Your credit score is one of the crucial factors impacting your financial life. Banking and lending institutions use it to decide your credit card and loan limits. Others use it to determine whether you need to bring in a collateral security deposit. Car insurance companies consider it to set your insurance rate.
And, while you can survive with bad credit sometimes, it may come with its own set of complications. Following are some of the disadvantages of having a poor credit score:
- Loan or credit card rejection
- High-interest rates
- Costly insurance premium
- Rental approval issues
- Fewer career opportunities
Knowing that a low credit score (less than 600) can make your life challenging in several ways and even delay your retirement, you must undertake reasonable efforts to push it (above 660) and buy a home soon. What you do depends on your unique credit situation, but some of these basic steps can help everybody. Keep reading to know.
- Assess Your Credit File
It is vital to evaluate your credit status once in a while and the factors affecting it, both positively and negatively. Your payment history, total amounts owed, credit history length, the mix of credit types, and recent credit accounts play a significant role. So, make sure you check these elements and dispute the information with the credit bureaus in case of errors/inaccuracy.
- Pay Your Bills on Time
Your payment history is a crucial factor in deciding your credit scores, and having a full-proof history of timely payments can help you achieve a good credit status. The setting up of automatic payments for the credit card bills and mortgage installments prevents you from missing the scheduled payments or becoming a defaulter. These efforts may not directly help your credit but can indeed cause your scores to dip if you are flawed.
- Clear Your Old Debts
Amounts owed make up a significant percentage of your FICO score. Ideally, you should pay off your debts and bills at the end of the pre-defined cycle. But if you couldn’t make up for it and carry a balance, you should better take a pause and pay down the outstanding amounts. Set aside extra money to your highest-interest card or loan first or clear off small balances more often. If there is any amount that has been written off, convey it to the credit bureau – it can boost your score.
- Pay Attention to Credit Utilization
It refers to the credit amount you have used to what was extended by the lender and determines your creditworthiness. The higher the percentage of credit you use to what is available, the lower is your credit score. So, do not just go out and close out your credit cards if you have balances; it could hurt your score.
- Apply for Short-Term Loans
Short-term financing is always a safer bet than long-term loans, especially for those in urgent need of funds but can afford to pay back quickly. And since these loans are for a shorter time duration, you can use your cash flows to wind them up and stay clean on your credit. However, there can be challenges in the payment terms sometimes, so check them carefully.