Checking your credit report and score regularly is an essential task. When you apply for a loan or mortgage, your credit score guides lenders into deciding whether or not to approve you for a loan, and how high your interest rates might be.
When you apply for some jobs, they may even look into your credit score.
Unfortunately, keeping your credit score up isn’t always easy. If you’ve ever lost a job, been unable to pay your bills or debt, or had a financial emergency come up, your credit score may have taken a hit.
Luckily, there are ways you can improve your credit score. It’s important to note that raising your credit score is a process. It won’t happen overnight. But with some wise financial habits, it is possible to repair your credit score.
Here is how to fix your credit score after it takes a hit.
Check Your Credit Report
Before you can start fixing your credit score, you need to assess the damage. You can do that by studying your credit report.
There are three main credit reporting agencies – Equifax, Trans Union, and Experian. By law, all three agencies are required to give you one free credit report each year.
You can easily view your credit report for free at www.annualcreditreport.com. Look over your credit report thoroughly to ensure there is no suspicious activity.
Dispute any Errors on your Credit Report
After reviewing your credit report, you may find suspicious activity, such as accounts you did not open or apply for. It’s vital to check your credit report regularly to catch any errors. If you find any oddities on your credit report, write to the credit reporting agency to tell them what you believe the error to be. Next, write to whoever provided that information to the credit reporting agency to tell them that you are disputing an item that is listed on your credit report.
Once you have disputed the information, the agency will open a case and review it. If they agree with you and the evidence you provided, they will remove it from your credit history. Successfully disputing errors on your credit report can save your credit score.
Make Payments
Payment history makes up 35% of your credit score. Since it makes up such a high percentage, any missed or late payment can drastically affect your credit score. Fortunately, your credit score can be affected positively when you make on-time payments.
Getting caught up to date on overdue payments and making sure you are able to pay your bills in the future will help to raise your credit score gradually.
Keep Your Credit Use Low
Though on-time payments constitutes a majority of your credit score, you can also improve your credit score by keeping a low credit utilization rate.
Credit utilization is the amount of credit available to you. In an ideal situation, you would never use more than 10% of credit available to you. If you have outstanding debts, that may be impossible to achieve in the short-term, but you can focus on how you use your credit cards.
Ideally, you would pay off credit cards in full every month. But if you can’t, it’s best to pay off the credit card with the highest balance first to lower your credit utilization rate.
Automate Your Payments
The easiest way to avoid late fees or unpaid bills is to setup automatic payments to have monthly payments deducted automatically from your bank account.
To ensure you always have money in the bank to pay for automatic payments, you will first have to create a budget. You can check your bills and add up how much you need as a whole to pay for your automatic payments.
Though automatic payments aren’t going to necessarily improve your credit score by itself, it will help to ensure you never miss another payment. When you are rebuilding your credit score, one missed payment can set you back significantly.
Seek Help
If you are having problems making ends meet, talk to your creditors about it. Sure, it’s not a fun conversation to have, but you can’t ignore the fact that you owe money. It’s better to be upfront with them. Often times, they will work out a payment plan with you so you can pay bills on time.
Credit counseling is another option. Credit counselors are able to work with your creditors to negotiate lower interest rates and longer payback periods. Individuals who utilize credit counseling are often able to make one monthly debt payment to credit counselors, who then disperse that payment to the various creditors.
Pay Off Debt
This is much easier said than done, but after you’ve caught up on your bills, any extra money you can pay towards debt will raise your credit score in the long run.
If you are struggling to pay off debt as quickly as you would like, we highly suggest starting a side hustle and using that money strictly to pay off debt. You would be surprised how much an extra $200, $500, or even $2000 a month can hasten the debt-repayment process.
Be Patient
Even when you are taking all of the right steps to raise your credit score, it does take time. Like fitness, focus on doing the right things right now. Little by little, you will see improvements.
Have you ever bounced back from a credit hit? How did you do it? If you’ve never had a credit hit, how do you maintain good credit?
Check out some of our favorite personal finance resources:
Are you getting the best credit card rewards? Check out the top cash back credit card offers (updated daily)
Make extra money: 15 ways to make money from your computer
Get the First Chapter Free!
Join our online community and get the first chapter of the book Student Loan Solution absolutely FREE!
I thankfully haven’t had a credit hit yet. If I do, it will most likely come from forgetting to pay a bill.
I have setup autopay for some bills (sometimes this brings a discount). I also signed up for text notifications for my credit card that remind me when the bill is due in 10 days and also when the payment has been recorded.
That’s great. Autopay is a lifesaver! We are all human, and I know I am the same that I will likely forget to pay a bill sometime in the future. It’s unfortunate that simply forgetting can have such major consequences, but forgotten payments can be somewhat prevented by being organized and utilizing features like autopay.
I’m agree with the entire post and from a couple of years I switched my bank account with online bank account so I can control daily (also if I tend to have weekly budgeting day)… a lot of less paper in my mail, however yes is true isn’t alwasy a easy work but also not so hard….little steps big results on long term:P
You are right – little steps have a big return!