Do you ever feel like no matter what you do, you’re doomed to have poor credit forever? Think an excellent credit score is a far-fetched fantasy?
You might have a vague understanding that your credit score stays low because you have trouble paying medical bills, can’t repay your student loans or ran up credit card debt when you were young.
But do you have a strong grasp on what’s really affecting your score?
Most of the people I know have no idea.
The good news is a solid look at your credit history can clear up your questions and make improving your score actually seem possible. We’ve pulled together a few common issues you’ll want to look for.
Credit Sesame, a service that shows you your free credit report card and tips to improve your score, analyzed its users to find common missteps among those with poor credit scores.
It found users with scores below 500 make these three missteps far more often than those with an excellent credit score.
1. Using Too Much of Your Available Credit
“When your credit-card balances are close to or at their limits, that sends the wrong signal to lenders about how responsible you are when it comes to using credit,” writes Rebecca Lake at Credit Sesame.
Your credit-utilization ratio has a huge impact on your credit score.
(Reminder: That’s the amount of credit you use versus how much you have available. If your credit card limit is $500 and your balance is $250, that’s a 50% utilization.)
While Credit Sesame found its users’ credit-card balances were similar — landing just over $2,000 — their utilization ratios were way different. Those with credit scores below 500 were using 73% of their available credit on average, while those with scores of 750 or higher were only using 9% on average.
Don’t Rely on Your Credit Card for Basic Spending
To reduce your credit utilization and improve your credit score, don’t use your credit card to expand your monthly budget.
Use it like a debit card: Don’t spend money you don’t have.
You can still keep using your cards. That’s a smart way to earn cash-back rewards and build strong credit. To keep your balance from creeping up, make sure you pay off your full balance at the end of every month, too.
If you’re leaning on your credit card for necessities like groceries or gas, try tightening your budget. Find the small places you can cut costs, and the little ways to boost your income without spending a ton of extra time.
2. Paying Your Bills Late
The most important item weighing into your credit score is your payment history. It accounts for 35% of the grade.
While folks with low scores aren’t overwhelmingly paying bills late, they’re still much more likely to have delinquent — read: “late” — accounts than those with high scores — 11% versus just 0.18%, respectively.
Any late payments could end up on your credit report, from student-loan payments to credit card debt to utility bills.
Pay Your Bills on Time — and Reduce Them When You Can
“Given how important payment history is to your score, the remedy for people with poor credit is obvious,” Lake writes. “Get into the habit of paying your bills on time, every month.”
If you’re struggling to pay the bills, figure out how to make them smaller. You could save thousands just by calling utility companies and asking for discounts.
Or, let Trim do it for you. This app works through Facebook messenger and your text messages to help you manage your finances — like a free personal assistant.
Trim lets you see where you’re spending (and wasting) your money, helps negotiate bills with companies like Comcast, Time Warner, Charter and others you never want to talk to; and it can easily cancel recurring charges you’ve forgotten about — like magazine subscriptions and gym memberships.
3. Having Accounts in Collections
More than half — 59% — of Credit Sesame members with poor credit scores have accounts with “derogatory” status. That includes stuff like collections, bankruptcy, tax liens and more.
Those with the good scores? Less than 1% have derogatory marks.
Even if you’ve cleaned up your act and have your spending and debt under control, derogatory marks can drag down your credit score for a long time.
“Like late payments, derogatory marks can remain on your credit report for seven years,” Lake explains.
You might just have to wait it out and let these marks fall off your report in time. But it’s worth trying to clean them up sooner.
Fix Mistakes on Your Credit Report
If a poor credit history is holding you back, start by carefully examining your credit report.
You can get your free credit report once every 12 months from each of the major reporting agencies: TransUnion, Equifax and Experian. To keep a closer eye on it, sign up with Credit Sesame, which updates every month with your TransUnion credit report and credit score.
There you can see exactly what’s affecting your score in plain English.
Start by looking for errors. If you find a mistake on your report, follow these steps to report it and have it removed.
If the black marks on your credit report are accurate, Lake says, “you could appeal to the creditor directly to ask them to remove it from your credit report.”
She says it doesn’t always work, but why not give it a shot? That excellent credit score might not be so out of reach.
Dana Sitar (email@example.com) is a senior writer/newsletter editor at The Penny Hoarder. Say hi and tell her a good joke on Twitter @danasitar.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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