A good credit score is essential when you want to buy a big purchase at the best rate.
According to Lantern Credit by SoFi, “If your goal is to refinance a car with bad credit, you should fix your bad credit.”
Here are 3 ways to fix bad credit:
1) Clean Up Credit Report
Before you can fix your bad credit, you need to know what your credit report says about you in the first place.
First, get your credit report. Once a year, you are allowed a free credit report from the big three, Equifax, Experian, and TransUnion.
Next, go through every single part of the report. Your payment history, what cards you have, and what you still owe will be included. Finally, there are points for every detail to give you your final credit report.
The third thing you need to do is contact the reporting agencies with any discrepancies or mistakes reported. You will want everything to be correct.
2) Improve Your Credit Rating
Now that you have seen your report, you will want to improve the problem issues you may have. That includes making payments on accounts with missed payments. Being consistent is key to credit report success.
It would be ideal to pay off the high-interest cards first and use the snowball effect. Although your credit score may take a temporary hit when you pay the minimum on your lower interest cards, this will eventually all snowball into an improved credit score.
Next, if you have old credit cards that have not been used in quite a while, start to use them again. The reason is that older cards have a better overall rating on your credit report. That can be up to 15 percent of your rating.
If you have not used your oldest card in a while, use it before the financial institution closes it.
In addition, you will want to keep your debt ratio at 30 percent or lower. Your credit card balances should be only 30 percent of your available credit.
You can also build a better credit score by working with a cosigner with good credit or getting a secured credit card. Always be on top of payments, and pay more than the minimum for maximum effect.
3) Use Good Credit Best Practices
Even before you see your credit score rise, you want to get into the habits of those who have good credit. That means you are always consistent.
Create habits and prompts to ensure you don’t forget to pay your bills each month. Gamify your payments so that the whole idea of building credit continues to have momentum.
Consider visiting a credit counselor to learn more about money. Understanding how money and your credit score work will help prevent you from returning to old habits.
Most of all, think twice before applying for new credit cards. Each time you apply, it takes a hit on your credit score.
With these three tips, your credit score should soon improve, and you will see yourself on the path to prosperity.