Having a bad credit score makes it harder to get a good loan, to rent an apartment, a cell phone contract and even a good job. Even if you are debt free and plan to remain so, carrying a poor credit history is still an issue.
You can’t improve your credit score overnight, so it’s a process that will take at least few weeks or more, but you should start it as soon as possible, to unlock new financial opportunities for you in the near future.
This is why you’ll probably want to improve your score.
Here are 5 steps to improve your bad credit score.
1. Know your credit score
The first step is to see exactly what you have to deal with.
Get a free credit report and see where you stand when it comes to your credit score. You can order copies of your credit reports from any of the 3 main credit bureaus, Equifax, Experian or TransUnion.
You can also get free copies of your credit reports from each of the major bureaus from AnnualCreditReport.com.
2. Dispute any errors in your credit report
Your credit report is not always accurate, there can be errors listed there, that can bring down your score 60 to 110 points. Make sure all the data is correct and dispute any errors you may find there.
Only now you have a clear view of your true credit score and see how bad it is or if it already improved.
3. Stop making any purchases on your credit cards
There’s no need to dig yourself deeper, so curb your spending to a halt. It’s a good time to start saving money more aggressively, since you’ll need it to pay off at least some of your credit card debt.
If you do need to make purchases, use cash instead and keep your credit cards on hold, until you have solved some of your problems.
4. Try to pay off a past due balance
If you are behind your payments, this bad payment history makes up to 35% of your credit score. So it makes sense to try and get current with your payments, before they are charged off or sent to a collections agency.
I have mentioned saving some money, by curbing your spending, it’s a good time to direct some of these savings to pay off a past due balance.
It doesn’t hurt to also talk to your credit card issuer about any missed payments, maybe they’ll edit your account to show you were always on time with your payments. No one can guarantee such an outcome, but it doesn’t hurt to ask.
5. Pay off a debt
30% of your credit score is made up by the amount of debt you are carrying.
Paying off one of your credit cards in full, for instance, can have dramatic results on your credit score.
We have listed 3 debt payment strategies, you can use any of them to help you. If it’s easier, just take your smallest balance and pay it in full. While it would make sense to pay off a high interest debt first, this would still help you to clear some of your debt and use the money you have now on a monthly basis to pay off another debt.
As mentioned, improving your credit score won’t happen in 2 days, but, if you are serious about it, in few weeks/months your financial situation could look way better.
The more debt you pay off and the less expenses you put on your credit cards, the better your score will get. Even when your bad credit score looks better, don’t stop here.
Continue to pay off your debt and save money. At the same time, consider retirement planning, you’ll get there anyway in few decades, why not be prepared?