How To Fix Bad Credit With 8 Easy-To-Follow Steps
(DailyDig.com) – According to Experian’s latest credit reporting, the average credit score in the U.S. is 714. That means nearly half of all Americans have a credit score below 700 and are considered high-risk borrowers.
If you’ve got bad credit, you probably feel like you’re stuck in a hole from which you can’t climb out. You might be tempted to give up on getting better credit because you think you’ll never see any improvement. But nothing could be further from the truth.
There are simple steps you can take to improve your credit score hassle-free. Curious to discover more? Perfect! If you follow these eight steps, you’ll start climbing out of that hole faster than you thought possible.
1. Check Your Credit Report for Inaccuracies
You may assume that everything will be fine once you get your credit score. Unfortunately, this isn’t always true. It’s not uncommon for people to find errors in their credit reports. These mistakes can range from minor typos to major identity theft issues.
Check your credit report at least every month to ensure you don’t miss anything important. You can do so from each of the three major bureaus (Equifax, Experian, and TransUnion). If you find errors in your report, contact them immediately for rectification. This is also an excellent opportunity to look for potential problems with your credit score. If you have no clue how to go about it, be sure to check out this Forbes guide on how to check your credit score!
2. Fix or Dispute Any Errors
Once you spot something amiss, you need to act fast. Don’t wait until the following annual review, as you may not be able to dispute the error then. Instead, contact the company that reported the mistake and ask them to fix it immediately.
In some cases, they’ll simply remove the incorrect information. If they refuse, however, you’re going to have to file a dispute. To do this, visit www.annualcreditreport.com and click “Disputes.” Fill out the form and attach copies of your proof (bank statements, utility bills, etc.) that show the error.
3. Pay Down Debt
One of the most significant factors affecting your credit score is paying off debt on time. When you have outstanding payments, creditors are less likely to extend you another line of credit.
So, what does this mean for you? Well, if you want to raise your credit score, you must focus on paying down your debts as quickly as possible. Here are a few tips on how to form a habit of paying down debt on time:
- Make a budget. Be honest with yourself about where your money goes each month. Once you know exactly how much you spend, you can figure out how much you need to save every month.
- Keep track of your spending. Write down every purchase you make to keep tabs on your expenses. Then, compare your actual spending to your budgeted amount. If you’re consistently overspending, you’ll need to adjust your budget accordingly.
- Find ways to earn extra cash. If you have a job, consider asking for a promotion or working overtime. If you’ve been laid off, try applying for temporary jobs online. Whatever you do, make sure you’re earning enough money to cover all of your monthly obligations.
4. Keep Your Accounts Current
Another thing lenders look at is whether you keep your accounts current. If you’ve been late making a payment or missed a bill payment, your lender might ding your credit score.
However, there are steps you can take to avoid getting dinged. First, make sure you’re aware of any upcoming due dates. Also, if you’re having trouble keeping up with your bills, set up automatic payments through your bank or credit union.
5. Avoid Late Payments
If you’re already struggling to stay on top of your finances, you could end up falling behind on your bills even more often than usual. And that hurts your efforts to climb up the ladder immensely, as payment history constitutes 35% of your credit score. In other words, if you’ve got a lot of unpaid bills, chances are you’re not doing very well in terms of credit scores.
So, what should you do to avoid late payments? For starters, set up auto-payments for recurring bills like utilities, rent, car loans, and insurance. This way, you don’t have to worry about forgetting to pay those bills. You also want to make account management your routine. That means checking your balances regularly and monitoring your credit card usage.
6. Don’t Close Old Accounts
When it comes to closing old accounts, it doesn’t matter which ones you close – just be consistent. Closing too many accounts will hurt your credit score because lenders use your total number of open accounts to determine your risk level.
So, if you’d rather not get hit by a penalty, keep an eye on your balance and only close accounts when necessary.
7. Consider Debt Consolidation Services
If you’ve accumulated a large amount of debt, you may want to consolidate your loans into one loan. Doing so can help you lower interest rates and reduce the overall cost of your monthly payments.
But before you go this route, be sure to shop around for the best deal. Some companies charge high fees and penalties, while others offer better deals. So, do some research first!
8. Contact a Lawyer to Consider Bankruptcy and a Fresh Start
Filing for bankruptcy should be the last resort for anyone who has fallen behind on their debts. However, if you’ll still struggle to repay your creditors after filing, you may want to consider a Chapter 7 bankruptcy.
Chapter 7 allows you to wipe out most of your debts, including student loans, medical bills, and credit cards. But, remember: this option isn’t suitable for everyone. It’s essential to weigh your options carefully before deciding whether to file for bankruptcy.
One final note: if you decide to file for bankruptcy, you’ll need to wait until all of your debts have been discharged. Otherwise, you’ll face additional fines and legal consequences.
There’s no doubt that managing your money is tough. But, with these tips, you can improve your financial situation and boost your credit scores. Mainly, you want to make a habit of reviewing your credit report regularly, paying off any outstanding debts, and avoiding late payments. And if worse comes to worst, don’t shy away from taking advantage of debt consolidation services or considering bankruptcy.
Did we miss anything? Do you have other steps to take to improve your credit score? Share your thoughts below!
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