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Fixing your Credit Score

Your credit score is important. If you have a bad credit score, it can be very tough to get a loan. That makes it difficult to buy a house or a car, get a line of credit, or be approved for a credit card. If you have bad credit, if you’re able to get a loan, you’ll likely only be able to get one with a very high interest rate, which makes borrowing incredibly costly and can get you into big debt trouble.

The good news is that credit ratings can be repaired.

However, it’s important to note upfront that improving your credit history takes time. It’s not something that can be done overnight. Any organization that says they can fix your credit score immediately for a fee is an organization that you should be very skeptical of. The only way that a credit score can be fixed quickly is if there is an error on your credit report. If you check your credit report and find a mistake, contact the credit bureaus to fix the error. This doesn’t cost you anything and you can do it yourself.

If there aren’t any errors on your credit report, but you still have bad credit and you’re looking for a way to get your credit score back on track, here are some tips.

Pay Down Existing Debt

Paying off your current debt is an important part of repairing your credit score. There are several reasons why. The first is that, if you have a large amount of outstanding debt, you’re more likely to be unable to make your payments on time. Missing payments seriously hurts your credit score. It also costs you money in interest charges and penalties.

Another reason a large debt loan hurts your credit score is because lenders do not want to see you borrowing a large amount of money. They know that the more you borrow, the more likely you are to miss payments. So a large debt-load hurts your credit rating.

In general, you should try to use between 10-30% of the credit that is available for you. For instance, if you have a credit card with a $5000 limit, another with a $3000 limit, and another with a $2000 limit, you have $10,000 of available credit. This means you should only use about $1000-$3000 of that credit at any given time. If you have a large debt load, you’ll want to focus on paying it down as quickly as you can.

If you’re having trouble making your payments, talk to your creditors and let them know. This should ideally happen before you start missing payments, but you can contact them whenever you’d like. Many lenders will consider reducing interest charges or extending the time you have to repay your debts if you tell them you’re having trouble. This is because they’d rather have you pay your bills than default on your loans.

Create a Plan to Pay Bills on Time

Managing your bills and your credit score takes planning. Know how much you owe on each of your accounts and how much you will need to pay back each month. Put due dates into your calendar and set reminders for yourself to pay bills before they are due. Create a budget that allows you to afford your monthly expenses in addition to your debt payments.

The best way to improve your credit score is to prove that you are able to borrow money and repay it on time. Creating a budget and a schedule and sticking to it will help do exactly that.

Know How Much You Can Afford to Borrow

Look at your budget and use your budget to figure out what you can afford to pay each month. Don’t borrow more money until you can fix the payments into your budget. When you’re working on rebuilding your credit score, your main focus should be paying down your existing debt, so do whatever you can to avoid adding on additional debt.

Consider a Secured Credit Card

If you have very bad credit (or no credit) you might not be able to get a loan or a credit card. Since proving that you are able to borrow money and pay it back on time is a big part of rebuilding your credit history, not being able to borrow money in the first place can make improving your credit score tough.

If you are in this situation, you may wish to consider a secured credit card. With a secured credit card, you put down a deposit against the credit limit on the card. For instance, you might put down $500 and then receive a secured credit card with a $500 limit. You can then make purchases with this card and pay the bill each month, which builds up your credit score.

It’s important to be aware of the difference between a secured credit card and a prepaid credit card. A secured card gives you a credit limit that you borrow from and make payments on each month. For instance, if you have a secured credit card with a $500 limit and you make a $100 purchase, you have $400 of available credit. Once you pay back the $100, you have $500 available again. A prepaid card works like a gift card. If you have a $500 prepaid credit card and you spend $100, you have $400 remaining. However, you won’t get a monthly bill and you can’t make a payment to increase the limit back up to $100. Using a prepaid card does not affect your credit score.