3 Steps to Recover from Bad Credit

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Having bad credit can have a huge impact on your life in a variety of unexpected ways. Not only is it stressful, but it can cause issues in your personal life. For example, having bad credit can make it difficult to lease an apartment, it can cause higher insurance premiums and higher loan rates which ends up with you paying more for necessities.

But when you have bad credit, it can feel impossible to improve it. However, bad credit doesn’t just happen to people who have a lot of credit card debt or who have had some bills sent to the collectors.

Often people can see their credit score do a nose dive for reasons that don’t seem like a big deal to the consumer. However, there are some small issues that will make your credit drop. For instance, if you miss even a single payment on your credit history, your score might drop. Another sneaky aspect that can cause your credit score to drop is the age of your credit accounts. The longer you have had the credit open, the more credit worthy you appear. So don’t close those credit cards just because you’ve paid it off! Keep them open, even if you only charge a small amount each month and pay it off immediately.

But how do you recover from a bad credit score? Here are the top three steps that will have an immediate effect on your credit score!

1. Pay Down Your Debt

Though this can be one of the hardest things to do, it is one of the fastest ways to improve your credit. Many people will shift their balances around, moving money from card to card.

However, the amount you owe makes up to 30% of your credit score. That means if you have maxed out all your credit cards, your credit score will go down. This is what’s called your “credit utilization rate” which measures how much you owe against how much credit you have available. Paying down the debt will improve your credit utilization rate because you will have more credit available.

Once you have paid down your balances, you can even ask your credit company for more credit to help boost your credit utilization rate. When you have a large amount of credit available and haven’t spent it, your credit improves.

You should seek to increase your credit limit every six to twelve months. That way your credit utilization rate is constantly improving. However, it’s important to remember that the first step is paying down the debt. You won’t be approved for a credit-limit increase if every card is maxed out!

2. Automate Your Payments

Automating your payments is one of the best things you can do to improve your credit scores.

After all, your payment history is one of the largest portions of your score. The payment history makes up 35% of how your credit score is created. Even missing one payment can cause your credit score to drop!

Setting up automatic payments can set you up for a big win with relatively little effort. This way, instead of waiting until the end of the month to pay and then forgetting to, you won’t have to worry about it.

3. Keep Your Credit Open

As we mentioned, don’t close your credit cards once you pay them off! 15% of your credit score is made up of the amount of time you have had your credit history. If you close your credit cards, you effectively erase all that history, causing your credit score to go down.

Conclusion:

Having good credit scores are an incredibly important part of your financial health. Low credit scores can make simple things like renting an apartment or getting a phone contract impossible.

Raising your credit score doesn’t need to be another weight on your mind. Use these three easy steps to improve your credit score and soon your FICO Scores will be off the charts!