Do you have bad credit? Are you concerned about the impact it’s having on your finances? Are you ready to implement a strategy for boosting your score?
It’s frustrating to learn that you have bad credit, but important to take immediate action. The first step you should take is to conduct a thorough review of your credit report.
When doing so, there are five details to focus on:
Payment History
This makes up 35 percent of your FICO score, so it deserves a good portion of your attention.
In short, keep your eyes out for any notice of late payments. It only takes one of these to ding your score.
If it’s a legitimate late payment, do whatever it takes to avoid the same in the future.
Conversely, if you believe the information is inaccurate, don’t hesitate to file a dispute with the credit bureau.
Credit Utilization
As 30 percent of your credit score, you should always know how much debt you have in relation to your credit limit.
For example, if you have three credit cards, all of which are maxed out, your credit utilization is at 100 percent.
As you reduce this number, you’re putting yourself in position to boost your credit score.
Length of Credit History
Accounting for 15 percent of your score, this shows how long each account has been active.
As a general rule of thumb, a longer credit history is always better than a shorter one. This is particularly true if you’ve been able to avoid red marks on your report.
Tip: don’t close down old accounts unless it’s absolutely necessary, as this can drag down your credit score.
Types of Credit
Making up 10 percent of your score, it’s good to have some variety on your credit report.
Here are some examples:
- Credit cards
- Mortgage
- Car loan
- Student loan
- Home equity line of credit
Tip: don’t open new credit accounts just to add variety. Only do so when it makes sense from a financial perspective.
Credit Inquiries
Also making up 10 percent of your score, this indicates the number of inquiries made.
For example, every time you apply for a loan or credit card an inquiry is made on your credit profile.
While it’s important to shop around to secure the best loan or credit card, don’t go overboard in regards to the number of inquiries. Too many of these over an extended period of time can negatively impact your score.
Final Thoughts
According to Experian, a very poor credit score falls into the 300 – 579 range. One step up is the fair range, which is a score of 580 – 669.
If you find yourself in either one of these positions, the information above will point you in the right direction. Once you review your credit report, you’ll know exactly where things stand!
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