Credit Education » Improving Credit » How to “Fix” a Bad Credit Score

How to “Fix” a Bad Credit Score

When you apply for any kind of credit, the lender will want to know how your credit looks, so they usually check your credit scores — a three-digit number, usually between 300 and 850, that’s based on some of the information in your credit report. Because credit scores are snapshots of your credit status at a given point in time, they’re valuable for lenders who need to understand how likely you are to repay your debt if they agree to extend credit to you.

While there are many different credit scoring models with various score ranges, most people have credit scores between 600 and 750, and 700 or higher is considered to be a good credit score, while 800 or higher is excellent. Generally, the higher your credit scores, the more likely you are to qualify for credit, and at better rates and terms. If your scores are low, it can be difficult to obtain affordable credit or to get approved for a loan or credit card at all.

What to Do if Your Credit Score is Bad

Your good credit decisions contribute to higher credit scores, and good credit scores can help you qualify for the best rates and terms. However, a lower score doesn’t necessarily mean you can’t get credit. You may still be able to get credit, but it likely won’t be offered at the best interest rates.

If you know your credit scores are low and you need to secure a home or car loan, it’s a good idea to get prequalified before you begin shopping for the item. Pre-qualification will help you know the estimated amount of loan you can consider getting, so you can make a more informed decision about how much to spend when you shop. Getting prequalified won’t affect your credit scores since it’s a soft inquiry on your credit report.

Even after getting prequalified, it’s still possible that the lender may decide not to give you the loan. The final decision will usually include factors beyond just your credit scores (such as your debt-to-income ratio). What’s more, your credit situation may change between the time you prequalify and the final approval, and a dramatic difference could cause a lender to reconsider a previous decision.

If you’re having trouble getting approved for a credit card or loan, you should know that you have options, including:

  • Becoming an authorized user on someone else’s account.
  • Working with a cosigner who has good credit. When you have a cosigner for a loan or credit card, the lender also considers them jointly responsible for the debt.
  • Opening a secured account. With a secured credit card account, you place cash in an account and the card issuer allows you to borrow up to a certain percentage of the money.

How to Improve Your Credit Score

Credit scores aren’t static; they can change when the information on your credit report changes. That means you’re able to take steps that will positively affect your credit scores since you’re in the driver’s seat. In order to know what you need to do, you should first check your credit score to see how it stands today. Your FICO Score from Experian data will provide a list of the factors that are affecting your credit scores the most.

Credit report information that can affect credit scores includes:

  • Your payment history, including whether you always pay bills on time or have had any late or missed payments in the past several years.
  • How much total credit you have available and how much of it you’re actively using. This information is expressed as your credit utilization ratio.
  • Your total existing debt.
  • The types of credit you’ve had and are currently using (your mix of credit).
  • How long you’ve been using credit.
  • The number of recent credit applications you’ve made, called “hard inquiries.”
  • Public records such as tax liens or bankruptcies.

You can begin to build a positive credit history by:

  • Paying all your bills on time every month.
  • Reducing the amount of credit card debt you have.
  • Paying off credit card balances, keeping the accounts open, and maintaining a zero balance.
  • Limiting hard inquiries by only applying for credit when you really need it.

If you take these steps and still find yourself struggling, getting help may allow you to get back on track. An approved credit counseling agency can help you create a plan to better manage your finances and pay down debt. You can find a state-by-state list of approved credit counseling agencies from the U.S. Department of Justice to make sure you’re working with a legitimate agency.

Debt consolidation may be another option if you’re struggling with a lot of credit card debt. A debt consolidation loan allows you to roll multiple high-interest debts into a single payment, usually at a lower interest rate and giving you just one payment to keep track of.

Be wary of any organization that promises to repair your credit with little or no time or effort, or that claims it can repair your credit for a fee. Improving your credit status takes time. Ultimately, there’s nothing a credit repair company does that you can’t do yourself with time and effort.

Whatever course you choose for improving your credit and credit scores, the first step is to check your credit scores. Once you know what negative factors might be influencing your credit scores, you can take steps today toward rebuilding your credit and regaining access to all the things that great credit makes possible.

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