Is Your Poor Credit Score a Headache?

Here Are Pointers on How You Can Improve It and Finally Have the Good Credit Score You Deserve!

Your credit score is the number that helps creditors to decide whether they will offer you credit. They make this decision after they check your credit with the major credit bureaus. This number informs the creditor of how likely they are to get repaid their money once they lend it to you. It also tells them how much credit they can safely extend to you.  Your payment history is critical in this case. This score will influence how likely you are to receive loans and credit. You can either have a positive credit score, bad credit, or no credit score.

If you have a positive credit score, then it implies that you can access a lot of credit. If you have no credit score, then it means that you have no payment history or experience with credit. If you have very few credit accounts, you will automatically have a small credit file.  A small credit file means that creditors will not have adequate information to use in the calculation of your credit score. 

You can improve the size of your credit file with a little focus.  Increasing your credit file size takes less time than when you are working on improving your credit due to a bad credit score. So what needs to be done to build a credit score from scratch?

Start By Opening Up a Credit Card Account

If you have never owned a credit card account, then you need to get one. Find a card that has a low limit because you can easily qualify for one even when you have no credit history. Once you have opened this account, start using it to make it active. Use the card to pay for small bills and pay the debt right away. Doing this will help you begin developing a report that indicates that you are a responsible debtor with a positive payment history.  And because you are making payments as agreed upon, this will result in an increased credit limit and score. 

Get a Credit Card (secured credit card) and or Approach Nonprofit lending institutions. 

It can be tough to get a standard credit card if you have no credit history or when you have a minimal credit history. You are only going to qualify for a secured card. Secured implies that a savings account secures the card, and the limit is usually the amount in the savings account or a percentage of these funds. If you use this type of card and you pay your bills on time while keeping your balances at zero, you can progressively build your credit score. 

When choosing a secured credit card, you should choose one that can be converted to a traditional credit card. A lot of companies do not report the performance of a secured credit card. However, the same company you take a secured credit card with can offer you a high credit score when you take a traditional card with them; you may also get an improved credit limit. 

If you cannot get the secured credit card, you can choose to get credit from nonprofit lending institutions. These institutions help low-income individuals by offering them credit with no interest, and they report positive payments to the credit bureaus. This way, the debtors of these companies can access affordable credit, and they are also able to build their credit limit and score at the same time. These companies have grown in popularity, and you need to try one if you have run out of options. 

Try And Become An Authorized User to An Account Or Open Up a Joint Account 

There are instances when you may have a hard time building your own credit because of bad credit, for example, when you cannot get a credit card on your own. In this case, you should become an authorized user on the credit account of someone else who has a good credit report. You can also choose to open up a joint account with anyone who has excellent money management skills and a good credit report with the credit reporting agencies. If you take credit and make payments as expected in your joint account, your credit limit will grow. 

Also, the early payments made by your credit partner will also have an impact on your credit score and credit limit. Take note that anything that your partner does will affect your joint and personal credit reports. Therefore, make sure you choose the person to share this account with wisely. The person you want should know how to manage credit and continually maintain a positive payment history.

Request For An Increase of Your Credit Limit

After you have opened up a credit card and activated it by taking credit, you can request a credit limit increase. If, in the short-term, you’ve developed a good credit standing, then you may be able to ask the credit card company you are using to offer you to raise your credit limit. When you increase your credit card limit, you can lower your credit utilization ratio. 

However, you should only request for an increase in your limit of you feel responsible enough to manage credit. If you have a higher credit limit, you may be tempted to take credit that you do not actually need, and this may eventually lead to a negative credit score because of late payments or naturally higher credit card debt.

If you have a credit score but a negative credit score, then it implies that you have failed to pay your bills as expected, which has affected your credit report negatively. In this case, you will have access to minimal credit, or you may not be in a position to access credit at all. It is very easy to end up having a negative credit score.  Late payments are all it will take.

