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Seeing your credit score go below the acceptable or standard threshold can be slightly alarming. This article will discuss some simple measures you can take to repair credit and improve your score.
Before we get to the solutions, we need to understand the criteria of what is considered a bad credit score. There are different ways to calculate credit scores, and some lenders may even prefer using their own in-house guidelines. However, we can get a general idea of a below-average score by comparing it with the two most popular credit scoring models.
FICO Score 8 is the most widely used scale for determining credit scores. This scoring model ranges from 300 to 850, and anything lower than 580 is considered a bad credit score rating. Meanwhile, scores between 580 and 669 are considered ‘fair’ – a nicer way of phrasing that your scores can use a boost to be regarded as good credit.
VantageScore uses a similar scoring model with slightly different takes. Based on a scale of 300 to 850, anything between 500 and 600 is considered bad credit. Additionally, going even lower (300 to 499) will result in a ‘very poor’ rating. According to VantageScore, ideally, your credit score should be above 660.
Having a good credit score can make your financial decisions much easier and provide a better lifestyle in general. Let’s narrow down some of the main benefits of having a good score.
If you’ve reached this part of the article, you’re most likely concerned about your current score and wondering how to repair credit swiftly. Don’t worry – a low credit isn’t an irreversible situation. Whether you’re planning to improve your credit scores by your own efforts or hire the services of professionals, the following seven steps are a great guideline to follow on this journey of rebuilding your credit score.
The first step is to cover all your bases. In order to understand the reasons behind your low score, it’s important to read and analyze your credit reports. These reports usually contain information about your credit usage in the past ten years. You can request your personal report from three credit bureaus: TransUnion, Equifax, or Experian once a year, or better yet sign up for a credit monitoring service that will provide you with full professional reports and alerts on an ongoing basis. A credit monitoring plan with ongoing updates and full creditor data is a prerequisite for any credit repair service.
To err is human – while you may have made some bad financial decisions on your part, this quote holds true for your credit reports as well. Credit bureaus are not completely error-free. Whether it’s due to technical difficulties, system errors, or a man-made mistake, there are times when you might notice some discrepancies in your credit reports.
Errors like certain installment loans not reflecting on your financial records and incorrect marking of late payments are quite common. In fact, according to a study by the Federal Trade Commission, at least a quarter of people have inaccurate data or mistakes in their credit reports. As a result, many individuals faced issues with acquiring loans and high-interest rate returns. Therefore, it’s important to spot any credit score errors and report them immediately.
While most credit bureaus make it relatively easy to inform and raise disputes related to credit report errors directly from their website those disputes don’t trigger your FCRA protections.
The process of acquiring, analyzing, spotting, and fixing errors in credit reports is not something you can do overnight and many times is overwhelming. Add the fact that you’ll also have to contact relevant agencies and bureaus to raise disputes against inaccurate information, and you’re bound to feel overwhelmed. There are specific ways on how to properly dispute a mistake on your report. This time-consuming and involved process while can be done yourself, can become more manageable if you choose to team up with a credit repair company whose fees range from $80 to $300 a month.
Alternatively, Kredit offers free credit repair for its users so long as you have an active credit monitoring plan(which you will need with paid credit repair as well). With a simple sign-up process, a dashboard, and an application that makes it easier to track your monthly credit score, Kredit provides a fully automated way of monitoring and repairing your credit.
If your credit report doesn’t have any significant errors or if you’ve resolved any incorrect details, there are some other steps you can take to improve your credit score. Keep in mind that your credit card utilization is one of the main factors influencing your score. Balance is critical, as carrying an available balance of more than 50 percent is equally damaging to maxing out your cards. Therefore, the ratio of available credit to used credit needs to be sorted out. Generally, lenders and businesses prefer that you keep your card utilization ratio below 30 percent.
Clearing your outstanding balance is the best way to improve the ratio. But if you want a quick short-term solution, you can also increase your credit limit. Say you owe $2,000 on a card with a $5000 limit; increasing the cap to $7000 will immediately improve your ratio. However, this is clearly a temporary solution for improving your credit score. Try spending the additional credit to avoid falling into constant debt and bad credit cycle.
Another way to quickly improve your credit card utilization ratio is to open a new credit card account – preferably one that doesn’t charge an annual fee. This method is especially useful when you can’t afford to pay your dues and the bank refuses your request to increase your credit card limit. As long as you ensure that you’re not carrying a negative balance on your new account, your available credit will increase thanks to the new card. However, if you have shopaholic tendencies or other additional spending needs, you might want to avoid this method. Obtaining an unfavorable ratio on your new account will only rack up your debt and have further negative consequences on your financial situation.
Late or pending payments are one of the biggest reasons for a low credit score. Your payment history accounts for about 35 percent of your credit score and having pending dues can reflect negatively on your report. During months when you can’t afford to pay all bills, prioritize paying those services which are likely to report a late payment to the credit bureaus, such as mortgage lenders or credit card providers. Generally, utilities and mobile service providers are much more lenient with pending bills or charges.
Getting out of debt can become a vicious cycle of needing a higher credit score to borrow money and paying down the outstanding balances to improve your score. However, you have to break the chain and address the main issue at some point. You can either borrow money from unofficial sources such as people who know and trust you or sell some of your assets. However, a long-term financial plan will be much more effective in this case.
When you’re ready to repay your credit card debt, you can choose between two common techniques:
While having a low credit score is worrying, there are many short-term and long-term solutions for this predicament. It’s important that you choose methods based on your ability to control further spending and debt accumulation. If you’re unsure whether you can resist the temptation of maxing out your credit cards, it’s better to wait it out and find a permanent solution to debt by paying off your outstanding balance.
You can get automated updates and suggestions on how to improve your credit score through Kredit. Whether you prefer a website dashboard or an app interface, our fully automated service can provide a free repair credit solution. So, give it a try today!
Intelligent, digital-first credit-building solution that delivers a better experience and better results. All you need is a credit monitoring plan to get started.
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