According to available information, 1/3 of Americans have a credit score of Fair or Very Poor. This is a big problem for these individuals, as these lower scores mean less financial opportunities, higher fees, and more money wasted in higher interest rates. These expenses come from the perceived credit risk that comes with lending money to these individuals. Indeed, a bad credit score can be very expensive, costing people large amounts of money in wasted fees and lost financial opportunities.
Fortunately, there are ways that this can be addressed, and there are many things that individuals can do – for free – in order to rebuild a low credit score.
Get a copy of your free credit report
Don’t let anyone fool you: You are entitled to a free copy of your credit report. To do so, just visit this website for instructions. There are more advanced services that you can pay for, such as credit monitoring or credit repair. However, if you are serious about repairing your credit, you should absolutely get a copy of this report and review it for any potential issues.
Contact debt holders to resolve disputes
It is possible that you have negative marks on your credit report because of fraudulent accounts opened in your name, or because you haven’t made payments on prior accounts. If you have wrongfully opened accounts, you should follow the resolution process laid out by the credit agency to get this taken care of as soon as possible, and there may be other security actions you need to take, including filing police charges.
If you do owe money to another credit card or bank, contact the company you owe the money to, or the collections agency. It may be possible to work out a payment plan that allows you to get out of debt and clear the negative mark on your credit report.
Set up autopay
Remembering to pay bills can be complicated. However, there is an easy way to do this: Just set it and forget it. Allow a credit card, mortgage, or loan to be set up for autopay. This way, the amount you owe will be automatically deducted from your banking or checking account, ensuring that you never again have to worry about missing a payment because you forgot to make it.
Of course, setting up autopay presupposes a few things, including that you have access to a checking account. It also assumes that you will always have enough money in your checking account to make a payment – otherwise, you may overdraft your account.
Pay down debt
The overall amount of debt you have can negatively impact your credit score, particularly if you have a high debt-to-income ratio, or a high credit utilization rate. Paying down your debt can help you in many ways, including ultimately freeing up more cash for you to live on, as well as lowering the amount of money you pay in interest. However, from a credit score perspective, it is hugely important, as paying down debt will ultimately lower both of the above items, thus improving your credit score.
To be clear, this isn’t easy. It may mean working a second job or cutting back on other expenses. However, keep in mind the end goal here: Freeing up more money and improving your credit score. A little bit of financial pain now can be well worth it in the long run.
As you are able, open new accounts
It may seem counter-intuitive, but it’s true: If you are able to open new credit cards, you should do so. This will raise the overall credit limit at your disposal. This, in turn, will decrease your overall credit utilization rate. As a result, you will have more credit available, and your credit score will improve.
However, there are a few things to keep in mind if you employ this strategy. First, if you have fair or poor credit, you may not be able to open a new account. Second, make sure that you keep your use of the account to a minimum, and always pay the bill on time. Third, your score may dip briefly from the hard inquiry associated with opening a new account. Fortunately, this is only temporary, and usually well worth the long-term benefit of building up a good credit history.
Bad credit can dog you for your entire life. It will take time and effort, but building up your credit to a good score is very, very possible, and something you should absolutely strive for.