Having bad credit can negatively impact your life in several ways. Bad credit can prevent you from getting a home loan. It can even affect your ability to qualify for an apartment.
Bad credit makes it hard to acquire car loans and credit cards. And if you can secure these things, they’ll come with much higher interest rates.
If you learn how to fix your credit score, on the other hand, it will make it easier to get approved for mortgages, car loans, personal loans, and more. Just as importantly, good credit will make you eligible for low-interest rates, which will help you save tons of money over time.
The question is how to improve your credit? What can you do to pull your finances out of the trenches to achieve a respectable credit score?
Keep reading for everything you need to know.
Stop Living Paycheck to Paycheck
One of the most detrimental things for your credit score is getting stuck in a cycle of living paycheck to paycheck. Living this way makes it nearly impossible to pay off debt. It also makes you prone to accruing more debt, as you’ll have to borrow money to cover financial emergencies.
If this is where you’re at, don’t feel bad, you’re not alone. Over half of all Americans rely on each paycheck to make ends meet. Furthermore, putting an end to this cycle is easier than you think.
Take a look at your bank and credit card statements to identify where all of your money is going. If you’re like most people, you’re spending hundreds of dollars a month on stuff you don’t need. This includes online shopping, dining out, multiple TV streaming services, etc.
On top of eliminating these unnecessary expenses, you can also find ways to earn more money. For example, you can earn hundreds of dollars a month by donating blood plasma. You can also request more hours at work or pick up a side job cleaning homes, walking dogs, or babysitting.
Make All of Your Payments on Time
By creating a better cash flow using the steps listed above, you can ensure you make all of your payments on time. This is imperative if you want to fix your credit score.
Start by settling past-due accounts. If you’ve fallen behind on payments with a service provider or creditor, it’s probably been reported to the credit bureaus, especially if your account has gone to collections. Clearing this off your record is step one.
Then, set up your accounts to be paid automatically. That way, you can’t forget, incur any more late fees, or damage your score any further. Each time you make a late payment, it reflects poorly in your credit history.
Start Paying Off Debt
One of the most important steps in credit repair is lowering your debt-to-income ratio. Your debt-to-income ratio is how much money you owe each month for debt payments versus your income. An ideal ratio is 36% or lower.
A high debt-to-income ratio can tank your credit score. It shows lenders and creditors that you have too much debt on your plate already. They’ll be unlikely to loan you money because it appears as though you already have trouble making payments.
To fix your credit score, implement a debt payoff strategy. We recommend the snowball method.
The Debt Snowball Payment Strategy
The debt snowball payment strategy is simple in theory. Pay off your smallest debt first by putting all excess funds into that debt. Whatever money you have leftover at the end of each month should go into that debt while continuing to make minimum payments on your other debts.
Once the first debt is paid off, you can use the money that was going towards that debt (plus all extra) to put into your next smallest debt. As you pay off each debt, your debt payment “snowball” grows bigger. After the first few debts are paid off, you’ll be putting hundreds of dollars a month toward debt repayment.
Dispute Inaccurate Marks in Your Credit Report
Neither your creditors nor the credit bureaus are without fault. It’s not uncommon for inaccurate reports regarding your payment history to lower your credit score.
Get a full credit report from each of the three bureaus – Experian, TransUnion, and Equifax. Review each report to identify any inaccurate negative marks or discrepancies.
Report these issues to the appropriate credit bureau to appeal the issue. This may require contacting the creditor personally to have them change their report. While these issues alone aren’t the cause of your bad credit, amending them can help you fix your credit score.
Use Your Credit Cards to Your Advantage
Credit cards can lead consumers down a perilous financial path. Yet, credit cards are not inherently bad. In fact, if you know how to use credit cards wisely, you can use them to your advantage to improve your credit score.
Sadly, most consumers get a credit card, max it out, then make minimum payments. Not only does this look terrible in your credit report, but it also keeps you in debt longer.
However, once you pay a credit card off, don’t cancel it. Instead, continue to use the card but pay it off each week or month to avoid paying interest fees.
Using a credit card and paying it off immediately will help you fix your credit score. If you have a credit card with rewards, it will also help you gain a lot of valuable points.
Assuming you can master this practice, we also recommend requesting a higher limit on your card. This limit is not to be used, of course. The more credit available in your name (that isn’t used), the more favorably it will impact your credit score.
Work with a Consumer Credit Counselor
Finally, if you need help with credit repair, consider consumer credit counseling. There are a lot of benefits to these services, particularly if you can’t fix your credit score on your own.
They can help you manage your payment plans and work with your creditors to lower your interest fees. They will also teach you fundamental financial management skills that you can use to make better decisions in the future.
While this is yet another cost, the long-term benefits of working with these professionals will be well worth the expense.
Trying to Fix Your Credit Score?
If you’ve been struggling with bad credit, we hope this article provides the information you need to turn over a new leaf. It’s time to take charge of your finances and fix your credit score.
Feel free to look through the rest of our blog for more tips on how to improve your credit score. And if you need an expert credit witness, contact us today. We can provide the witness services you need to support your case.