If you’re having some financial issues, they are probably affecting your credit. Maintaining a good credit score isn’t easy with bills constantly piling up. And bad credit can mean you’ll have issues borrowing later on. If your score isn’t great right now, just know that you aren’t stuck with it forever. Take a look at these six ways you can come back from a bad credit score.
1. Maintain a Credit Card
The mindful use of a credit card is the first step toward rebuilding your credit. It is perhaps the most common and effective way to do so. Provided that you use the issuer’s funds sparingly (below 30% of your limit) and pay reliably, you’ll already be succeeding! This isn’t an option for everyone, however — what if your score prevents you from being approved for one?
There are many types of credit cards that offer credit-building options for and accept people with low scores. Issuers of most secured credit cards will accept a deposit that will then serve as your credit limit. You still need to make regular monthly payments to build your credit. Some issuers will even allow you to set up automatic monthly payments so you never miss a due date.
2. Balance Debit and Credit Card Usage
You should only use credit cards sparingly to avoid an unmanageable monthly payment. As your main form of payment, it often makes more sense to use a debit card instead.
A debit card directly accesses your money rather than the bank’s so you can only spend what you have. You won’t have to pay monthly payments on it. Plus you’ll have the ability to be more aware of where your money goes.
Ideally, your goal should be to strike a balance between debit and credit card usage. As mentioned before, you should spend no more than 30% of your credit card’s limit. This means that all other purchases can and should be made with your debit card.
Also, note that you should not avoid the credit card altogether. Using it and paying off your balance is what builds credit.
3. Make All Payments on Time and Report Them
Nothing will build your credit quicker than making consistent payments. This is the main reason to have a credit card when you are rebuilding your credit score. Unfortunately, though, not all bills you pay are reported to credit bureaus unless you use a reporting service. While it will cost you, reporting your rent payments can be an asset in building credit. It will not, however, have the same effect that consistent credit card payments will.
Regardless of whether or not your other payments are reported, it’s good to make all of them on time. Once you get in the habit of it, you’ll no longer have to fear impending deadlines. If coming up with the money is difficult for you, try to make a monthly budget to limit other spending. If you’re behind on bills, prioritize those that have the biggest effect on your score — credit cards in particular.
4. Ask For Help
Believe it or not, if you know and trust somebody with good credit, they can help you improve yours. Consider asking them to add you onto an account of theirs as an authorized user. This can give your score a sizable bump by association. Alternatively, they can co-sign a credit card with you to make your application more likely to be accepted.
This is the quickest way to raise your score but it also ties another person to your financial situation. In turn, it will put much more pressure on you if you’re the account’s true user.
Sharing a credit card can be difficult if you’re an anxious person. But doing so can also provide a mechanism for keeping you accountable. If somebody else’s financials will be affected, it is often the perfect motivation to build healthier habits for their sake.
5. Be Mindful of Your Credit Accounts
For young people in particular, the most damaging part of their credit report tends to be the age of accounts. Simply put, the older your accounts are, the better your credit score. Due to this, it’s best to keep all of your accounts open as long as possible. At this moment in which you are looking to improve your score, closing any account will hurt it.
Additionally, you should be careful not to apply for new credit accounts more than once every six months. Doing so can hurt your score and make credit checkers less likely to approve you.
There is a delicate balance to be struck between account opening, maintaining, and closing. So be aware of your open accounts and work to keep them in good standing. Review your accounts a couple of times a year to make sure you are on top of them.
6. Scale Debt Payments With Your Income
Much of your monthly income is or will be going to paying off debts you have accrued over time. During the process of improving your financial stability, you might find that your income or spending money has increased. Remember that the quicker you pay off your debts, the quicker their hold on your credit score releases. Before using the new funds, scale up your payments so you’re still paying the same percentage of your income.
This way, you’ll be able to balance enjoying some more spending freedom while also paying off your debts faster. The higher your income, the more you can pay each month and still live comfortably. You won’t have to worry about having leisure funds because you already know how much you had before the raise. After finally making your last payment, this will become much less of an issue.
Having a bad credit score is not the inescapable curse it is often characterized to be. With a little careful planning, budgeting, and smart spending, you’ll be in a much better place sooner than you think. Don’t worry how it looks today as long as you know you’re putting in effort to improve your credit!