A bad credit score can be a nightmare. However you got there, a bad credit score can lead to higher interest rates on mortgages, car loans, credit cards, and might even prevent you from getting a loan at all.
But if you do have a bad credit score, all hope is not lost. You can take some quick steps to improve your credit in the short-term to help you get over the hump to qualify for the best possible lending options for your needs.
1. Start Making 100% On-Time Payments
The largest determining factor in your credit score is making on-time payments. In fact, on-time payments make up 35% of your total credit score. Ignoring this and looking for other, easier solutions will leave your credit score lurking in the lower levels, not rising like you want.
Starting today, make every single payment on-time. If you can’t afford to pay off your cards in full each month, make sure you always make the minimum payment by the due date.
Using automatic payments can help make sure you never forget and have a late payment. You can set that up at your credit card issuer’s website or using your bank’s bill pay with participating credit cards.
2. Hunt Down and Remove Incorrect Negative Information
Your credit report is a treasure trove of information on your past borrowing and payment habits. It can also include information about collections and judgements from unpaid rent, parking tickets, and medical bills.
According to a study by the Federal Trade Commission, one in every five credit report has errors. It would be a huge bummer to find out your credit score is low thanks to someone else’s mistake!
Thankfully, you are entitled to a free credit report from each of the three major reporting bureaus, TransUnion, Equifax, and Experian, every year. You can get that free credit report at the official government website, annualcreditreport.com. Once you have your credit report, give it a thorough inspection for errors. If there is anything negative that shouldn’t be there, work with the creditor or the reporting bureau to get it removed.
3. Pay Off Credit Card Balances
The second biggest portion of your credit score is determined by your outstanding balances. This 30% of your score is determined by adding up your total credit card debt and dividing by your total available balance on all of your cards. This is called your debt utilization ratio. Don’t include installment loans like mortgages or student loans when calculating your debt utilization ratio, only credit cards and lines of credit.