While there are a lot of people out there who have bad credit simply because they have no credit, there are also a lot of people out there who have bad credit for the reason most think others have bad credit for – for making some un-wise financial decisions.
The range of credit scores goes from 300 all the way up to 850. Contrary to what some may believe, there aren’t very many people out there with a rock bottom credit score of 300. According to nerdwallet.com, principal Scientist at FICO, Tommy Lee says, “FICO scores of 300 are extremely rare; in fact, only 1% of the population has a score less than 470, and 4% have a score less than 500.” And, even those who have a score less than 500 are those individuals with some severe late payments, those who have negative remarks from public records or collections, and those whom are using well over their credit limit (meaning their credit cards are far past what would be considered maxed out). These individuals might have such insurmountable debt that bankruptcy is the quickest way to recovering their credit respectability.
However, let’s assume you aren’t quite there yet and your credit is still salvageable. How can you begin to rebuild that credit? Some of the biggest things that affect your credit score and that you can start improving on today are:
1) Making Payments on Time: You need to start making all your payments on time! Nothing matters more than paying on time, every time, and it should be your first priority. When getting any kind of credit, paying late should never be an option, and if it needs to be, then maybe you should think twice about taking out that credit. It’s not worth the potential credit score and financial havoc it could wreck on you.
2) The Amount of Credit You Use: Always be keeping track of just how much credit you are taking out. This is especially important if you have multiple lines of credit going at one time. Make sure you know the TOTAL amount of credit being built, not just one at a time, and like mentioned above, be paying those payments on time.
3) Stop Your Credit Bleeding: We mentioned not spending too much on credit, but what is “too much”? Well, a good rule of thumb is to not be spending more each month than you can actually afford. This seems like an obvious fix, but many people will splurge on things like a new computer, or a new wardrobe, promising, “I’ll pay it back over time.” However, then their car breaks down, or they have an emergency doctor visit, and so on and so forth. The point is, you never know what life will throw at you, and it’s far wiser to pay off any residual debt you already have and slowly save for those “splurge” things that, when you think about it, really can wait. If you can’t afford to pay for them that month, then you can’t afford them.
4) Make a Budget: Not only will a budget put your monthly finances into perspective for you, but it will also help you stay accountable to yourself and what payments need to be top priority. Then, any extra money you have that isn’t going towards paying off your credit, can go towards a night out with your friends, or perhaps even a savings account (*gasp!).
These are just a few tips on how to start turning that credit score around. If you have a horrid credit score, the good news is that you can only go up from there! We hope this article was helpful! If you have any more questions about how to build your credit back up, we’d encourage you to go speak with someone at your bank. We’re sure they’d love to help you on your road back to financially stability.