4 Tips for Improving a Poor Credit Score

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Tips for Improving a Poor Credit Score

Your credit score is the measure lenders look at when deciding to approve or deny you for a loan. A high credit score is seen as good credit. If your credit score is low, you have poor credit. A low score can squash your chances if you’re looking to get a credit card or secure a mortgage.

These scores are built from a list of set criteria that measure how you operate with debt. Do you pay on time? Are all of your cards maxed out? How long have you had lines of credit? These are just a few factors that go into calculating your score.

If you have a poor credit score, don’t fret. With a little bit of work and focus, you can improve your credit. It’s important to lower your overall credit utilization and make your payments on time. You could even get a secured credit card to help boost your low score. Keep reading for more tips on going from poor to good credit.

1. Use a Credit Builder Card

If you have bad credit or no credit, a credit builder card or secured credit card can help. By using your credit builder card responsibly, you’ll be able to raise your credit. Secured cards from most issuers function in a similar way. You pay a deposit, buy things with the card, and pay on time, and as a result, your credit builds.

Many cards require a minimum deposit. For example, if your deposit is $200, that becomes your available credit and you now have a $200 credit limit. This takes the liability off the card issuer if you default. Make sure to pay your bill on time every month to build your credit. And if you pay it off in full, you won’t accrue interest.

Once you have increased your credit enough, your credit card company might offer you an unsecured credit card. These are the standard cards that offer a credit line or limit without money down. At this point, you could cancel your credit builder card. However, doing so may hurt your credit score. Keeping your account open will retain your length of credit and help maintain that score you worked so hard for.

2. Keep a Low Credit Utilization Rate

No matter what kind of credit card you’re using, try to maintain a low credit utilization rate. This is something the credit bureaus take into account when they calculate your credit score. It’s best if you can pay off your card every month. If you can’t, keep the amount you have borrowed as low as possible.

Aim to keep all of your credit lines under 30% utilization. That means you still have over 70% of your credit line open. Lowering your utilization further will positively impact your score. Conversely, when your credit utilization inches up, your score goes down. Maxing out your available credit line will negatively impact your credit.

Once you have paid off your credit cards, keep the accounts open. This increases the amount of credit available compared to the debt you owe, which can improve your financial standing. The length of time an account is open is also helpful in raising your score.

3. Maintain a Good Payment History

A huge factor in how your financial health is measured is your payment history. Do you pay on time 100% of the time? Have you made several on-time payments in a row? Did you pay the minimum?

Consecutively paying your bill on time adds up. When you hit certain milestones in the number of payments you’ve made in a row, it can increase your score. Paying more than the minimum each time is also impactful. And paying your card off several times back to back may also skyrocket your numbers.

Conversely, missing a payment or not hitting the minimum can drop your score. If you have a hard time remembering to pay your bill, set up autopay. If your due date is challenging based on your paychecks, call your company and see if you can move it.

4. Pay Outstanding Bills

Do you have any old debts you’ve stopped paying or that are in collections? Get those caught up! These can massively impact your credit. It’s one of the hardest hits on your credit report. If you’re in the hole with old debt, it’s hard to make new progress.

Call your old lenders and make a plan. Depending on how old the debt is and how long you’ve been behind, the company might negotiate a cash settlement. Marks against your credit stay on your report for up to seven years. Get this taken care of so you can start repairing your credit.

And be careful of debt consolidation companies. While they might lower your payments and negotiate debt for you, this may also wreck your credit in the meantime. These companies often stop paying and let you default so they can haggle the payoff to a lower amount. The missed payments then negatively impact your credit score. If you don’t mind taking the short-term hit, debt consolidation can help your long-term credit.

Whether you have a poor score or no credit score at all, you can improve your financial health. Depending on how far in the hole you are, it might take longer, but you can do it. Turning your credit around just takes focus and discipline. The good news is you control the biggest factor in your overall credit profile — your actions.