If you have a bad credit score, don’t worry, you are not alone. Thousands of Americans have bad credit ratings and are finding it difficult to get approved for conventional loans.
While it is difficult to fix your credit score again, it is not impossible. There are several things you can do to improve it.
Depending on what your bad credit score, you can get up to 100 points in a short time. It happens when you are in the poor or fair areas of your credit score ranges. However, is it possible to improve your score by 100 points? Yes. It’s true if you position yourself to make a profit as quickly as possible.
So how would you do that? Here are two things you can do.
Pay off credit card debt
When consumers pay off their debts, they lower their credit utilization rate. Your credit utilization ratio is calculated by comparing your used and available credit. If it is more than 30%, it will negatively affect your credit score. However, if you pay off your credit card debt on time, the percentage will be lower.
For example, let’s say Jane and John both have credit card balances of $ 2,000 and both available credits are $ 5,000. That means they both have 40% credit utilization.
Now, let’s say you both receive stimulus checks worth $ 1,200 each. Jane wants to put all of this in to pay off her balance, while John only wants to put $ 600 into her balance. It would lower Jane’s credit utilization rate to 16%, while John would have 28%.
The lower your credit utilization rate, the better your credit score. As a cardholder, you should try to lower your credit utilization rate on all of your cards if you want to have a stellar credit score. Experts recommend that you have a credit utilization rate of less than 30% on all your credit card accounts.
John’s credit utilization rate would only be below 30% in the above scenario, while Jane’s will be below 20%. This example is pretty vague as your credit score is not based on your credit utilization rate alone.
Your credit score is also affected by different loan accounts, such as personal or bad credit loans. Having a diverse profile also positively affects your credit score. However, you must maintain a credit utilization rate below 30% on all accounts to have a good credit score.
Your credit utilization rate represents 30% of your overall credit score, so it should be in your best interest to pay off your credit card debt.
Be an authorized credit card user
Being an authorized credit card user is very helpful in building your credit score. If the primary cardholder has a history of paying debts and monthly payments on time, it would also be reflected in his credit score as an authorized user.
However, not all credit issuers report authorized user accounts to credit reporting agencies. Therefore, before becoming an authorized user, you should check if the credit issuer of the primary cardholder reports authorized users.
Credit rating models differ in the way they weigh authorized users. In other words, the influence that primary users have on their authorized users is based on different factors.
For someone who is building their credit, the performance of the principal holder in paying their debts and accounts will greatly affect the authorized user. This is because credit bureaus will primarily base the credit history of authorized users on the credit history of the primary cardholders.
However, the difference won’t be much for someone who takes advantage of the primary cardholder to improve their established credit score, as they already have significant credit history.
Being an authorized user also has its risks. The negative performance of the primary holder will also be reflected in your credit score, whether you are just starting to build or looking improve your credit score.
However, it depends mainly on the credit bureaus. For example, some credit rating agencies include the adverse payment history of major holders when calculating the credit history of the authorized user, while others do not. But even if that’s the case, a high credit utilization rate on the primary cardholder will be reflected on all authorized users. Therefore, before applying to become an authorized user, check to see if the primary holder’s account has a credit utilization rate of less than 30%.
conclusion
Improving your credit score is not easy. Although there are many things you can do to improve it, it all comes down to paying off your balance and making sure you don’t miss any payments. The tips mentioned above are just to get you on the right track, and it depends on staying that way.
