Best Ways to Improve a Bad Credit Score

The dreaded credit score is an indicator of a person’s ability to pay his or her debts. Those who have high credit scores will tend to find it easy to access credit at a reasonably affordable interest rate. Those whose credit scores are low will not have such luxury. They’ll likely wind up paying more in interest if they can access credit at all. This is why it’s important to maintain a good credit score. If you have a bad credit score, here are some ways to improve it over time.

Pay Your Bills on Time

The biggest component of a credit score is related to how well you’ve paid your bills in the past. Once an account falls 30 days past due, it will get reported to the credit reporting agencies. This will cause a major ding to your credit score. Whether it’s bad credit loan options, car loans, or credit cards, it’s important to make the payments on time. Better yet, pay more than what’s due every month to pay it off faster.

Open a Secured Account

Recommendation two on how to improve credit scores is opening a secured credit card. A secured credit card operates much like a checking account. You’ll make a deposit into the account, and that amount becomes your credit limit. Each month, you’ll make the minimum payment and work toward restoring the limit. A good history of keeping this account open and paid will help improve your credit score over time.

Leave Old Accounts Open

Another component of a person’s credit score is the average age of the accounts that are open. If you’ve already opened a credit card and it has no annual fee that you have to pay, you’ll benefit by leaving it open. Each year that the card remains on your report, the account will continue to age. This process will improve the average age of your accounts and improve your score as well.

Pay Down Existing Debt

Having debt will not necessarily hurt you much when it comes to your credit score. Having too much debt relative to your credit limits will, however. This is referred to as a credit utilization ratio. The lower the percentage of credit you’ve used when compared to your credit limit, the better. If you’ve maxed out any credit cards that you have, it’s more likely that your credit scores will take a negative hit. Therefore, strive to pay down any outstanding credit card bills to keep your credit utilization to a minimum.

Become an Authorized User

If you can get added as an authorized user on an account with a good payment history, this could benefit your credit scores. You don’t even have to have access to the card or make any purchases. As long as the primary cardholder who’s responsible for payments keeps them up according to their agreement with the bank, you’ll benefit with some credit reporting agencies.

Open a New Card

This might seem counterintuitive, but opening up a new credit card could help you improve your credit score as long as a bank will allow you to open a new account. One of the leading myths about credit scores is the idea that more credit cards could hurt a person’s credit score. Each hard credit inquiry will temporarily hurt your score, but a new card will add to your overall credit limit. This will lower your credit utilization ratio and build your score over time as the ding from the inquiry falls off your report.

If you have a bad credit score, all is not lost. There are concrete steps that you can take to improve this score. Just make sure that you know what factors into your score and make sure to pay your bills on time each month. It’s a process, but your score should improve, and you’ll be able to pay less to borrow money.