According to data from Experian, around 16% of Americans—or 48 million people—have poor credit. With a FICO score under 579, these consumers may have a harder time taking out loans and credit cards, finding an apartment, or even getting a cell phone contract.
Because having low credit scores can close many doors, it’s important to understand how to fix bad credit. Though you won’t be able to boost your credit overnight, taking a few consistent steps can help you increase your score little by little over time. If you’re worried about your credit score, here are seven proven tips to help.
1. Check Your Current Credit Score
Before we jump into what you should know about how to repair bad credit, it’s crucial to understand where you’re starting from. If you don’t already know your score, there are a few ways you can find out about your current financial standings.
If you have a credit card, the easiest way may be to check with your lender. Many financial institutions offer free credit score tools to their cardholders. If you don’t have a credit card, try signing up for a free account with a credit scoring website like Credit Karma.
You can also get a free credit report. Though this service is usually available only once per year, the major credit reporting agencies are offering weekly credit checks through December 2023. Taking advantage of these reports allows you to understand the makeup of your credit score and dispute any incorrect information right away.
2. Pay Bills on Time
The single most important point on our list of bad credit tips is this one: pay your bills on time. Your payment history is a major factor in your credit score calculation!
To make sure you’re paying on time, consider setting up autopay for recurring bills. Most lenders also let you change your payment due date, so adjust it to a date that you’re more likely to remember.
If you don’t have enough money to pay your bills, be upfront with your lenders about it. Many lenders offer alternative payment plans or options to defer payments if you’re struggling. They may even be able to point you toward additional solutions, such as debt consolidation.
3. Pay Down Your Debts
If you have outstanding debts, focus on paying them off as soon as possible. This can help improve your credit utilization ratio.
There are many different schools of thought when it comes to which debts to tackle first. Some experts advise repaying high-interest loans and debts above all, while others advise borrowers to pay back smaller debts first. No matter which debts you choose to pay down, make sure to prioritize these payments in your monthly budget!
4. Don’t Close Old Lines of Credit
Though you might assume that closing your old credit cards and switching to cash could help, that’s not often the case. In fact, one of the best credit score tips is the easiest to follow: don’t close old credit accounts!
The reason for this is simple. Having a long credit history can improve your credit score. When you close an old account, your overall credit history is younger, which can seem riskier to lenders.
However, if you think you’re more likely to abuse multiple credit accounts as long as you have them open, or if you have cards that require annual payments, closing the accounts may be a safer bet.
5. Control Your Credit Habits
Using your credit isn’t always a bad thing, but you’ll need to do so responsibly going forward. As we’ve stated above, make sure that you’re making on-time credit card payments every month.
If you’re struggling with overspending, however, it’s a good idea to reconsider your credit habits. Though there are plenty of great tips to get your spending under control, they boil down to a few key things: set spending limits and track your balance.
6. Avoid New Hard Inquiries When Possible
While you’re trying to boost your credit score, applying for new credit can negate your efforts. Because hard inquiries signal a need for more money, they show up on your credit score. These inquiries can indicate additional risk to potential lenders.
Hard credit checks can lower your score by anywhere from one to five points. In addition, it will reduce the average age of your credit history, which can also impact your score.
Note that we’re talking about hard inquiries only. Actions that require a soft inquiry, like applying for a merchant account, won’t make an impact. If you need a bad credit merchant account, find out more here.
7. Consider Getting Help
At the end of the day, all the tips for credit score improvement in the world won’t help you if the problem is serious.
If you’re struggling with severe and compulsive overspending, or you’re in significant debt, consider calling an expert. Credit counselors, for example, can help you understand your options moving forward, and financial advisors can help you set and stick to manageable goals.
For more immediate help, you can also ask a trusted friend. Try having someone cosign a loan or lease with you, for example, or ask to become an authorized user on their account. This can help you access the financial solutions you need, but you’ll still need to be responsible with your payments going forward.
Know How to Fix Bad Credit
Knowing how to fix bad credit won’t earn you an immediate boost to your credit score. However, it can help you do the careful planning you’ll need to improve your financial standing. With a few key changes, you’ll have no trouble adjusting the way you approach your credit, allowing you to improve your score for the long term.
Want more tips to help enhance your lifestyle? Be sure to take a look at the other content on our website!