Being hit by bad credit sounds like a bad dream. But it is a terrible reality that could hold you back from achieving your financial goals. From high-interest loans to expensive car insurance, a slew of challenges can make it difficult for you to experience financial freedom.
But when you follow popular practices to improve your credit, you can rebuild your score to a better position. This approach takes some effort and a lot of patience. With that being said, it still delivers effective results.
To support your voyage to the land of financial stability, here’s how you can turn around a bad credit score in 2024.
Understand That Bad Credit is Not the End of the World
Before doing anything, take a beat to remind yourself that bad credit is not a dead end. Instead, it is a bump in the road. Similar to figuring out if you have two savings accounts or two credit cards, you just need to determine how you can improve your credit from the bad situation you are in. This mindset can help you stay steady on your feet as you work towards rebuilding your credit.
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Check Where Your Credit Report Stands
The first step towards improving your credit score is learning the status of your credit report. You can receive your credit report from one of three credit bureaus and get information about your score, history, as well as misreported late payments. This can help you figure out how to prioritize your next steps.
Make Any Missed Payments as Soon as Possible
If you have any missed payments on your report, make them as soon as possible. It’s because the more delayed your payments are, the more impact they have on your score. You can turn to options like a budget workbook to determine how to make these payments without taking on excessive financial burden.
Continue Making Your Payments on Time
No matter what you do, make sure that you continue making your future payments for credit card, loans, and other lending products on time. This has a significant effect on your credit report and helps you improve your score overtime. This is also why making timely payments is one of the top financial tips for young adults.
Lower Your Credit Utilization Ratio
Your credit utilization ratio defines how much of your approved credit you are using at a given time. If this ratio goes above 30%, it can cause your credit score to drop. But ideally, it should be less than 10%. Whether you use a checking account or savings account, use your own funds instead of borrowed money whenever possible.
Don’t Close Your Oldest Account
If you have a credit card that you opened a few years ago, it would be a mistake to close it while trying to improve your credit. It’s because your oldest account helps lengthen the average age of your credit history, which has a major influence on your score and helps improve it over time.
Refrain From Applying For New Credit
Getting new credit not only lowers the average age of your credit history, but also creates a “hard inquiry” on your credit report that stays on it for up to two years and lowers your credit score for up to a year. Whether you are getting the best zero interest credit card or the cheapest loan you can find, consider if you really need it for financial support.
Build a Good Credit Mix
There is one scenario where you might need to take out new credit: Building a good credit mix to improve your credit score. This typically comprises at least one revolving credit product and one installment credit loan. If you don’t have one of each, getting a new credit account might be a good idea.
Keep Checking Your Credit Report
As you take the necessary steps to improve your credit bit by bit, you need to check your progress on a regular basis. While some actions like timely payments may take up to a year to show results, other activities like disputing errors can show improvements in as little as 30 days. By setting a reminder in your goals app, you can adopt the habit of checking your credit report every so often and determine if your efforts are working.
Through these tips, you can transform your bad credit into a strong financial profile. This could help you reach your life objectives left, right, and center.
