This guide outlines how to improve a low credit score and raise it to a good one — and why that is important.
Money is a big part of our lives. We use it to buy things we need and want. But sometimes, we need more money than we have. That’s when we borrow money from banks or other lenders.
When we do this, they want to know if we’ll pay the money back. That’s where a credit score comes in. It’s like a grade that shows how good we are at borrowing and paying back money, so if you have a low credit score, you should work to improve it.
Your credit score is a number that tells lenders how likely you are to pay back money you borrow. It’s like a report card for your money habits. The score goes from 300 to 850. A higher number is better. It means you’re good at handling money and paying back what you borrow.
What is a good credit score? Credit bureau FICO considers good credit scores starting between 660-699 upwards through excellent ranges nearing perfect 850 scores. But qualifying for the very best interest rates needs scoring above 700 at minimum.
What can cause a low credit score
Several parts calculate your final number including:
Payment History
Carrying late payments sinks scores quickly forecasting continued unreliability and missing future payments. But great histories strengthen numbers substantially predicting on-time bill handling.
Debts Owed
Maxing credit card limits nearing 100% of balances hurt by signaling risky overspending behaviors at times unable to cover full balances monthly incurring interest costs, contributing to a low credit score. Keeping balances below 30% capacities helps a lot even paying minimums to avoid maxing out.
Credit History
Having established credit lines open for many years responsibly signals seasoned money maturity earning higher points rather than risky scores carrying only new credit. Longevity brings trust.
Credit Use Diversity
Proven responsibility across different credit lines like retail cards, personal loans, and mortgages shows money skill handling diverse accounts responsibly earning higher scores than carrying a single credit card alone which seems riskier and can give you a low credit score until bigger credit diversity is established.
New Credit
Applying for excessive new credit suddenly looks risky lowering scores temporarily. But responsible use of new credit for 6-12 months improves it, keeping longer-term trajectories positive.
Why does your credit score matter
Great credit earns financial freedom rewards through:
Lower Interest Rates
Better credit means banks see you as lower risk so they offer cheaper interest rates on loans and credit cards saving substantially over years for mortgages, car loans, and more. Good scores earn you big savings.
Easier Loan Approvals
Higher scores help loan applications get easily approved faster and for better terms. While a low credit score risks quick denials or necessity involving risky co-signers guaranteeing backup payment.
Higher Credit Limits
Responsible use of growing credit limits maintains great utilization rates under 30% boosting your score continually allowing larger approved limits back in return through trust, opening access to finances as needed.
Better Insurance Rates
Surprisingly insurance companies view credit scores judging predicted responsibleness. Better ratings earn lower premiums saving money over the years.
Apartment Rental Opportunities
Many landlords check if an applicant has a low credit score through background checks, judging their ability to pay reliably on time without risking eviction. Great credit helps avoid very high rental deposits also.
Employment Hiring Decisions
Although controversial, some employers analyze credit scores judging financial maturity aligning certain high-visibility financial service roles unable to risk money temptations.
How to fix a low credit score and build a great one
Responsibly building credit over 6-12 months follows simple habits like:
Pay All Bills On Time
Even tiny utility or cell phone bills matter showing 100% diligent payment histories across all accounts without lateness sticking positively over years. Set calendar payment reminders avoiding accidental oversights.
Keep Credit Card Balances Low
Pay monthly card statement balances optimally but never max out full limits which hurts temporarily until balances lower again. Even spreading costs over 6-12 months responsibly helps rather than missing payments altogether if needed.
Limit New Credit Cards
Apply conservatively for only necessary new credit avoiding temptation points ruining hard-earned progress during early score-building phases and appearing risky through excessive sudden balances that can prompt a low credit score. But responsible ongoing use strengthens scores later.
Become an Authorized User
Request joining the longest-established low-balance credit card of a trusted family member, temporarily benefiting from their diligent history and responsibly boosting your score until personal history builds independently later.
Check Credit Reports
Verify that all reporting bureau data stays perfectly accurate. Quickly fixing oversights and errors that may show costing points incorrectly, leading to a low credit score. Make sure you are keeping everything factual and optimizing scores based on real behaviors fairly.
Pay Debts
Keep ongoing payments punctual showing positive momentum responsibly lowering total debts owed as fast as possible through focused budgeting without creating new debts unnecessarily until progress locks first.
Dispute Credit Report Errors
If any bureau mistakes – like payments marked late falsely – request urgent correction immediately to help fix a low credit score. Deleting errors helps numbers accurately reflect real histories better.
Draft goodwill removal request letters to creditors directly if reasonable situations affected past payments, since rectification takes time but full documentation and polite persistence pay off reasonably if a fair situations occurred negatively impacting earlier.
Consider Secured Credit Cards
Applying for secured card options offers flexible credit lines backed by cash deposit reserves guaranteeing issuer repayments regardless. Responsibly using and paying secured cards builds alternative positive history months meaningfully and boosts a low credit score too. Unlike expensive payday loans harming credit severely, secured cards protectively build legacies improving numbers.
Seek free guidance
If excess debts feel overwhelming, nonprofit credit financial counselors assist in negotiating improved payment plans — stopping escalating interest charges, providing customized budgeting advice and improving money habits in the long run. Multiple options exist suiting unique situations without drastic bankruptcy measures harming credit for much longer durations.
Choose credit counselors wisely
If needing guidance about a low credit score, select reputable nonprofit credit counselors and avoid shady groups offering unrealistic quick fixes. Search locally through NFCC networks seeking options.
Offering Free Consultations
Legitimate advisors offer initial discussions without charge or hidden strings assessing unique situating recommending reasonable solutions before money requests start. Beware of high-pressure sales tactics pushing expensive packages that do not feel right intuitively.
Showing Empathy
The most helpful guidance connects through compassionate listening fully assessing all factors contributing to circumstances without judgments making anyone feel worse short-term. People matching personalities aid relationships and accountability.
Clarifying Terms
Fully understand proposed processes, payment expectations, duration commitments, and exit considerations before signing agreements to fix a low credit score. This aoid becoming confused halfway, discontinuing services without exit clarity — losing both progress and money, and reversing matters ultimately. Mutual understanding starts with transparency.
Providing References
Asking for and calling past client references assesses real-world satisfaction, verifying that advertised solutions worked previously and building confidence around community reputation through lived testimonies.
Starting Small
Begin guidance partnerships around initial single actions like budgeting advice or consolidating debts to help fix a low credit score. As confidence builds through tangible progress, more comprehensive long-term solutions should get considered only after starting small first; building relationships beneficial for years.
Conclusion
A good credit score is like a golden ticket in the world of money. It can open doors to better loans, lower interest rates, and more opportunities that a low credit score shuts you out from. Building a good credit score takes time and effort, but it’s worth it.
Remember to pay your bills on time, don’t use too much of your available credit, and be careful about applying for new credit. If your score isn’t good right now, don’t give up.
With patience and good money habits, you can improve it over time. And if you need help, don’t be afraid to talk to a credit counselor. Your future self will thank you for taking care of your credit score today.
