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Overview
Picture the scenario.
You’ve just applied for one of the top travel credit cards out there. Instead of an instant approval, you’re met with the dreaded “We need some more time” message.
Ten days later, you get a denial letter noting your weak credit score. Your parents warned you about this.
But where do you go from here? And can it be fixed?
Luckily, all is not lost. Credit scores aren’t set for life and can be improved with good habits and smart financial choices. If you’re not sure what your credit score is, start here, then come back. But if you’re ready, let’s take a look at how to get your credit score back on track.
The Bottom Line:
A poor credit score isn’t a life sentence. With careful planning and a commitment to building strong habits, anyone’s figure can rise. Just remember, there’s no such thing as a quick fix. Patience and discipline are far more important than anything else.
Understanding Why it’s Low
Before you do anything, it’s important to understand why your credit score is low. There’s a difference between an inexperienced credit score and one that’s been obliterated by bad habits. Where you fall on that spectrum will dictate your next steps.
Take these points into consideration:
- How long is your credit history? If you’re 25 and have only used one basic credit card you got with a co-signer, your credit is going to be limited. Your steps should involve building credit.
- If you do have a significant credit history, why has your score dropped? Are you in debt? Are you sporadic with payments? Do you over-apply for accounts? Have you ever defaulted on a loan or a card payment?
- Do you even have a credit score? If you’ve never had a line of credit, you’re what is classed as “unscorable”. You won’t see a number until six months after you open your first eligible account.
Remember to check out all the factors that go into a credit score in our credit score guide. This can help you grasp where you need to improve. Once you know where you stand, it’s time to move forward with intention.
Improving Your Credit Score If You’re Inexperienced
The good news is that having a low score because of a lack of experience is the better option in this scenario. Instead of combatting bad habits or previous mistakes, you simply have to take considered action and let time do the rest.
Here’s where you should start:
Become an authorized user
If you’re a complete credit card novice and are uncomfortable taking the leap, opt to become an authorized user on a family member’s card. This is an excellent option for younger individuals to build credit before assuming the full responsibility of a personal card. Some issuers allow teenagers as young as 13 to be included as a user, helping give them a signifcant head-start on their peers.
Open a new credit card
If your credit is limited by experience, one of the best ways to see an improvement is to open a new line of credit. Ensure you opt for a card that makes sense for you. If your credit is too low, you may have to get a secure card, which requires a deposit to offset the credit limit. Just continue using it responsibly and paying off the balance each month.
Keep your utilization below 30%
Issuers want to see you use your credit cards, but they also want to see you can be responsible. Keeping your credit utilization (debt to available credit ratio) below 30% seems to be the sweet spot. Of course, you can keep it far lower, and we’d advise that, but you’ll start to see penalties on your score when you go beyond that figure.
Pay your bills on time
Set up automatic payments to cover at least the minimum amount on any account. This helps ensure you never miss a payment or pay late. You can pay more if you want to afterward, but having this as a fail-safe will help keep things reliable.
Keep your info up-to-date
There’s no obligation to keep issuers up-to-date with your other finances, but choosing to can pay dividends. Information like salary increases can push you towards credit increases which, in turn, will lower utilization.
Don’t be hasty closing accounts
Credit age plays a vital role in determining your credit score. As such, one of the biggest mistakes people make is closing their oldest accounts. In many cases, this is a card they opened years before their next one and could have a major impact if it disappears. For example, if you have five cards, with the oldest being 13 years old and the others only being two, your average credit age is 4.2 years. Getting rid of that card, even if you don’t use it much, would drop that average to 2—enough to move you down a bracket.
Limit new credit inquiries
Every time you apply for credit, the bureaus are notified. An excessive amount of these in a short period of time can impact your score negatively. Spacing out credit card applications and other potential new credit lines can help lessen the effects of this.
Be patient
Lastly, understand that your score won’t soar overnight. It will increase gradually over time as a result of good habits. Patience will help mitigate the temptation to take drastic action. Take your time.
Repairing Your Credit Score
Of course, mistakes happen, bad habits go unchecked, and before you know it, you find your credit score plummeting. There are a multitude of reasons why this could have happened. The most important thing now is to fix it and help ensure it never happens again.
Almost every suggestion mentioned above will work for those repairing credit, but it requires even more patience and greater hurdles to overcome. But if you want to open the doors your credit score may have closed for you. Here are some important things we’d focus on for repairing a poor credit score—on top of everything above.
Pay off your debt
Frankly, your credit score doesn’t matter until you get your debt under control. In the US, those with credit scores in the lowest category of 579 or lower had an average credit utilization score of around 75%. Just remember, every month that goes by adds interest to that debt. Getting rid of it should be a priority.
If you need time, and many of us do see if you can move the debt to a low or 0% APR card or account. Many of these will offer more than a year without interest, helping you pay down the debt without any excess. It’s imperative you don’t use this as a way to free up space on the card and plunge yourself into more debt. If you’re worried you might start using it again, close the card. This will hurt your score again, but getting rid of debt is more important. Some issuers are even open to negotiations, and can sometimes (but never guaranteed) offer debt repayment plans.
Analyze your habits
Analyzing your spending patterns and how you made the mistakes will help you change things moving forward.
If you’re in considerable debt, where did that come from? Was it irresponsible purchasing or were you simply not prioritizing payments? One of the worst habits of credit card users is spending beyond their means. A credit card with a $10,000 limit for a person earning $3,000 a month can be a major temptation. This becomes a lifestyle issue and requires some serious soul-searching and discipline.
If your debt isn’t terrible but you’ve made a bad habit of forgetting to pay on time, take steps to cover yourself like automating payments. This simple fix can help get things back on track, especially if the rest of your credit report looks okay.
Check your reports
Checking in on your reports from the credit bureaus is a good habit for a number of reasons. Primarily, it gives you a strong overview of how you’re doing and the progress you’ve made. Secondly, it gives you a chance to look for and dispute errors.
If something has gone into your report that shouldn’t be there, it’s a chance to get it off. If your score is in a dire situation, it’s not likely to be the only problem, but every little thing can help.
The Point
Improving or repairing your credit score isn’t easy. It requires a long-term strategy and, especially for those with serious issues, a hefty amount of discipline and patience. But all is never lost. Making the right decision, paying and keeping down debt, and keeping on top of your credit lines can pave the path to an exceptional credit score.
by your friends at The Daily Navigator