If you notice that your credit score is not where you would want it to be, you should make sure that you address it as soon as you can. To boost your credit score can take a lot of time, but with the right action steps, you will get there. Here are steps to take to build and raise your credit score:

12 Ways to Improve Your Credit Score

1. Checking Your Credit: Get a copy of your credit report and clean it up!

You’re entitled to one free credit report every 12 months from each of the three major credit reporting agencies. These are TransUnion, Experian, and Equifax. You can request one from each of them if you have not done so already. Read more about how you can get a free credit score report here. Once you receive your credit report, you can review and dispute any errors. Inaccuracies can easily drag your score down. The credit report will allow you to notify the credit reporting agency of any issue that you may have noticed. It is a common phenomenon to find that your credit report has not been updated. Once the credit report is in order, you can now start working on it.

2.Timely Payment of Bills

Creditors are always interested in knowing how reliable their debtors are in paying their bills. Your past payment history is used to predict your future performance. So if you have a negative credit score, you can start by paying your current bills on time. This will have a positive influence on your credit scoring.

You should pay all of your bills on time. A lot of people assume that their loan and credit card bills are the only influencers of their credit score rating. This is far from the truth; bills such as rent, phone bills, utilities, are also significant influencers of your credit score. 

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A majority of people make late payments because they don’t remember the date when they should pay, not because they lack the funds to make the payment. To make sure that you pay on time, set a reminder on your calendar. 

In case you are behind on payments, try and make them current. Missed payments have a negative influence on your credit report for seven years, but their impact declines over time. As you pay your bills, you should know that old debts have a minimal impact on your credit score when compared to more recent debts.

3. Make Payment of More Than One Billing Cycle

If possible, pay for more than one billing cycle. For instance, if you are supposed to pay monthly, try and make partial weekly payments. This will reduce the credit card balances you owe and lead to improving your credit score. 

4. Contact Your Lenders and Come Up with a Payment Plan (Negotiate the debt you owe)

There are instances when you have to make a payment, but you are short on funds. If you foresee that you will not afford to make a payment as you are supposed to, contact your creditors. 

  • Try and set up a payment plan that you can afford to repay without missing. When you quickly respond to a missed payment, it reduces the negative effect that it will have on your credit reports. 
  • Try as much as you can to negotiate your debt. Some reasonable creditors will reduce the amount you have to pay if you commit to paying by a particular period. Be sure to engage a professional if you need help negotiating. 
  • Enroll for a debt consolidation plan if possible. When you request a debt consolidation plan, it will have a short term negative impact on your credit score. However, if you make on-time payments at all times, it will help boost your score quickly than when you have to pay debts to different companies. Also, consolidation allows you to make payment progressively, and you will eliminate the debt that robbed you of your positive credit reports. 

5. Ensure You Get Credit for Paying Utilities and Cellphone Charges on Time

Today you can get credit for paying your utilities and cellphone charges on time. This was not always the case. There is a free and new product referred to as Experian boost. If you choose to use this product, you allow it to connect to your bank account and retrieve your utility and phone payment records. 

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However, ensure that you validate that it is Experian gaining access to your bank account. Once the product accesses the bank account, your utilities and phone payment records will be used in the development of your credit score report. A positive payment of these utilities and phone payments will improve your credit score.

6. Pay Off Debt and Avoid Applying for New Credit 

In the calculation of your credit score, one of the ratios that you should never ignore is the credit utilization ratio. To get this ratio, you add up all your outstanding credit balances and divide the sum you get by your credit limit. If you intend to calculate your credit utilization ratio, look at your 12-month credit card statement and add up all the balances and divide them by twelve. This will tell you how much credit you use in a month. 

Lenders are very concerned about your credit utilization ratio. The lower the ratio, the better the impact it has on your overall credit score. Make sure it is about 30% or less, which is the percentage that a lot of these credit companies prefer. A low credit utilization ratio generally means that you do not use a lot of credit. If you have a 30% credit utility ratio, it means that you use only 30% of your credit limit. 

Lenders dislike it when you have maxed out your credit card because it is a sign that you are relying on credit to meet your day to day expenditure. If you have already maxed out your credit and you have a negative credit utilization ratio, you can positively influence it by:

  • Paying off amounts owed. When you pay off debt, you will progressively reduce your credit utilization ratio. This will be a good way to improve your credit score. You should also avoid taking on new credit. When you take new credit, it increases your credit limit, but it has a negative impact on your credit utilization ratio. This particularly so when you open up credit accounts in a short time. When you open new credit accounts, you will have credit inquiries working against your score. If you get too many hard inquiries over a short period, it will affect your credit score negatively. However, the impact of the hard inquiries only remains on your credit report for two years. 

