How to Fix a Bad Credit Score Fast
If there is one number in personal finance that matters (besides income), it is your credit score. Whether you know it or not, that single number will have an impact on how much you spend on debt.
Quickly, a credit score is a tool used to gauge risk. The lower your score, the riskier you appear to creditors. Conversely, the higher your score the less risky you are to lend work with. How creditors are compensated is through interest rates. The lower your score, the more you are likely to pay in interest, and the higher your score, the less interest you will pay.
Now, if you have a low credit score, I have good news. You can improve your score quicker than you think, which will potentially save you thousands in interest. Below is how you can begin fixing a bad credit score.
Pay off debts
The first is obvious, but if you have credit card debt start with paying down debt. A ratio used in lending is debt-to-income. If your debt-to-income ratio is to high, lenders may decide you do not have enough income to reliably repay the debt.
On the same line of debt, if you have credit cards be sure to quickly pay those down. Credit utilization directly impacts your credit score. For example, if you have $1,000 in credit available and you are using $900, that is 90% credit utilization. Lenders can see this are you relying too heavily on credit.
Close some credit cards
Note, the title says some credit cards, not all. You want to keep a line or two open to show you can use credit responsibly. However, if you have 7 credit cards it is probably a good idea to close a few of those.
Like credit utilization, having too many cards open can negatively impact your score. Also, every time you apply for a credit card you receive a “hard pull” on your credit report. While the impact is minimal, it is a slight ding to your credit score. After some time, these will fall off and your score will reflect those updates.
Collections
Lastly, if you have any items in collections, you will want to clear those out. Luckily, many collection agencies are willing to settle. This means you can potentially pay less than the full balance. Negotiate and get a settlement balance in writing.
Clearing collections off your credit report will quickly raise your score.
Hire a Professional
If you are unsure about how to start the process, consider contacting a firm that focuses on enhancing credit scores. Keep in mind that repairing your credit score is a gradual process, yet it is undeniably beneficial. Enhancing your credit score can lead to substantial savings for your future financial well-being.
