In 2021, a good credit score is everything. It helps you rent housing and storefronts, buy a home, buy a car, and even get better credit cards (as backward as that may seem).
In other words, a bad credit score can halt the rest of your life and plans.
Originally, credit scores didn’t carry much weight. They started in the 1950s as an impartial credit scoring system for lenders. A similar system exists today (FICO).
By the 70s and 80s, though, credit scores became far more important. Banks and lenders often place more importance on someone’s credit score than they do on the amount of money in their bank accounts (making it difficult for someone saving to reach their goals if they don’t have a credit card).
We’re here to talk about what to do if your credit rating isn’t what it should be. Keep reading to learn more.
First: What Is a Bad Credit Score?
So what counts as a bad credit score anyway? Scores range from 300 to 850 (even if this seems arbitrary. You want to reach a number closer to 850, as low credit scores are a red flag to lenders.
A score below 580 is considered a bad credit score. Anything between 580 and 669 isn’t a good credit score, but it can be passable, and many lenders will accept your applications.
A score of 669 or higher is a good credit score, and you’ll have better luck with lenders.
Bad credit scores make renting homes difficult, getting loans for new vehicles, and getting mortgages. You also will have higher interest rates on any loans. So what should you do about it?
1. Apply One at a Time
It’s tempting to have as many credit cards as possible to raise your credit score, but is this the right answer? While it’s okay to have several cards (as long as you’re responsible), you want to space out your applications.
When a credit card company checks whether or not they can approve you for a card, they make a hard inquiry. This damages your credit score (if only by a small amount).
This also applies to loans and rental applications. You should avoid anyone who could need to check your credit score for any reason if you’ve just applied for a card. Only apply for lines of credit that you need.
2. Keep Your Balance Low
There’s some debate as to whether or not this is viable advice, but it makes a lot of sense.
When lenders look at your credit history, they can see if you’ve put too much money on your card. Your credit limit is there for a reason, but the trick is that you shouldn’t approach your limit unless you have to.
This shows lenders that you’re responsible enough with your money that you don’t need to use credit. Does it matter if you can pay on time every time? Yes, if they’re unable to see that information.
Keeping a low balance also makes it easier to pay off every month. We know those rewards points are tempting but don’t overdo it.
3. Pay Off Your Debts As Soon As Possible
If you have any outstanding debts, you need to take care of those before anything else. They damage your credit score.
Even things like student loans will damage your credit score if you aren’t making routine payments. Your loans and debts should be your top priorities when you’re trying to repair your credit.
4. Check Your Score (But Be Careful)
As we mentioned before, checking your credit score can be dangerous if you’re already on thin ice. That said, if you don’t check your credit report, you won’t know if something is wrong. There could be errors, or someone could be using your credit without your knowledge.
You shouldn’t check your score too often, but you can also check your score penalty-free once per year. Make sure to read the terms and details before checking your credit score, so it doesn’t make a hard inquiry.
If you have any questions about your credit score, contact a financial professional. You may have a reason to dispute something.
5. Pay Loans (With or Without a Cosigner)
You have some options when it comes to loans. The idea of taking out a new loan might be stressful, but there’s a way to do it right.
First, you could try a personal loan. Personal loans are great for paying off credit card debts, and they often have lower interest rates. Remember that these are still loans, though, and they will affect your credit score if you’re not careful with them.
You could also take out loans with a responsible cosigner. It’s often easier to get an installment loan with a bad credit score if you have a responsible party who’s able to vouch for you and take over responsibility if you’re unable to pay.
Your cosigner should be trustworthy, and remember, they shouldn’t have to pay. It’s your responsibility, and if you can’t pay, it hurts them.
6. Ask About Rent and Phone Payments
While it used to be that loans and credit cards were the only ways to reliably build credit, the world is changing. Some larger landlords and property management companies are enabling the ability to report rent payments to credit companies.
If you’re someone who always pays their rent on time without a single missed payment, this is a great opportunity for you. This shows large and consistent payments in your credit history.
Other companies, like phone companies, are also opening up this option. As long as you pay your bills on time, your phone company may be able to help you raise your credit score.
If you’re not sure whether or not this is an option for you, don’t be afraid to reach out and ask. If it isn’t an option now, it might become one in the future.
7. Join a Credit Union
Credit unions are so helpful when it comes to raising (or establishing) credit scores. Too many people aren’t aware of this valuable resource.
Credit unions allow you to establish credit-building loans. You pay these loans in installments every month, and those payments go into a special account that you’re unable to access until the loan is complete.
They report those payments, and it builds your credit.
8. Set Up Automatic Payments
What if your credit score is so low because you’re forgetful? Unfortunately, forgetfulness isn’t a good excuse to credit card companies. A late payment is a late payment regardless of why it happens.
So what do you do?
Set up automatic payments on your credit card. It’s easy to do online, and you can decide whether you want to pay the minimum, the full amount, or anywhere between those two numbers. Most of the time, you’ll get an email before the money is withdrawn from your account so you can make a change if you have to.
You should be trying to use your credit card on smaller purchases that you’d otherwise be able to pay on your own (like gas and groceries) so that money should already be in your account unless there was an emergency.
This allows you to focus on other problems that might be hurting your credit score.
9. Create a Budget
On the topic of forgetfulness (and potential irresponsibility), if you don’t already have a budget, it’s time to make one.
Making a budget won’t directly impact your credit score, but it will help you avoid putting too much money on your card or being unable to pay it off. This prevents you from accruing interest and damaging your credit score.
When you make a budget, list things you will and will not use your credit card for, and stick to this list unless you absolutely have to change it.
10. Ask for Help
If all of this is too confusing, there’s no shame in asking someone for help. Not everyone learned about credit as children and teenagers, and it’s not uncommon for people to not have any credit history at all in their twenties (or even beyond).
There are nonprofit organizations that can help you learn about credit and work together to improve your credit score. You may also be able to ask your bank for resources if you’re not sure where to start.
You Can Repair Your Bad Credit Score
A bad credit score is a problem, but it’s not the end of the world. If you take the right steps, you can get your credit score back to a passable level. Work together with lenders, cosigners, and other financial professionals to get yourself back on track.
Plenty of people improve their credit scores every day. Don’t panic.
Are you ready to start repairing your bad credit score? We want to help you. Apply for one of our bad credit loans today and start your path to a better score.