7. Keep Your Unused Credit Cards Open

If you have credit cards that you are not using, you should keep them open. If you close a credit account, you increase your credit utilization ratio. But if you have a lot of credit accounts but a low credit, then it communicates that you are reliable and that you have good credit management skills.

Note that the age of your credit history matters. The longer you have a credit history, the better. Therefore, it is not advisable to close the old accounts. If you have to close any account, close the new ones and keep the old ones operating. 

8. Exercise caution when paying old debts

When you stop making payments, your creditor will always approach you. If you make your payment, they keep your account open. If you fail to make the payment for a long time, the debt is written off. When a debt is written off, it implies that the company does not expect to receive any payment from you. If you make a payment on a debt that has been written off, you reopen and activate the account, and the debt will lower your credit score.

9. Reduced the maxed-out cards

How you pay your debts will influence how fast you can improve your credit report. If you have several credit cards and there is a specific card where the amount owed is almost reaching your credit limit, you should start by paying that one-off. If you reduce your maxed-out credit cards, you are able to reduce your credit utilization rate. A low credit utilization rate will raise your credit score and have a positive impact on your credit report. 

10. Create diversified credit accounts

You should create a credit mix. When you have a diverse credit mix, you will enjoy a high credit score. However, you should only include additional credit if you can make payments on them faithfully. Mortgage, credit cards, and auto loans only count for ten percent of your credit score. You need to increase it by adding a different type of credit. 

11. Take a Quick Loan

If you have a negative credit score and you cannot find a way to improve your credit score, you can choose to take a quick loan as a last resort. These are short term loans for very small amounts. If you take these loans and pay them well, you will improve your credit report because your credit history will be updated and sent to credit report agencies with the new entries that show that you are repaying debt faithfully. 

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This is always a last resort because these loans, depending on the financial institution, can be very expensive. The companies that offer credit to people who have poor credit scores tend to overcharge them as a way to cover their risk. So, if you have a different option that you can adopt, you are advised to try it. 

12. Find out if you qualify for a 0% interest card.

There are companies that offer a 0% interest card. This product has several caveats to it. For instance, you can find that there is a charge on transferring the balance. In some cases, the zero interest is meant to lure clients, and it is only valid for the introductory period. However, you may find it difficult to get one of these cards because companies only offer them to individuals that have very good credit scores. If you qualify for one of these cards, it will improve your credit score significantly. 

Having understood how to improve your credit score, it is important to learn what not to do. You may increase your credit score but go back to the initial position if you are not careful. Here are some of the financial mistakes you should avoid in order to prevent a poor credit score.

  • Failing to understand how much debt you can afford. Always consider your debt to income ratio. To determine this ratio, divide your monthly debt with your gross income. If you have a high debt-to-income ratio, then you are likely to make late payments or not make payments at all because your income cannot adequately service the debt. So before you take on debt, do the math and ensure your income can offset the liability. 
  • Poor planning or not creating a budget –  When you have a budget, it allows you to plan and manage your money well. You can know what you are making, spending, and saving. This information will assist you in making better debt-management decisions. 
  • Choose your installment loans after you have researched thoroughly. Different companies offer credit at different terms. When you want to take credit, ensure that you compare the cost of the loan within different companies, and choose the company that offers credit at the most flexible and affordable terms. For instance, they should have the lowest interest rates, service charge, and they should also provide you a flexible payment structure. 
  • Failing to be vigilant with fraud –  There are a lot of cases where people find that their cards have been used to take credit by other parties. This will automatically affect your credit score, and it can be hard to convince authorities that you are a victim of fraud. So be sure that you are cautious with your credit cards, use a credit monitoring service, and monitor your credit card statements and your credit report with the credit bureaus. 
  • Applying for too many cards in a short time frame is also a significant issue. When you take a lot of credit within a short time frame, it is an indication that you are a high risk. Think about it. If you were a bank, would you lend to someone always needing credit? It communicates that you are taking more debt than you can afford to repay. This will affect your score negatively.

Now that you know how to improve your credit score, the only thing left to do is take action and start improving your financial standing, your credit rating today!

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