Guide to Fixing Bad Credit
Your bad credit on your credit cards can be one of the major reasons why you get turned down on your loan applications. And if you are looking for ways on how you can fix the situation, don’t worry because you can make it happen. All you need is time, patience, and change of habits. There is no better time to take steps to support your credit than today.
Here are some helpful tips you can try to give your credit score a boost:
1. Check your credit reports regularly
A study conducted by the Federal Trade Commission in 2013 has found that one out of four consumers gets an error in their credit report which could possibly have a negative impact on their credit scores. You should carefully look out for these errors because you are not supposed to be paying for the mistakes you did not make in the first place. Here are the most common errors you should be looking for:
- Incorrect addresses and other personal information. Errors in your personal information could be an indication that your account could have been mixed up with someone else’s.
- Outdated information. There is a limit on how long negative items should appear on your credit report, and this is set by the Fair Credit Reporting Act. You can ask for older items to be removed.
- Duplicates. Look if the report has shown a debt report more than once.
You have to be aware that you are entitled to a free credit report every year from each bureau. These services are something that you should take advantage of.
2. Lower your credit utilization
One important factor in your credit scores is your credit utilization ratio which you can compute by dividing your total credit balances by your total credit limits. Here is how you can improve your ratio:
- Pay down your debt. It may not always be easy to keep your balances low, but it is one great way to improve your credit standing. If it is possible for you to pay more than once a month and if your issuer allows it, it will be much better if you make your payments often.
- Get a higher credit limit. If you do not spend a lot, a higher limit should be able to immediately drop your utilization rate. If you are offered by your credit issuer for a high rate, take it. You just have to be careful that it will not trigger more spending. However, if you are not given this option, you can go ahead and ask for it. Just make sure to use this option carefully.
3. Be smart about your credit card applications
The conflicting rules about new credit can also be a determining factor affecting your credit score. When you apply for new credit, it will trigger a credit inquiry which is actually bad for your credit score. On the other hand, having more credit is a good thing. So if you are confused on how to deal and reconcile with these rules, here are the steps you should take:
- Avoid applying for new credit cards or just cancel the old ones. If you have a number of balances on several accounts, it will negatively affect your credit. But if you have more available credit in total, it will positively impact your credit standing. If you do not cancel old accounts, just do not apply for new ones.
- Consider a personal loan. When you use a personal loan to pay down your debt, you are also adding a new type of credit to your report. Installments can positively work for you as long as you are diligent when it comes to making payments. It will also give you the chance to get better interest rates.
- Cluster new loan applications in a short time frame. If there is a need for you to apply for a mortgage loan or an auto loan, try to restrict your applications to a shorter window as much as possible. There is a possibility for credit bureaus to consider tightly grouped inquiries as just a single inquiry. This way, you are also putting a limit on how much they may ding your score.