You’ve made some poor choices or maybe suffered from some unfortunate events, and now your credit score is low.
So low that it’s preventing you from moving on with the life you need and want. It seems like there is no way out but I’m here to tell you there is! You just need some guidance and determination.
You see, I was there once, in your shoes. For me, it was medical bills and some impulse spending that sent my credit score plummeting.
My Credit Score Disaster Story
I was dropped from my parent’s health insurance at the age of 18 and shortly after, experienced a medical condition that required emergency surgery. As a result, I was looking at upwards of $10,000 in medical bills with no job and no way to pay. I then added to the would be credit disaster by opening up a few credit cards and maxing them out. Again, no job and no way to pay. How I was even approved is knowledge beyond me.
As far as the medical bills, I wish I had known then what I know now because it wouldn’t have taken me as long to improve my credit profile. I could have eliminated that debt, but I didn’t even care at the time. I had kind of an “it is what it is” attitude, and it bit me for the next seven years.
Eventually, I came to place in life where I knew I had to get it together and these are the steps I took to get there, along with a few I would have done to get there sooner.
8 Steps To Improve Your Credit Score
*Note – Your credit score is a number that, among other things, gives creditors an idea of your trustworthiness for paying back debt.
Step One: Establish A Budget
Budgeting your money lets you know exactly how much extra you can put towards your debt. Budgeting also shows you how to cut out wasteful spending. Cutting these things out will free up funds that can be used to eliminate your debt.
If you don’t have a budget, you could put yourself in a place where you don’t have enough money to pay for your monthly bills, therefore creating more debt.
Step Two: Order Your Credit Report and Check For Errors
You can get a copy of your credit report from the three major bureaus, free, once per year. You don’t need to check them all at the same time. In fact, I suggest spacing them out and checking a new one every four months.
Check for errors such as:
- Incorrect Personal Information – Make sure your address is correct, or your name is spelled correctly. Also, make sure your Social Security Number is correct.
- Negative Debt Older Than 7 Years – Credit reporting companies are required to remove bad debts after seven years; if you’re still showing them, file a dispute.
- Duplicate Accounts – Occasionally accounts get reported twice. This can be harmful to your score because it looks like you have more debt than you actually do.
- Accounts are not showing closed – Sometimes accounts you’ve paid off still show open instead of closed. Dispute this to get it corrected.
Step Three: Pay Down Debt
Lowering the amount of debt you owe is a large factor in raising your credit score. In fact, credit utilization makes up approximately 30% of your credit score so if your credit cards are maxed out, it’s best to pay it down; pronto.
Take the extra money you found by cutting out wasteful spending in your budget and apply it to your debt.
The snowball effect is a perfect strategy to use. In a nutshell, the snowball effect is applying extra money to your smallest debt first. After the debt is paid off, use the payment you would have put on that debt, along with the extra cash from your budget toward your next smallest debt. Repeat the process over and over until you are debt free.
Commitment is necessary when paying down debt, and it helps when your goal is written down. I don’t know the exact psychology behind it but for me, writing the goal and tracking my progress keeps me accountable and motivated to continue. I suggest using my debt tracker worksheet or creating your own at home.
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Step Four: Keep Your Credit Cards Open
Our goal is to raise the credit score. You’re probably wondering how an open credit card is going to do that. Well, it won’t. Closing the card, however, could (most likely will) hurt your credit score.
Closing a credit card effects things like credit card utilization and credit history, both of which play a role in your credit score.
Credit Card Utilization is how much of your total available credit is being used. If you have a total of $10,000 in credit, are using $7,000 of it and close a card that had a $3,000 limit, you’ve just taken your credit card utilization from 70% to 100%. All of a sudden, you have used all credit available to you and that, my friend, is going to drop your credit score.
The Length of Credit History accounts for 15% of your credit score. If you close the first credit card you ever opened, your score will be affected.
Step Five: Ask For A Higher Credit Limit
If you are going hard at paying down your debt but aren’t seeing much movement on your credit score, try asking the company for a credit increase. Should they agree and raise your credit limit, it will decrease your credit utilization even further, increasing your credit score in the process.
If they decline, don’t worry. Just keep paying down that balance and re-visit asking for a credit limit increase in the future. *Note – most credit card companies require a wait of 6 months before asking for another credit limit increase.
Step Six: Make Payments On Time
Payment History makes up 35% of your credit score making it a critical factor.
A lot of time and (sometimes) effort goes into establishing a great credit score but only a moment to hurt it. Once a credit score is damaged or marked with a late payment it will stay with you for a long time.
A black mark on your credit score can affect whether credit is extended to you and if it is, can also affect your interest rate. A high-interest rate will cost you hundreds or thousands of dollars more than a low-interest rate.
Bottom Line – Make every payment on time.
Step Seven: Find Ways to Make Extra Money
What does extra money have to do with increasing my credit score?
Directly? Nothing. But indirectly, a lot.
If you have extra money coming in, you have extra money to put toward your debts which will decrease your credit utilization.
Some things you can do to make a little extra money on the side include:
- Using Ibotta when you grocery shop, when you sign up with this link, you’ll receive $10!
- Using Swagbucks, YouGov, and Vindale Research to do surveys, watch videos and play games.
- Drive for Uber.
- Start a Blog <– endless earning potential but I’m biased.
- Clean Houses
The list literally could go on and on. I may even make that list and turn it into a blog post so check back soon or better yet, subscribe to our newsletter and I’ll let you know when it’s finished.
Well friends, that about does it for today. I wish you the best of luck on your journey to good credit and look forward to hearing how you’re doing. I encourage you to comment below with your victories!
*Blog is for informational and entertainment purposes only. I am not nor claim to be a financial advisor or expert. What works for me, may not work for you. You can see the full disclosure here.
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