If you’ve run into credit trouble, you may think there’s no way around it. You probably think getting loans or any attractive credit card offers are off the table.

They aren’t. You can fix bad credit with the right step and patience. It won’t happen overnight, just like your bad credit didn’t happen overnight.

What is Bad Credit?

The credit bureaus categorize credit scores into the following categories:

  • 300 – 629 is bad credit
  • 630 – 689 is fair credit
  • 690 – 719 is good credit
  • 720 – 850 is excellent credit

Most lenders consider a score lower than 629 bad credit, but there are some exceptions. For example, FHA mortgage loans are available for borrowers with a credit score as low as 580 as long as they meet the other qualifying requirements.

In general, though, a credit score of 629 or lower makes it difficult to get any new financing. If you are able to get approved, it will be at a higher rate or worse terms than you could get if you had good credit.

How Does Bad Credit Happen?

It may feel like bad credit happened overnight, but it’s usually a work in progress. One mistake on your credit won’t automatically give you ‘bad credit,’ but there are cumulative effects if you keep having issues.

The following credit habits can cause your score to fall:

  • Making payments late

Any payments you make over 30 days past the due date can hurt your credit considerably. Your payment history makes up the largest part of your credit score. One late payment can drop your score, but if the late payments escalate into 60- or 90-day lates, it’s even worse.

The issue can also compound if you make more than one payment over 30 days late. For example, if you miss a credit card payment and loan payment for over 30 days, it can hurt your score.

  • Overextending your credit

Your credit utilization makes up 30% of your credit score. Credit utilization is the comparison of your outstanding credit card balance to your total credit line. For example, if you have a $1,000 credit line and you have $500 outstanding, you have a 50% credit utilization rate.

Any credit utilization rate over 30% can hurt your credit score almost as much as a late payment can hurt it.

  • Taking on too many debts

Even if you get approved for a large number of debts, the more debt you have, the harder it is on your credit score. The credit bureaus pay close attention to the number of revolving accounts (credit cards) you have mostly. If you have a large number of credit cards and barely any installment debt (personal loan, car loan, etc.) it can hurt your credit score.

  • Applying for too many new credit accounts

Each time you apply for new credit it hurts your credit score. That doesn’t mean you shouldn’t apply for new credit but applying for every credit card offer that comes your way or constantly applying for personal loans can take its toll on your credit score.

Bad credit happens when you make financially irresponsible choices. Sometimes they are outside of your control, but there are always options. 

9 Ways to Fix Bad Credit

The good news is there are ways to fix bad credit. Here’s what you can do.

1. Bring your late payments current

Your first order of business should be to bring all late payments current. Even if you aren’t 30 days past due yet, don’t take a chance. Get all bills current and keep it that way. Create a budget so you know when your bills are due and when you can afford to pay them.

2. Pay high credit card balances down

You may not be able to pay your credit card balances off in full, but at least get them down to 30% or less of your credit line. This will lower your credit utilization rate and make it easier to improve your credit score.

If you can pay your balances off completely (or even one or two of them), it will help your score even further.

3. Ask for increased credit limits

If you have fair credit or when you get your credit score to a ‘fair credit score,’ ask your credit card companies for a credit line increase. A higher credit line, if left unused, can lower your credit utilization rate. This is a great way to handle a high credit card balance that you can’t pay off yet. It will be as if you paid the balance down when you look at your credit utilization rate.

4. Keep old credit cards open

It can be tempting to close old credit cards so you don’t use them, but it can hurt your credit score. If you have old credit cards you don’t use or don’t want to use, lock them up in a safe or somewhere they are protected, but keep them open.

Your credit age is a part of your credit score. The older your credit is, the better it is for your credit score. Keeping the cards open but unused is a great way to increase your credit age and keep your credit utilization rate down.

5. Pay your credit card balance before the due date

Most of us wait until our credit card’s due date to pay the balance or even make a payment. Instead, pay your balance (if you can) as soon as you get your bill. You might pay the credit card off before the credit card company reports the balance to the credit bureaus, which is good for your credit score since it won’t affect your credit utilization rate.

6. Dispute errors on your credit report

If you have errors on your credit report, dispute them. Errors could be an incorrect balance, an incorrect payment history, or even an account that doesn’t belong to you.

Mistakes happen all the time, so it’s important to get your free credit report and ensure its accuracy. If you notice any mistakes your creditors made or think you were a victim of identity theft, write a dispute letter to the credit bureaus right away to get the investigation started.

7. Use Experian Boost

If you have bad credit because you don’t have enough credit reporting or your only credit reporting has negative marks, consider using Experian Boost.

It’s a free program that reports payments on services that don’t normally report to the credit bureaus. Experian Boost reports payments for utilities, streaming services, and cellphone services. You link your bank account to Experian and they track your payments. If you make these payments on time, you get ‘credit’ for the good payment history which can help your credit score.

8. Become an authorized user

If you have bad enough credit that you can’t get any new credit and have exhausted ways to fix it, consider asking a close family member if you can be an authorized user on their credit card. As an authorized user, you get credit for the cardholder’s timely payment history and responsible use of their credit.

Not all credit card companies report authorized users to the credit bureaus, though, so make sure you find out if the credit card company reports to the credit bureaus first.

9. Apply for a secured credit card

If you need more credit to build your credit score but don’t qualify for unsecured credit, try a secured credit card. Your credit line on a secured card is equal to the deposit you put down. Typically, credit lines start at $300 and go up from there.

If you miss your payment on a secured credit card, the credit card company keeps your deposit. If you make your payments, though, and have a good credit history with the card for 6 – 12 months, you can graduate to an unsecured card and get your deposit back all while building your credit score.

Key Takeaway

Bad credit can hurt you when you try to take out a new loan, apply for a new job, or get insurance. Your credit score follows you in many areas of your life and if you don’t have good credit it can be hard to accomplish the things you want.

Keep an eye on your credit history and fix any mistakes or issues that come up right away. You can’t fix bad credit overnight, but with the right steps and consistency, you can make the most of your credit score.

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