Life is harder with a poor credit score.
Conversely, life improves with a good one.
For instance, someone with a fair credit score (between 630 and 689 of the most common scoring models) could pay 311% higher interest on a $22,000 auto loan than someone with a very good score.
Like it or not, credit scores play a major role in many aspects of our financial life.
It’s harder to get a loan. Rates are higher. Landlords may be unwilling to lease an apartment. Jobs are more difficult to secure…and so on.
Clearly, it’s in your interest to rectify the situation when you have bad credit. But how do you do it? How can you effectively raise your score?
Keep reading to learn how to repair your credit score with relative ease.
Here’s How to Repair Your Credit in 7 Quick and Easy Ways
Poor credit scores can have a significant negative impact on your life and financial situation. Here is a selection of relatively easy ways to solve the problem.
1. Make Your Payments
Credit scores reflect your capacity to pay off your debt.
If you borrow money in any shape or form, then be sure to make your payments! People who are late or default on a payment will be punished. Staying on top of everything is a sure-fire way to preserve your score.
Likewise, the amount you owe makes a difference. A large proportion of your score is dictated by your balance. As such, you want to reduce that amount by paying off your balance.
However, it isn’t quite as simple as that. This is where credit utilization comes in. More on that next.
2. Be Aware of Credit Utilization
You have a certain balance to pay.
But you also have a certain degree of credit available to you.
The ratio of how much you owe to how much credit is available is known as credit utilization.
For example, let’s say you have a card with $10,000 of credit and spent $1,000 this month. Your utilization is 10%. Spent the full $10k and you’re talking a 100% utilization. After all, you used everything available to you.
This ratio has a direct impact on your credit score. You’ll hear different recommendations. But aim to keep your utilization under 30% of your limit.
Gone over that amount? Then pay down the balance however you can. It’s a quick way to improve your credit.
3. Pay Multiple Times per Month
It’s in your interest to find out when the issuer reports your payment history.
Give your card issuer a call and ask when they report your balance. The date they let you know if commonly the final day of the billing cycle and constitutes the closing date for your account each month.
Most people feel good about themselves when they pay their balance just before this date. Aim to do that at the very least. Be wary though. Making large payments on credit to get the rewards can give bureaus the impression you’re overusing credit.
It temporarily raises your utilization rate. Mitigate the issue by paying twice a month. Pay a couple of weeks before the closing date, and then again just before. This will reduce your running balance throughout the month.
4. Be Strategic with Payments
Many people have more than one credit card.
It’s possible (if not probable) that they’ll have different credit limits. Credit card scores are based on the utilization ration of both. It takes into account all debt owed.
It’s time to get strategic with your repayments. Try to pay down the balance on the card with higher (aka worse) utilization.
Your blue card has a limit of $5,000 and a balance of $2,000. Your Red card has a $10,000 limit and balance of $2,500. That works out at a 40% and 25% utilization respectively.
Pay down the blue card to improve your credit score. A payment of $1,000 will reduce the rate to 20%, which is far more preferable.
5. Raise Your Credit Limit
Here’s a hack to improve your utilization rate without paying off any more.
After all, everyone has those months where repayments just aren’t possible.
Raising your credit limit serves the same purpose. Imagine you’ve maxed out your $5,000 blue card. That’s a 100% utilization rate. Increasing the limit to $10,000 immediately halves it.
Just don’t get sucked into the trap of spending the newfound credit. It might be tempting. But it ruins the point!
6. Get a New Credit Card
Some lenders may be unwilling to raise your line of credit.
That’s where opening new credit tradelines from a different issuer can come in handy. Remember, your utilization rate is calculated on all open accounts. As a result, a new card works in the same as raising your credit limit.
Suddenly, there’s a utilization of 0% on a new account, which mitigates the effects of another maxed out card.
Don’t go crazy with it though. Opening multiple new accounts at the same time can actually be detrimental to your credit score.
7. Piggyback on Someone Else’s Score
Do you know someone with awesome credit?
Let’s hope they’re an amazing friend.
Essentially, you can ask to become an authorized user on their account. That’s a sure-fire recipe to improve your own credit score. Their account appears on your report, boosting your credit rating as a result.
Time to Wrap Up
There you have it: how to repair your credit score in 7 steps.
Nothing good comes from having poor credit. It has a seriously detrimental impact on almost all aspects of your financial life. From struggling to get a loan, to significantly higher interest rates on the loans you’re offered, bad credit just isn’t fun for anyone.
That’s why you need to endeavor to improve your rating whenever possible. Hopefully, the advice above has provided some ideas on how to make that happen!
Did you like this piece? Trying to start a business with poor credit? Click here to learn about getting a business credit card.