A bad credit score can have some pretty negative ramifications. People with low credit scores might be denied loans or even jobs. This has the potential to create a cycle that becomes difficult to escape. While it’s easy to fall into a bad credit score, it can be a challenge to build the score back up.
Here is some advice for those with bad credit that could help:
Set Up a Budget
The first step toward improving your credit should be setting up a budget. This will allow you to take stock of your exact situation. It will allow you to look into your income and expenses on a monthly basis and make adjustments where necessary. Remember, every dollar that’s going toward paying off accumulated debt is a dollar that cannot go toward improving your financial situation.
Cut Back on Borrowing
Borrowing money is sometimes necessary, but can be difficult for those with bad credit. For those in this situation, getting a personal loan for when you have credit issues is the only option when a furnace breaks or the transmission goes out. While these are welcome financial resources for those who need them, the path to good credit means cutting back on short-term borrowing over time. In order to cover the cost of future repairs and other surprise expenses, begin diverting $10-25 from every paycheck into a savings account set up strictly for this purpose. This can help avoid having to borrow money.
Make All Payments on Time
After setting up a budget, it’s important to make sure that you’re making credit card payments on time. The same goes for other bills and payments. Timely payment of your debts is a major component of the most popular credit scoring models. Late payments that reach 30 days or more after the due date will cause a major ding to your score. Setting up automatic payments will help you ensure that you avoid late payments.
Earn More Income
While making more money might not improve your credit score on its own, it can be an important part of a credit-improvement strategy. How is this the case? More income should allow you to more aggressively pay off your debts as long as the additional income does not go toward buying more stuff. Credit utilization is another major component of your credit score. If you have $10,000 of credit available on a credit card and you’ve maxed it out, your credit utilization would be 100 percent. If you could pay off $1,000, your credit utilization would drop to 90 percent. The lower this number is, the better.
Set Up a Debt Payment Plan
If you have a low credit score, it’s likely that you have debt. While having a budget and bringing in more income are great steps, you’ll need to have a plan for paying off debt. One of the best ways to get rid of debt is the so-called debt snowball. In this method, you’ll pay the minimum on all debts but the smallest. This debt will then receive any income that’s available after paying the minimum on all other bills. When the smallest debt gets paid off, you’ll then roll that payment toward the next smallest debt and repeat the process until all are paid off. Over time, it will cut your credit utilization percentage. Repairing your credit score will take time, but by responsibly handling your money, your score will eventually improve and allow you to borrow at a lower cost.