The most recent Experian snapshot of Americans’ credit scores paints a troubling picture. Though the average FICO score increased by a few points in 2020, nearly a third of the population has subprime credit. And subprime’s bad if you want to take out a mortgage or apply for a low-interest credit card.
Here’s the upshot: Moving a dissatisfactory credit score from poor or fair to good is doable within six to 12 months. You have to apply a few techniques—and stick with them—to see results.
1. Get a secured credit card.
Not able to get credit because of some past money mistakes? You can still enjoy credit through a secured credit card. Secured credit cards allow you to secure your credit with cash. Because you already have the money, the credit card company takes on less risk. However, you still get the advantage of having credit.
Look for a secured credit card that makes life easy for you, such as one that will allow you to automate payments. That way, you won’t have to think about paying off your balances. Over time, your secured credit card will help repair damaged credit history. It can also lead to attractive offers from unsecured credit card issuers.
2. Pay bills before they’re due.
Everyone’s missed a bill payment from time to time. Yet what people don’t understand is that a single missed payment could mean a credit score hit. Therefore, work diligently to pay your bills on time, every time.
If you’re having trouble staying on top of your bill paying, check into automatic payment options. Frequently, businesses like utility providers and mortgage lenders will allow you to pre-schedule payments. This type of “set it and forget it” arrangement can work well, especially if you’re busy. Just keep one caveat in mind: You have to keep enough money in your bank account to pay off your monthly invoices.
3. Avoid hard credit checks.
Hard credit checks can add a few dings to your credit score. No biggie if your credit score is very good or excellent. What if it’s not so great? In that case, you need to minimize those types of credit checks.
When are hard credit checks pulled? Usually, your credit is requested any time you try to get unsecured or some secured credit. Think loans, credit cards, and store-specific cards. Ideally, you should avoid making any moves that would initiate hard credit checks until your credit improves.
4. Resist the urge to close existing credit card accounts.
You’re fed up with your credit score diving, and you blame having credit cards. Before you cut up the cards and close the account, think twice. An older credit card account can be beneficial, particularly if you’re not carrying a balance.
As long as you don’t touch the credit card, you’ll get a boost because of the credit limit. The credit limit is the highest amount you can spend on the card. Credit limits contribute to your credit utilization amount, which is a factor contributing to your credit score. So keep the card open but put the actual card in a drawer, so you’re not tempted to use it.
5. Correct credit report mistakes.
All consumers in the United States have the right to request a free credit report from Experian, TransUnion, and Equifax annually. This allows you to request a report three times a year if you stagger your reports between the bureaus. Pay careful attention, too: You might be surprised to find errors.
Many people are surprised by the mistakes on their credit reports that they never realized were there. By rectifying issues with your report, you can reverse serious damage to your credit score. Even if you don’t discover anything untoward lurking in your report, keep requesting one every four months.
6. Keep your credit utilization low.
Part of your credit score is based on the percentage of available credit that you’ve already used. Let’s say you have a combined credit limit of $10,000 on all your cards, and you’re carrying a $2,000 balance. This means you have a 20% credit utilization below the recommended credit utilization of around 10-30%.
Don’t worry if your credit utilization doesn’t sneak to zero. It’s very tough not to use any credit, and having no credit utilization could actually make you look risky. Consequently, strive to pay down your balances to keep yourself at an appropriate ratio.
7. Pay off credit cards systematically.
When you’re drowning in debt, and you have a low credit score, think logically. A smart first way to get on top of your finances is to owe less to credit card companies. But which credit cards should you pay off first? Most experts suggest paying down the ones with the lowest balances first.
For instance, you might have three cards: a $5,000 balance, a $1,000 balance, and a $500 balance. Pay off the minimum monthly fees and then put anything extra into paying off the $500 debt. Once that’s paid off, you can concentrate on dropping the $1,000 balance. It takes patience for this technique to work, but it does work if you’re diligent.
8. Try Experian Boost or a similar credit booster.
You may have already heard of Experian Boost or one of its competitors. The premise behind Boost is to link some of your bills, such as utility ones, with your credit score. Boost scours your payments from the previous two years and sends all good payment histories to the credit bureaus. This, in turn, drives up your credit score.
Some consumers see a credit boost practically instantly with credit boosters. Others have to wait a few weeks or months. Nevertheless, plugging into this program can be helpful as long as you’ve been good about paying recent bills. Why not get a little extra credit from the credit bureaus right?
Getting into credit problems can happen to anyone at any time. Fortunately, you have a lot of control when it comes to reversing your situation. Just be consistent and calm. Before long, you’ll be on the right credit track.