Credit Score Woes and How to Fix Them
Feb 12, 2024
Your credit score is a significant number that can impact your financial future. It can determine your eligibility for loans, credit cards, and even job opportunities. Unfortunately, negative factors like late payments and high credit utilization can damage your score, and having poor credit can make it harder to obtain financing.
Luckily, with the proper knowledge and approach, you can work toward improving your credit score. Let’s discuss some common credit score woes and what you can do to fix them, from getting personal loans to maintaining a lower credit utilization rate.
Late or Missed Payments
One of the most common reasons for a low credit score is a history of late or missed credit card or loan payments. Regularly missing payments or paying bills after their due date can negatively affect your credit score. Even one or two missed payments can take a toll on your score and may stay on your credit report for up to seven years.
To address this issue, set up automatic payments from your bank account to your bills.
If you have too many credit cards, loans or other debts to manage, you may also consider taking out a personal loan to consolidate existing debt and simplify payments. You will only be required to make payment to one company instead of several. Further, personal loans can offer fixed interest rates and repayment terms, which can make managing your finances easier and could help you make payments on time. This can help improve your credit score over time.
High Credit Utilization
Another factor that can bring down your credit score is high credit utilization. Your credit utilization is the amount of credit you use compared to the total credit you have available. If you’re using too much of your available credit, lenders might see it as a risk and be hesitant to approve you for new loans or credit cards.
To address this issue, you can work on paying down your existing debt and increasing your available credit. This will lower your overall credit utilization rate, which is a positive sign for lenders. A good rule of thumb is to maintain a credit utilization rate of less than 30%.
Too Many Hard Inquiries
Inquiries occur when a lender or creditor has checked your credit report. When you fill out an application for a credit card, loan, or even a rental property, the provider typically reviews your credit report to determine your creditworthiness. Too many inquiries within a short period of time can negatively affect your credit score, and lenders may see you as a high-risk borrower.
To mitigate the impact of these inquiries, it helps to space out your applications and keep track of when you apply. It can also be beneficial to shop around for financing options before applying, as this will help you find the best possible offers with lower associated fees.
Limited Credit History
Having a limited credit history is not necessarily bad, but it can make getting approved for loans and credit cards difficult. Creditors and lenders want to see that you’re a reliable borrower, and having no credit history can make them unsure of your ability to repay a loan.
To establish a credit history, consider taking out a personal loan and paying on time each month. Timely payments can help boost your score and establish a solid credit history.
The Bottom Line
The process of building or repairing your credit score may seem daunting, but it doesn’t have to be. By understanding the main factors that affect your credit score, such as payments, high credit utilization and too many inquiries, you can develop strategies to mitigate their impact. Making on-time payments and avoiding too many hard inquiries at once are just a few of the many ways to boost your score. With time and dedication, you’ll see your credit score increase and be on your way to a healthier financial future.