Bad Credit

What Is A Bad Credit Score And How To Improve It?

Written by Brian James

When trying to rate how they are doing in terms of credit, many people use the credit score to evaluate themselves. It is important for you to understand what a credit score is. This will then help you know what a bad credit score is and how best to avoid it. Credit scores are the numbers that are generated by special formulas according to the information that is provided by your credit report. The credit score is one that will enable lenders to determine your credibility to risk.

High credit scores are good, meaning that lenders are likely to give you loans, as you are more than likely going to repay them with no problem. A good credit score can be as from between 700- 800. On the other hand, a bad credit score is one that is ranging from around 400 or less, to even 500 and 600. Lenders usually have different ways in which they use to determine how bad a score is. A bad credit score is therefore one that will make you to be a bad risk for any of the lenders. According to the details provided by your credit report, the score shows that you are not in a position to repay any loans advanced to you by lenders, as you cannot manage your credit well.

However, you might have a bad credit score and still receive approval for a loan. This will require you to pay high rates of interest and large payments in the process. Having a bad score of credit does not mean that you give up and lose hope. It mainly means that you are not in a position to apply for credit from lenders. Regardless of the type of credit that you want, be it a personal loan, a credit card, mortgage or an auto loan, you will discover that you have limited access to finances and that you will have to pay extra fees. The lenders need to protect themselves from you as your credit history reveals a great possibility of you not being in a position to pay your debts within the stipulated time or as per the terms and condition of the agreement.

Having a bad credit score will therefore mean that you will face difficult situations when trying to get approval for application for credit. If you finally manage to get a person who will approve your credit, this will be under strict financial terms that will require you to pay more as you borrow the money. Your installments will be large and at times, it is necessary for you to give a down payment, which might be quite large. Such poor credit scores lead to wastage of money as well as making it hard or you to access finances when in need.

There is therefore need for you to try to improve your credit scores. Ways that you can use to improve a bad credit score are such as

Try to avoid credit card purchases that are new

New purchases usually increase the utilization of your credit. This is the ration between the credit limit and the balance in your credit card. The higher the balances, the more the effect they have on the credit scores. Make use of cash for purchases or even refrain from making such new purchases. This will lower the balance, thus improving the credit score.

Obtain copies of your credit reports

You cannot start improving your credit score without knowing what areas need improvement. Getting copies of your credit reports will allow you to study them closely and identify areas that could be causing you to suffer bad credit scores.

Avoid applying for new credit cards

When trying to improve your credit score, you need to avoid applying for new credit, as this will lower your score further.

Identify credit report errors and dispute them

At times, your credit report might have errors that will affect your credit score negatively. You need to make sure that you identify these errors and dispute them by notifying the credit bureau and the creditors in your report.

Pay off past balances

Around 35 % of the credit score is the history of your payments. If you delay in making your payments, this causes more damage to your credit, leading to bad credit scores. Make sure you make timely payments to avoid them being charged-off and delivered to collection agencies.

Leave accounts with balances open

At times, you might want to close the delinquent credit card accounts. However, you need to wait before doing that and make certain that closing such an account will not affect negatively on your credit. The chances of improving your credit score by closing credit cards are very slim.

Pay off debts

Debts constitute about close to 30% of the credit score. Paying off your debts is one of the ways to start to make sure there is improvement in your situation. This will give you financial freedom and you will definitely gain points in your credit score.

Contact your creditors

Getting in touch with the issuer of your credit card will be of some help. Some of these creditors have programs that will reduce the monthly payments that you make for some period allowing you to have enough time to get back on track with your credit.

Practice patience and persistence

During the process of improving your credit score, you need to be patient and persistent as you work on your credit. Remember that you did not a bad credit score overnight, so improving it will not happen overnight.

Seek professional help

Professional help that will guide you in improving your credit score is one such as credit counseling. This will make sure that you get to make the best credit decisions and those that will see an improvement in your credit score.

A bad credit score is therefore not a permanent situation. All you need to do is to change your credit decisions and make sure that you pay your debts timely, which will see an improvement in your credit score.

About the author

Brian James

US Financial specialist with a financial Master degree. Speaking about credit scores range in US, credit cards and more.

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