How to Fix Your Credit Score

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Click here to learn about how to fix your credit score using a few key methods to get back to your normal life.

Almost everyone needs a loan at some point in their lives, whether it’s to buy something, invest in a business, meet obligations, or pay bills. Loans are a part of life. But with loans come repayments.

When you miss payments, your credit score can take a hit, and it can continue to drop the longer you delay the payments. However, there are things you can do to help improve your credit score.

Let’s discuss how you can make this happen so you can get your life back to normal.

To understand how to fix something, you must first understand what it is. So, let’s discuss what credit scores are.

What Is Credit Score?

Your credit score is simply a number or rating that indicates your record of credit or debt management to banks, lenders, and other financial institutions. It takes into account all your past loans, credit cards, and any other form of credit.

A high credit score can indicate to lenders that you have a history of making payments on time and managing your debt successfully. It tells them that there is a low risk in giving you a loan because you have a good credit history, reflected by your high credit score.

Conversely, a low credit score can indicate that you have a history of missing payments and irregular debt management. A low credit score tells lenders that there might be a high risk in giving you a loan. It can lead them to charge you higher interest rates or not approve your loan application.

How to Fix Your Credit Score

We took some guidance from the personal loan experts at Jacaranda Finance on how a person can improve their credit score. Here is what they recommended:

• Add Positive Personal Information on Your Credit Report

A credit report is a piece of document that gives an overview of your credit history. It includes all the details that make up your credit score, like loans, repayments, defaults, and bankruptcy claims. It also has personal information, which you can update to help improve your credit score.

Lenders want to see stability in your personal life to lower your risk of defaulting. Therefore, adding or updating positive personal information like being married, being a homeowner, or having a steady job for several years, can all add to your credit score.

• Strategically Pay Your Debts

As obvious as it may sound, paying your debts can help improve your credit score because the alternative has the biggest negative impact on your credit score.

The first step is to note down all the details of your existing debts. This information will tell you how much money you owe to which lender and at what interest rate.

The next step is to pick a strategy and stick to it. You can either pay off the debt with the highest interest rate and work your way down or pay off the debt with the smallest principal amount and work your way up.

The first strategy allows you to save money on interest but, it typically means that clearing the first debt will be a long and difficult part of your journey. After clearing the first debt, you typically have more money left each month to clear the next debt faster.

The second strategy can keep you motivated as you get the first few smaller debts out of the way at a much faster pace. However, it means you could be paying more interest throughout your journey.

• Avoid Further Credit

It is safe to say that adding more debt to a dwindling credit score is not the best idea. Hence, you should try to avoid further debt on your credit cards and focus more on paying them off. If the temptation of using your credit cards seems unavoidable, you can cancel them altogether.

If you want to hold on to at least one credit card, in case of an emergency, make sure to pick one with a lower interest rate or with relatively more interest-free periods on payments.

Conclusion

Fixing your credit score is not an easy task, but it is also isn’t impossible. Following the aforementioned steps can help improve your credit score and get you out of crippling debt. The faster and more efficiently you do this, the sooner you can return to your normal life.

Being left with a little bit of debt is completely fine as long as you can manage it and make regular payments on time.

This article does not necessarily reflect the opinions of the editors or the management of EconoTimes​