Trying to fix a bad credit score can lead many people to seek advice from credit repair companies. Most of those companies appear completely professional and make claims about clearing your bad credit listings from your credit file.
Their services may be designed to help you out of a bind, but they also come at a fee. What you may not realize is that there are ways you can start improving your credit score on your own.
It’s always advised to seek good credit restoration advice but you should also work on steps that could boost your credit score at the same time
Understand How Your Credit Score is Calculated
Most people assume their credit score is calculated based on their repayment history. If you’ve made a few late payments or have a history of defaulting on repayment obligations, you’ll already know your credit score is lower than it should be.
However, there are other factors that influence your overall score too. Your FICO score is broken down into several categories. These include:
Payment History – 35% of your total credit score is comprised of your payment history. If your creditors report repeated late or missed payments, your credit file may also include negative listings, such as debt collections, judgments, liens, lawsuits, foreclosures or bankruptcies, all of which are factored into the payment history section when calculating your score.
Amounts Owed – 30% of your overall score is calculated based on the amounts you owe as they relate to various types of credit you have available.
Length of Credit History – 15% of your score is based on your length of credit history. In general, a longer credit history can improve your FICO score.
Types of Credit – 10% of your score is calculated based on the types of credit you have.
New Credit – 10% of your FICO score comes from new credit you’ve applied for and the frequency of your recent applications.
Check for Mistakes
One of the easiest ways to repair bad credit problems is to order a copy of your credit report and check for mistakes. Sometimes credit reporting companies make errors that could impact your file.
Check that all the entries listed in your file are yours. If all the entries are legitimately yours and there aren’t any mistakes, you’ll need to find other ways to repair your bad credit.
Repairing Bad Credit on Your Own
Most people assume the fastest way to repair bad credit is to catch up their late payments. It’s true that your payment history will account for up to 35% of your score, so it makes sense to find ways to catch up any late payments you have outstanding.
Another way to improve your score quickly is to change your payment frequency. If you make smaller payments more often, your creditors are forced to report that you’re making regular payments. For example, if your monthly payment is $100, divide that number by 4 and pay $25 each week off of your account instead.
While your payment history may account for the largest portion of your overall score, there are some other things you can do to help improve your credit too.
If you look closely at the breakdown of how your credit score is calculated, you can see that some aspects may have a greater effect on your overall result than others. However, there are areas where they can overlap.
For example, the types of credit you have and the amounts you owe on those debts will both impact up to 40% your total score. If you have several credit cards, a store card or retail card, and an installment loan, the algorithm takes into account the unpaid balances on those accounts. If your card balances are all maxed out, your score will be negatively affected.
The same algorithm takes into account the fact that all of your outstanding debts are personal debts or revolving types of credit. By comparison, a person with a mortgage loan, a car loan, and a credit card is considered to have a healthier range of credit products.
Likewise, a person with lots of credit accounts could potentially be a sign of credit problems. It may be possible to improve your credit score by consolidating credit cards and store cards into one convenient loan amount. Close some of the cards you don’t use, but keep one open with a low balance to pay for emergencies.
There are plenty of ways to boost a bad credit score. Work on paying down personal debts or revolving credit and focus on keeping up with making repayments on time and your bad credit problems will begin to improve.