- Rocket Loans
- Learning Center
- Financial Smarts
- Bad Credit is Scary: 5 Quick Strategies to Improve Your Credit Score
Bad Credit is Scary: 5 Quick Strategies to Improve Your Credit Score
When life takes a wrong turn to bad credit (think below 670), it may feel like you’re wearing a jersey with three bright red digits on the back, warning lenders not to trust you. But give yourself credit where credit is due. You’re reading this article with plans to make significant credit improvements and receive the healthy loan offer with a lower interest rate that you deserve!
Building credit is ongoing and takes time, but here are five "easy action” steps you can take today to start repairing your credit, once you understand your credit score and the starting number you’re dealing with.
1. Dispute Errors
Review information vigilantly and investigate your credit score components to make sure that each credit percentage is up-to-date and representative of your lending history. A good place to start reviewing lending history is verifying names, dates, addresses and dollar amounts on your spending. Also, make sure there are no double payments or bad debts listed that go beyond seven years, making you seem to have more lines of credit or a higher debt than reality.
2. Negotiate with Creditors
When you pulled your credit, there may have been a few credit score components that stood out as “critical” red flags or areas worth addressing. To improve your score, start focusing on those subsections and prioritize old debts hurting your score the most.
Next, make a plan to pay off those debts. Be open with creditors on your situation and come to them with a solid repayment plan. This means offering amounts that you can pay immediately (even if it’s less than what you owe), with reasonable payment timelines in place. Once your debt gets paid off, you may send a goodwill letter and kindly ask for creditors to have the negative marks removed.
3. Get Some Credit
Your credit score is a measure of how well you can handle credit. The best way to do that is to (ahem) get some credit and use it responsibly. This means only take out relevant and needed credit, as closing accounts can hurt your score.
If you have had major financial problems, or have no credit history at all, getting a new line of credit may be tough. You may qualify for some types of credit or loan approvals using a co-signer or someone close to you who guarantees they will be legally responsible for paying back your debt if you default on the loan or cannot make payments.
4. Spend Credit Wisely
The difference between how much credit you have and how much you use is called your credit utilization ratio. Ideally, to build great credit, your ratio should be, at most, 30% of your overall spending limit. For example, let’s say you have a department store credit card with a $500 spending limit. This means you should try your best to keep your monthly balance owed at $150 or less.
Keep balances low and monitor your credit by starting each month with a budgeted financial plan. Think about when you’re getting rewarded for using credit, vs. when you’re owing additional fees for charging credit. By allocating your resources and payment methods, you’ll be in great shape when it comes to making monthly payments and maximizing credit power.
Speaking of monthly payments, if you can, pay off your entire total balance each month. Timely payments and sudden drops in your credit utilization ratio are good for repairing your overall credit score. If you find yourself in a temporary tough spot, where you can’t pay the full amount, cut your spending and pay as much as you can above the minimum monthly payments. When it comes to adulting, remember that discipline and finding a payment routine are huge parts of financial responsibility.
5. Pay Off Old Balances
If you really want to improve your credit score as soon as possible, consider using an installment loan or debt consolidation loan to pay off multiple accounts with high credit utilization ratios. You’ll get a boost from the sudden interest drop and see another lift when your lender reports your timely installment payments, a new debt payment where one size fits all.
Not to mention, an increase always comes from keeping payments Right. On. Schedule. We cannot recommend keeping up on monthly payments enough. Most online financial lenders also have simple, automatic payment enrollment options to avoid missing monthly payments. Again, even if it’s only set up to pay minimum payments. Minimum, one-time payments are always better than no payments. Period.
Credit slumps can be tough, but knowing you have options make things easier! It’s time to dig yourself out of the financial trenches. If you make a point to work on your credit rating now, you will build and reap the rewards for years to come.
Have you checked your credit score?
*There is no affiliation between Rocket Loans and Credit Karma. Rocket Loans does not vouch for or assume any responsibility for the content, accuracy, or completeness of material presented directly or indirectly in linked sites.
Table of Contents
What is Debt Consolidation (And Does it Make Sense for You)?
Debt consolidation is a strategy you can use to combine multiple debts into one easy-to-manage payment. Read our article on what it means to consolidate debt.