If you’re among the one-third of Americans with bad credit, you may be wondering how to repair your credit and improve your credit score. While it takes patience and diligence, rebuilding your credit is feasible. Take a look at this helpful guide to discover what you can do to repair your bad credit.
Get a credit-building card.
A credit-building card is a special credit card designed to help you build your credit history and improve your credit score. Credit-building cards usually have low credit limits, which can help you stay within your budget. They also often have higher interest rates than regular credit cards, so be careful not to overspend. If you use a credit-building card responsibly, you can improve your credit score and eventually qualify for a regular credit card with a higher limit. In 2022, Forbes rated the Petal 1 “No Annual Fee” Visa Credit Card as the best credit card for bad credit. This card doesn’t require a security deposit and offers a limited rewards program for cardholders.
Try to keep your credit utilization low.
Credit utilization, or the percentage of your credit limit used at any given time, is one of the most important factors in your credit score. High credit utilization can indicate that you’re overextended and may be a risk to lenders, leading to a lower credit score. Ideally, you should keep your credit utilization below 30 percent—and lower is even better. You can do this by keeping track of your credit utilization ratio and ensuring you don’t charge more than that 30 percent threshold for each card you own.
If you’re struggling to keep your credit utilization low, try to avoid late payments, as they can significantly impact your credit score, and one of the ways credit utilization is calculated is by looking at your past payment history. If you have a high credit utilization ratio on one or more of your cards, ask your issuer for a higher credit limit. This will help lower your utilization ratio and could improve your credit score. Additionally, If you have a lot of debt, you may want to consider spreading it out over multiple cards. This will lower your credit utilization ratio on each card and improve your credit score. You could also use a balance transfer to move your debt to a card with a lower interest rate. This can help you save money on interest and pay down your debt more quickly.
Pay your entire balance every month.
Credit cards are a convenient way to pay for the things you need, but if you’re not careful, your balances can add up to a staggering amount. Because of this, it’s important to try to pay your entire balance monthly. If you don’t, you’ll accrue significant interest, which will add up quickly. In fact, if you only make the minimum payment each month, it could take years to pay off your balance. To help prevent this, create a budget and ensure you can pay your entire monthly credit card balance. It may be a little bit of a challenge initially, but it’s a long-term benefit that will help increase your credit score.
Don’t apply for too many credit cards at once.
Credit counselors advise consumers not to apply for too many credit cards at once because it can lower their credit score. Each time a consumer applies for a new credit card, the lender pulls the individual’s credit report from one of the three major credit bureaus—Experian, Equifax, or TransUnion. Too many inquiries in a short period can indicate that the person is desperate for new credit and might be a riskier borrower. As a result, the creditor may deny the application or offer a less favorable interest rate.
Repairing bad credit is a necessary process to undertake. Fixing your credit will take time, but following these tips can improve your credit score and rebuild your financial future.
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