So, you finally checked your credit score and it’s low. What are you going to do about it?
Subprime credit can be daunting, but it isn’t a death sentence. Just because your credit score is low now doesn’t mean it will stay that way forever. You can still turn things around by making the right money decisions.
Not sure what those are? Keep reading — here are five ways you can improve your credit.
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Always Pay Your Bills on Time
Paying your bills on time is by far the most important step to improving your credit. FICO weighs your payment history the heaviest, so it’s often responsible for why your score is the way it is.
Nobody wants to pay things late, but it still happens. If you have trouble paying things on time, try these steps so you never miss a due date again:
- Program bill due dates into your phone’s calendar app
- Use a money management app to remind you of upcoming payments
- Automate your bills online
- Talk to your creditors about adjusting your payment schedule to fit your finances
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Don’t Close Every Account All at Once
When faced with your credit mistakes, you may feel like hiding the evidence. But closing an account that shows past delinquencies can make a bad thing worse.
Closing an account will change your credit utilization
Your credit utilization is a fancy term to describe how much of your available credit you’re using. Or, in other words, it’s the ratio of your outstanding credit to your total credit limit.
Most experts say you should have a credit utilization ratio that rests around 30 percent. Once your ratio goes above this number, your credit score diminishes.
By closing an account, you’ll decrease how much available credit you have, and your outstanding credit will be worth more in comparison.
Closing an account doesn’t make bad credit disappear
Although the account that caused your bad credit may not exist once you close it, the damage it has done to your score has already happened.
Bad credit attaches itself to your history as soon as the lender reports your delinquencies to the credit agency. It’s there until it naturally cycles off your history — regardless if you keep the account open or closed.
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Apply for Cash Loans Only When You Really Need Them
Some people view loans as a way to boost their spending power, and they’ll use them to buy luxury items or go on vacation.
People who apply for credit cards and personal loans frequently run into two major problems:
- Many of these applications result in a hard inquiry on your credit history. Too many hard inquiries can lower your score.
- It’s more money you’ll have to pay back — plus interest and fees.
If you limit how often you apply for a loan to emergencies, you’ll have fewer credit checks on your history. You’ll also owe less money in fees and interest.
What if you’re denied a cash loan when you really need it?
Depending on your credit score, you may find it challenging to get the loan you need. Plenty of mainstream banks require a minimum credit score before they’re willing to consider your application.
Generally, this minimum is set to fair credit scores — which means you might be denied if you have subprime credit.
Luckily, not all lenders are alike. If you have subprime credit, you have new options to borrow money through online loan lenders. These loan lenders will look at other financial stats to determine your creditworthiness.
This helps responsible people who happen to have poor credit. It gives them a chance to secure cash advances and installment loans in an emergency.
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Pay More Than the Minimum Balance on Your Credit Card or Line of Credit
Unlike rent, utilities, and other bills, your credit card and line of credit work a little differently. While you have to pay the others in full, you have the option to pay the minimum balance on your credit card or line of credit.
A minimum balance is helpful if you encounter some trouble that makes it hard to pay off your entire bill at once. As long as you pay this minimum on time, you won’t lower your score by keeping a balance.
You will, however, increase how much you owe over time. You’ll have to pay more in interest when you carry over a balance.
By paying your balance down to zero every month, you’ll limit how much interest you’ll have to pay. You’ll also lower your credit utilization ratio, as you’ll be spending less of your available credit.
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Review Your Credit Score Often
Your credit report is a good gauge of your credit health, but it’s not always 100 percent accurate. Sometimes, credit agencies will make a mistake that affects your score negatively.
There’s also a chance your low score is a result of fraudulent activity. If criminals have your financial information, they can open lines of credit and apply for payday loans in your name.
By reviewing your score regularly, you’ll be able to confirm what’s listed on your report is accurate. If you find errors on your report, make sure you alert the credit agency right away.
Follow These Tips to Improve Bad Credit
There’s no doubt bad credit has an impact on your finances. Luckily, no score is permanent — even bad ones.
But that means the opposite is true, too. Once you establish good credit, don’t assume you’ll have it forever. Good credit is the result of continuous financial behavior, so remember these tips every time you pay bills and use loans. When you make them a habit, you’ll reach (and keep) a score you’ll be proud of.