it harder for you to keep track of when all of the monthly payments are due, and missing even one can cause your credit score to plummet.
- It is important to remember that just because you closed an account it isn’t automatically removed from your credit report. In some cases it can stay in your history for up to seven years, according to Experian. If you made all of the payments on time it should have a positive effect on your score, otherwise you’ll have to wait for it to be removed by the credit reporting agencies.
It is Possible to Improve a Bad Credit Score
If you have a bad credit score and want to apply for an auto or other type of loan there are steps you can take to eventually avoid high interest rates. It starts with monitoring your credit report, and becoming financially responsible.
This way the next time you are shopping for a “big ticket” item like a vehicle you aren’t stuck with a high interest bad credit auto loan. If your score has improved enough you might not even need a large down payment.