A bad credit score can happen between a few irresponsible financial decisions. While it’s easy to happen, recovering can be a much more challenging task. The good news is that there are a number of ways you can regain a good credit score. These practical tips are all meant to rebuild your credit score effectively. So, you can employ them in different combinations.
1. Know your Score
The first step to solving any problem is to identify what is wrong. Start with your score. It will help you to know exactly where you stand financially. Imagine applying for a bad credit personal loan of $5000 and finding out that you’re not qualified for that amount. Knowing your own credit score will ensure that you are aware of your credit capacity. Also, it’s a good way to detect errors and inaccuracies in your history.
2. Rectify the errors
If you do detect any inaccuracies, make sure you point it out to the right authorities. Your credit bureau should have a formal process of lodging complaints or raising disputes. Try to do it in writing so that your complaint is easier to track and follow through.
3. Make Practical Card Payments
Your card payments should try to bridge the gap between the credit limit and your debt. Ideally, the debt should be below 30% of the limit. If we imagine the limit to be $16,700, 30% comes to around $5000. In this case, if you’re thinking of applying for a loan, $5000 should be the maximum level of your debt.
4. Balance Consolidation
One of the best ways to rationalize your debt is to bring them under a single account. When the interest rates balance out, you end up having to pay slightly less. In the consolidation process, you can also make your debt come down below the 30% benchmark. Keep the zero-balance accounts open so that your
credit limit still looks good.
5. Credit Card Diversification
Instead of using just one credit card, you can use multiple cards to keep your debt percentage low. The crucial thing to remember here is that you have to maintain zero balance on the additional accounts. The new accounts will help by increasing your credit limit. And with no additional debt, your credit
utilization looks better.
6. Clear debts before they’re due
Credit companies usually do not report your balances on the due date. So, even if you clear all your balances at the end of the month, it may still hurt your score. Try to learn when the companies report your balance to the bureaus. And make sure that you make the payments well before this date.
7. Consider upgrading to a secured credit card.
Upgrading to a secured credit card can be a much better alternative to a bad credit loan. But you need to have some savings that can serve as collateral. Request for an upgrade after you make successful payments for at least six months. With an upgraded card, your initial savings will also be free. Also,
there’s a good chance that your credit limit may increase.
8. Minimize Hard Inquiries
Whenever you try to get a loan, there’s always a basic credit check involved. The check may be a soft inquiry or a hard one. While soft checks do not affect your score, hard inquiries will leave a dent in your history. Hard credit checks can linger on your credit score for about two years. So frequent hard inquiries will cause more harm than the benefit of the loan. The best way is to keep hard inquiries few and far between.
Whether it’s a bad credit personal loan of $5000 or a payday loan of $500, credit checks can affect your score in many ways. Use these practical tips to ensure that your credit score stays stable and financially capable.