Nearly a third of all Americans have a credit score that is considered bad or below 601. Bad credit can be a real problem as you try to do adult things like buy a house or a car or even get a new job.
With your credit score having such an important impact on your life, it might be even more surprising to learn that 1 in 8 Americans don't even know their credit score.
Not only do you need to know your credit score, but you also need to be accountable for it. And if you've made some mistakes, you need to learn how to fix bad credit choices from the past.
Read on to learn some solutions for bad credit and how you can fix up your credit score.
What Is a Credit Score?
First, let's start with a basic understanding of credit scores. Your credit score is a three-digit number assigned to you by the credit bureaus who monitor credit activity.
The credit bureaus, like TransUnion and Experion, use several factors to calculate your score. More on what makes up your score shortly.
When you use credit with a business, they can report to the credit bureaus how well you do with paying your bills and how you use the credit. An excellent credit score is one that is between 800 and 850. While a poor score would fall between 300 to 579.
Your credit score is used as an indicator of how trustworthy you are to get credit in the future. Many employers are even looking at credit scores as an indicator of a future employee's sense of responsibility.
What Makes Up Your Credit Score?
The credit bureaus use a series of data to compute your score. The score is based on five factors.
The biggest contributor to your score, 35%, is your payment history. This is how well you do at paying your bills on time. They consider:
- How often do you make or miss payments?
- How many days on average your late payments are overdue?
- How quickly do you repay an overdue payment?
When you miss payments or pay them late you hurt your credit score.
30% of your credit score comes from how much debt you have and how much of it you're using. 15% of your credit score comes from your credit history. How old are some of your debts?
Finally, 10% of your credit score comes from how diversified your credit is. Is it just credit cards or do you have an installment loan or auto loan too? The last 10% is your most recent credit activity. This 10% would be impacted, for example, if you suddenly opened several credit cards at once.
So, now that you understand what makes up your score, let's take a look at ways you can improve a bad credit score.
1. Learn About Your Credit Score
Let's go back to the stat that says 1 in 8 people don't even know their score. You might know you've made some credit mistakes and be afraid to look at your score.
You can't fix it if you don't know where you stand. Before you can tackle the problem, you need to look and get a current credit score and know where your credit stands.
2. Check Your Credit Report for Errors
Beyond your credit score is your full credit report. You can get a free copy of your credit report once a year from the credit bureaus. You might be surprised to learn how often there are actually errors on the credit report.
If you want to fix your credit score, you want to start by eliminating any errors that actually show on the credit report. Make sure all of the accounts listed on the credit report belong to you.
3. Make Ontime and Regular Payments
Since the biggest part of your credit score is how well you make payments, the biggest thing you can do is start to make on-time payments. Even consider getting yourself on a schedule where you pay them a little early. You can also attempt to pay more than the minimum amount due.
By paying more and on time, you tell the credit bureaus you're on top of things.
Do you intend to pay them on time and then just forget? It's not an uncommon problem. Consider setting up online payments that get paid automatically. Then you don't have to worry they get paid on time manually.
4. Pay Down High Balance Accounts
One factor in your score is your debt utilization. This is how much credit you have access to and how much of it you use. High-interest credit cards can be more of a demise to getting out of debt. You pay so much in interest that making only minimum monthly payments can mean you never get ahead.
Pick your highest interest card and work to get it paid down. Then work your way through other cards too.
5. Stop Using Credit Cards
You don't want to pay down debt on one card only to use it on another one. Make every effort to eliminate using your cards and adding to your debt.
6. Consider a Debt Consolidation Loan
If your debt is so overwhelming that you can't even make all the payments, it might be time to consider how to consolidate the debt. The advantage to this option is that you pay down your debt with on monthly payment. Instead of being overwhelmed by a whole list of needed payments, you get a loan, pay off all the debts, and then make one payment towards the debt consolidation loan.
7. Seek Credit Counseling
Figuring out how to solve bad credit can feel overwhelming. Some people really benefit from credit repair services. They can help eliminate errors and negotiate with your creditors to help you get your credit cleaned up.
Use These Tips to Fix Up Your Bad Credit
Having bad credit can be a real drain on your life. Don't fret, it can be fixed. Use these tips to get informed about your credit score and then work to repair it.
If you want to fix credit and don't know where to begin, and if you really want to step up your game, check out the new eBook I wrote for you, the Credit Repair 101. Simple instructions, and illustration will help you learn how to boost your Credit Score, and other amazing credit tips & tricks. Check out the samples on the product page. Thank you and good luck with your Credit Journey.