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How Can You Improve Your Bad Credit Score?

Are you facing constant rejection on loan applications? Chances are you may have bad credit. Pending utility payments, credit card debt, and frequently changing residential addresses impact credit scores. These issues in your credit report reveal a bad credit score respectively. Qualifying for credits with mismanaged finances is tough. You would have to wait until it improves. It slows the pace of hitting lifestyle goals.

If you want to buy a car or home or renovate one, a healthy credit score is important. It helps you qualify for loans quickly at low interest rates. What could be better than hitting goals without delay? If you are struggling with a bad credit history, the blog may help. It lists the best ways to improve and maintain your credit score. 

What is known as a bad credit score? 

A bad credit rating is when the credit bureau or agency reviews your financial history negatively. They analyse aspects like- expenses, income, credit history, employment history, citizenship and residential history. It helps them provide a 3-digit number known as a credit score. 3 primary organisations are providing the credit score in the country.

Hence, it may differ. Usually, a score of 580-601 is regarded as a bad credit score. A credit score below 561 makes you ineligible for mortgage, rent, phone connections, or home renovation loans. This is because lenders consider such profiles as highly risky. Even if one gets a loan, the interest rates stay competitive.

5 Ways to boost your bad credit score quickly 

If you have a bad credit score, don’t worry. You can still improve it and rationalise dreams. The first step to getting it understands your credit report. It will give you a detailed glimpse of pending debts and liabilities. Additionally, you can analyse the delinquencies or duplicate entries affecting credit scores. If you spot any, report it to credit bureaus. Here are other ways to improve your bad credit score quickly:

Take up a personal loan 

You may not know, but a personal loan may help you build or improve your credit score. For example, if you need to buy furniture, take a loan. You can split the payments into 12 months of repayments. 

Options like a 12-months installment loan grant you the flexibility to pay in instalments. It reduces the burden of paying a lump sum. By making regular repayments on the loan, your credit improves. It reveals your dedication and discipline towards timely payments. Hence, turns out to be in your favour. Thus, a long-term loan could be healthy from a credit rating boost perspective. 

Pay bill payments timely

Your payment history accounts for 35% of your credit score. It is thus the most important factor. It includes on-time payments and late and missed payments. These are reported to the leading credit agencies. The direct lenders refer to these agencies, especially Experian for credit reports. 

Thus, paying timely on your bills can help improve your credit score. If you face trouble recalling payments, set direct debits. You can set up for the minimum amount as well. Alternatively, set alerts through an online account. 

Missing a payment grants 30-day time to clear it. If you cannot do so, it stays for 7 years on the credit report. The impact is long-lasting and diminishes only after paying the dues. 

Keep credit utilization ratio below 30%

The credit utilization ratio calculates the ratio of utilized credit to the available one. Most individuals seek to update their credit cards or apply for new ones. Adding credit cards before clearing the pending payments affects credit scores. Additionally, using credit for over 30% reveals a bad credit score. Under this, requesting an additional credit limit impacts the credit further.

You can reduce or maintain your credit utilization by reducing dependencies on credit cards. Don’t use credit cards unnecessarily. Keep cash handy for small or medium purchases. Avoid applying for new credit cards only for momentary benefits. 

Alternatively, try to match expenses with income. Improving income prospects may help you optimise the credit utilization ratio. Precisely, lower dependencies on external credits like overdrafts and buy now pay later schemes for bettering credit scores. 

Add utility and phone payments to the credit report

Usually, utility and phone bills don’t get reported to credit bureaus. However, meeting payments is important. It helps you fetch the best phone connection or low-energy subscriptions. Thus, you must use your personal bank account to pay these bills. It helps build a credit history and reveals individuality. It is ideal for individuals building credit for the first time. 

Making small payments on your end helps you understand finances better. It helps compare the options and fetch the most cost-effective ones. Alongside these payments, regular rent payments also reveal good financial management. It is ideal if seeking a rental shift. If you skipped the last month’s rent, your credit may drop. 

Identify the best means to pay the dues and avoid eviction. If you cannot pay within the current circumstances, negotiate the bill. If he agrees, pay the remaining dues. Don’t panic unless you have proof of income. Get bad credit personal loans and settle rental dues quickly. These loans help you borrow an amount to be paid in fixed installments. You may get better interest rates by checking low-credit loans than usual ones. Clearing rental bills boosts your credit score by a few points. It is a good signal for your financial journey. 

Limit hard credit enquiries on credit report

There are two types of credit enquiries that a loan provider conducts- soft and hard credit enquiry. Soft credit check focuses on affordability and identity verification. It thus does not impact your credit score. Alternatively, hard credit enquiries ensure a detailed credit screening of your profile. 

It thus leads to a temporary dip in your credit score. Meanwhile, applying for multiple credits at a time with hard enquiries may impact your credit score drastically.

Pre-qualify before filling out the final form. It grants you a peep into the probability of qualifying for the loan. It helps you understand the approximate loan costs against your affordability. If you can meet the criteria and make the payments, apply.

 It reduces the chances of applying for the wrong loan. Moreover, the hard enquiry does not affect the credit score much. Only apply for the loan quote that favours your finances the best. Avoid making multiple applications. 

Bottom line 

While these tips may improve a bad credit score, notice your financial habits. It may include dining out, watching movies twice a week, etc. It will help you realise unnecessary expenses. It initially will improve debt to income ratio; critical for a credit boost. Moreover, avoid late payments and handle debt payments wisely. Avoid attracting any debt collectors. Review credit reports regularly for better understanding. For more such informative articles, visit here.

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