Your credit score is a number that businesses use to determine how likely they think you are to pay back a loan, pay your bills on time, use your credit responsibly, and more. A low credit score can make it difficult or expensive to obtain financing and can also affect other areas of your life, such as getting a job or finding housing. If your score is below average, there are steps you can take to improve it.
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Know Your Starting Point
What is considered a bad score varies based on the scoring model used and the business doing the evaluating; however, in general, a score below 670 is not considered a good credit score. Scores between 580 and 669 are fair. Scores below 580 are in the poor to bad range. Before you start working on improving your score, it is a good idea to verify your starting point. You can do this by obtaining a free credit score.
Build Your Credit
If you don’t have much credit history because you are young or simply never borrowed any money, you need to start building your file. Opening a few accounts can help you get started. A secured credit card or a loan designed for people building credit is a good place to start. You could also ask a responsible person to add you to their credit card as an authorized user.
Pay Your Bills on Time
A history of on-time payments is one of the most important components of a good credit score. Avoid missing a credit card or loan payment by more than 29 days. Payments that are 30 or more days late can be reported to the credit bureau and will negatively impact your score. If you can’t remember when to pay your bills, try setting up automatic payments. If you are having trouble affording all of the minimum payments on your debt, contact your creditors and ask them to work with you on getting caught up. Make sure to pay accounts that don’t get reported to the credit bureau as well. If a bill gets sent to collections that may cause your score to go down.
Bring Your Past-Due Accounts Current
If you have had some late payments reported to the credit bureau, you can improve your score by bringing your accounts current. A debt management plan may help you get caught up.
Reduce Your Credit Card Balances
Even if you pay on time, carrying high balances on your credit cards can hurt your score. Paying off some of the balance on your revolving accounts should improve your score.
Don’t Apply for Too Many Accounts
Every time you apply for new credit, a hard inquiry may appear on your credit report, which can cause your score to drop. Additionally, new accounts lower the average age of your accounts, which can decrease your score.
A low credit score can make life difficult. However, your score doesn’t have to stay low forever. Even small steps can lead to improvements that snowball over time and help you build your credit.